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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
Do you have people that you support? Do you know that if you meet certain tests, they may be claimed as your dependent. Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Today, we will talk about how to maximize your dependency deductions.
Here are 3 things you need to know, number 1: Deductions and income limitation.
Each dependent will reduce your income by $4,000 on your 2015 tax return. However, you might lose part of that deduction if you income is more than $309K if you married or more than $258K if you are single filer.
Number 2: Who can be considered a dependent? A dependent is someone you provided more than half of their support; more than 50%. And they are either a qualifying child or a qualifying relative. You need to take advantage of both classifications in order to claim the deduction.
A qualifying child is someone related to you, lived with you, under 19 or a full-time student under 24 or it can be any age if permanently disabled
A qualifying relative is a dependent that either lives with you all year or related to you and they must have income that is less than $4,000.
So you can claim any person not related to you as long as they live with you the entire year and made less than $4,000. While any person related to you like your parents or children does not necessarily be living with you, you just need to provide more than 50% of their support and their income needs to be less than $4,000.
Keep in mind that for your parents that receive social security benefits only, those benefits will be taxed as “0” and would not be considered as income. Make sure you take advantage of both classifications in order to claim the deduction.
Okay. We’re almost on the finish line, here’s number 3: Who can’t be claimed
We’ll, your spouse is never your dependent. In addition, you cannot claim a married person if that person files a joint return with a spouse. Also, a dependent must be a U.S. citizen, resident alien, a resident of Canada or Mexico for part of the year.
Wow! You made it!
For a somewhat simple topic, claiming the deduction for a dependent can be quite complex.
You will want to get it right though, because being able to claim someone as a dependent can lead to other tax benefits, including head of the household filing status, child tax credit, education credits, and the dependent care credit.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly video blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-02-11 04:14:37 PM