Re: then what do they get from it???

Posted by bg (68.88.64.167) on June 11, 2004 at 02:09:58:

In Reply to: then what do they get from it??? posted by catballou on June 11, 2004 at 01:47:32:

Unfortunately, Cat, I do not know the answer to that question. I can speak intelligently about the tax consequences of a charge-off, but I know didly squat about the inner workings of a credit card company. And, I was very happy being debt collector ignorant until a couple of weeks ago when one sent me his "greeting" card. But, I digress.

From a TAX viewpoint only, a charge-off is not a source of income or some sort of tax dodge. If a company fails to charge off a bad debt, they will have to pay income tax on the money the debtor did NOT pay.

JK was talking about the fees and interest the credit cards slap on the accounts. For every one of those items placed on the account, they are liable to the IRS for the income taxes. If they charge a $25 late fee, they have to pay income tax on that $25. But, if they never collect the $25, they must charge it off to bad debt or be forced to pay income tax on the $25 that they did not receive.

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