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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
Guess what? It’s that time of the year again. Nope, I’m not talking about Christmas. I’m talking about one of your favorite things to do: filing your taxes.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Today, you will learn three tips to start your tax filing season. Are you ready?
Number 1. Check whether your kids need to file a 2015 tax return. They'll need to file if wages exceeded $6,300, net business income was over $400, and if interest or dividend exceeded $1,050. However, when income includes both wages and investment income, other thresholds apply.
Number 2. Consider whether you'll contribute to a Roth or traditional IRA. Since you have until April 18 to make a 2015 contribution, you can schedule an amount to set aside from each paycheck for the next few months. The maximum contribution for 2015 is the lesser of your earned income or $5,500 ($6,500 when you're age 50 or older). When funding the IRAs make sure you indicate that this is for the 2015 tax year.
Number 3. Do you need to file a gift tax return?
For 2015, you may need to file a return if you gave gifts totaling $14,000 to someone other than your spouse. Some gifts, such as direct payments of medical bills or tuition, are not subject to gift tax. They are due at the same time as your federal income tax return. There you have it. So just make sure you keep in mind these three tips once you start filing your taxes.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Tax on 2016-02-03 04:33:23 PM