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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 tax
It happens to butchers, bakers, and candlestick makers. It
probably happens in your business, too: A customer doesn?t pay what they owe
and you end up with a bad debt. Can you take a tax deduction?
The answer depends on how you account for income on your tax
return. If you included the amount due from the customer in income this year or
in previous years, it?s likely you have a bad debt deduction. You can claim all
or part of the worthless receivable.
What if you record income as you collect the cash? In this
case, since you don't receive the amount your customer owes you, and since you
never reported it as income, there?s no deduction.
Suppose you lend money to a customer for a business reason
and the loan becomes uncollectible. Is the loan considered a deductible bad
debt?
Last Updated by Dalmacio Accountancy Corp on 2013-01-23 01:01:10 PM
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Posted in tax
On
June 28, the Supreme Court ruled that the "Patient Protection and
Affordable Care Act of 2010" was constitutional, including the provision
in the law requiring individuals to have health insurance coverage starting in
2014.
Several
provisions in the health care law had already gone into effect, and many new
tax provisions are scheduled to take effect in 2013. These are the provisions
you should factor into your tax planning for the rest of this year. A quick
review of these tax provisions:
*
Annual contributions to health flexible spending accounts (FSAs) will be
limited to $2,500.
*
The 7.5% income threshold for deducting unreimbursed medical expenses increases
to 10% for those under age 65. Those 65 and older may continue to take an
itemized deduction for medical expenses exceeding 7.5% of adjusted gross income
through the year 2016.
*
The payroll Medicare tax will increase from 1.45% of wages to 2.35% on amounts
above $200,000 earned by individuals and above $250,000 earned by married
couples filing joint returns.
*
A new 3.8% Medicare tax will be imposed on unearned income for single taxpayers
with income over $200,000 and married couples with income over $250,000.
Contact
our office for tax planning guidance following this landmark Supreme Court
decision.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:05:52 PM
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Posted in tax
Some
tax-cutting strategies make good financial sense. Other tax strategies are
simply bad ideas, often because tax considerations are allowed to override
basic economics.
Here?s
one example of the tax tail wagging the economic dog. Let?s say that you run an
unincorporated consulting business. You want some additional tax write-offs, so
you decide to buy $10,000 of office furniture that you don?t really need. If
you?re in the 28% tax bracket and you deduct the entire cost, this purchase
will trim your tax bill by $2,800 (28% of $10,000). But even after the tax
break, you?ll still be out of pocket $7,200 ($10,000 minus $2,800) -- and stuck
with furniture that you don?t really need.
There
are other situations in which people often focus on tax considerations and
ignore the bigger financial picture. For example:
*
Someone increases the size of a home mortgage, solely to get a larger tax
deduction for mortgage interest.
*
A homeowner hesitates to pay off a mortgage, just to keep the interest
deduction.
*
Someone turns down extra income, because it might ?push them into a higher tax
bracket.?
*
An investor holds an appreciated asset indefinitely, solely to avoid paying the
capital gains tax.
Tax-cutting strategies are usually part of a bigger financial picture. If you are planning any tax-related moves, we can help make sure that everything stays in focus. For assistance, give us a call.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:06:33 PM
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Posted in tax
The e-mail from your bank gets your attention right
away. It says you need to log into your account in the next 48 hours to
continue your online privileges. Something about a system upgrade. You wonder,
is it legitimate? How can you know for sure?
Bogus e-mails designed to steal your identity, also
known as phishing, are becoming a bigger problem these days. While they
can take many different forms, most scams are designed to trick you into revealing
personal information such as your social security number or online account
password. Through clever use of logos and familiar-looking web addresses, these e-mails often appear to be an urgent message from your bank,
mortgage lender, or e-mail provider.
You may not realize it, but thieves are especially eager to gain access to your web e-mail account. Why? Once a scammer has access to your
e-mails, he
or she can often figure out where you bank and detect clues
to passwords you might use.
So what can you do to protect yourself? Take a moment
and think before you click. Never respond to an e-mail asking for your social
security number or birth date. You can almost bet that it is a scam. If an
e-mail contains a website link that you are not familiar with, do not click on
it. Instead, either go directly to the company?s trusted website,
or contact them by phone.
Also remember that e-mail scams become more prevalent
following a significant public event, such as a natural disaster or sudden
stock market drop. Thieves will prey on your sympathies or fears during these
times, so be extra careful when responding to appeals for charity or notices to
update your financial records. Also, be leery
of e-mails with demanding language or incorrect grammar -- both are potential signs of a counterfeit e-mail.
For preventive measures, try to use a different
password for every online account, and change your passwords regularly. Make your passwords stronger by using
combinations of letters, symbols, and numbers. Also, keep your computer anti-virus software up to date.
Finally, do your part to thwart these crimes by
reporting any suspected scam e-mails to reportphishing@antiphishing.org.
If you receive a
bogus tax-related e-mail, forward it to the IRS at phishing@irs.gov. And of course, feel
free to contact our firm if you need a second set of eyes on any
suspicious-looking e-mail.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:07:54 PM
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