What form is used to report cancellation of debt income?

The correct form to report cancellation of debt income is Form 1099-C. This form is specifically designed to report cancellation of debt by a creditor, and it must be issued when a debt of $600 or more has been canceled or discharged. When a creditor cancels a debt, the debtor may be required to report the canceled amount as income unless an exclusion applies, such as for insolvency or certain types of forgiveness.

Form 1099-C serves as an important record for both the debtor and the IRS, capturing the amount of debt forgiven, the date of cancellation, and identifying the creditor. This ensures that both parties have a clear understanding of the transaction for tax purposes, facilitating accurate reporting and compliance with tax laws.

Other forms mentioned do not pertain to cancellation of debt income. Form 1040 is the individual income tax return but does not specify cancellation of debt. Form W-2 is used to report wages and salaries, while Schedule C is for reporting income or loss from a business operated by a sole proprietor. Therefore, Form 1099-C is the appropriate choice for reporting canceled debt income.