Blog
Click here to go back
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 tax
Whether you're a stock market bull or bear, you have
investment expenses - and you may be wondering if they're deductible on your
federal income tax return.
Here's a quick review.
* What are investment expenses? Investment expenses
are amounts you pay to produce or collect taxable income, or to manage,
conserve, or maintain your investments.
Professional investment advice or financial newspaper
subscriptions are examples of deductible items, as is safe deposit box rent
when you use the box to store investment papers. You can also claim fees you
incur for replacing stock certificates.
* How much is deductible? Investment expenses are
miscellaneous itemized deductions, meaning your total costs generally have to
be greater than 2% of your adjusted gross income before you benefit. Other
limits may also apply.
* What isn't deductible? Some investment costs, such
as broker's commissions for buying and selling stocks, are considered part of
your basis and affect your gain or loss when you sell the investment instead of
being currently deductible.
Travel and fees you pay to attend seminars,
conventions, or other meetings - including stockholder meetings - are not
deductible, nor are expenses related to tax-exempt income.
Other rules govern certain costs related to your
investments, such as interest paid on money you borrow to buy stocks.
Please give us a call to discuss investment-related
expenses. We'll be happy to help you get the greatest benefit.
Last Updated by Tax on 2013-07-31 12:12:20 PM