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What to consider before lending money to family and friends
When your best friend views your
nest egg as a source of start-up funds for his latest business venture, or your
nephew hits you up for a car loan, your first impulse may be to reach into your
bank account to help. But it's a fact that loans to family and friends often
end up straining both finances and relationships. As Shakespeare said,
"Loan oft loses both itself and friend." In other words, if you lend
money to friends, you often don't get paid back, and the friendship itself may
disintegrate.
It's best to consider a loan to
someone you love as an "arm's length" transaction. If you're
pondering such a loan, keep the following in mind:
* You can just say "no."
It's your money, after all. Do you really want to raid an emergency fund or dip
into your child's college account to finance a friend's business idea? Think
like a bank. It's reasonable to ask tough questions about the person's bank
accounts, potential sources of income, planned use of loan proceeds, and
spending habits before extending credit.
* Consider a gift. If you're
comfortable sharing your resources, you may want to provide a monetary gift
with no strings attached. In many cases, this is the best solution because
neither you nor your friend expect the money to be paid back. Unlike a loan, this
type of arrangement can forestall misunderstandings and hurt feelings later on.
Of course, you should not give money if doing so would unduly strain your own
finances.
* Formalize loans. If you decide to
lend more than a small amount to a friend or family member, it's generally best
to draft a written agreement. This can be as simple as filling out a promissory
note (available online or at office supply stores). Such forms spell out the
basic terms of the loan -- amount, interest rate, payback period -- and provide
some limited protection should you and the borrower end up in small claims
court. Another recent innovation is the use of direct lending (also called
social lending or peer-to-peer lending) websites to facilitate loans between
family and friends. For a fee, such sites can prepare loan documentation, send
payment reminders, issue regular reports, even facilitate electronic fund
transfers. If the loan involves a significant amount of money, check with your
attorney.
Remember: Many personal relationships
have been damaged when loans go awry. So proceed with caution.
Posted in general
Are you planning to tie the knot this summer? If you already did, then my warmest congratulations to both of you! To make sure that there are no surprises come tax time, I will share with you three summer tax tips that you can do right now.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
So here are the three summer tax tips:
- Report any name change to the Social Security Administration before filing your next year’s tax return. It would cause delayed refund if you changed your name without informing the Social Security office.
- Report any address change to the United States Postal Service, your employers and the IRS to ensure your receive tax-related items.
- Finally, use the withholding calculator by going to https://www.irs.gov/individuals/irs-withholding-calculator to make sure you adjust your withholding appropriately. This is important for families with more than one wage earner, for taxpayers who have more than one job at a time, or for those with children.
So those are the three summer tax tips that you can do right now if you just got married to avoid any tax issues during tax time. Congratulations!
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2018-07-31 06:48:58 PM