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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
Did you see the news re: the proposed tax plan? You might be thinking, what does this really mean? And how is this going to affect me?
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
The White House presented the new tax plan last Wednesday. And compared to what I’ve discussed last November, 2016, there were not a lot of surprises. Now, the thing with a proposal is, they have a lot of work to do, before it becomes final. Because as of right now, we don't know if this is going to pass or if it passes when it will be a law. So with that in mind, I would not tell you about the highlights but would tell you instead the winners and losers with the proposed tax plan. Here goes:
Winners
- * Businesses with high tax rates - from 35% corporate income tax to 15%
- * High-income earners – income around $470K then your tax rate will drop from 39.6% to 35%
- * People with creative CPAs – this might open up a tax loophole since taxpayers might want to be structured as an S-corporation
- or LLC instead of employees.
- * Multimillionaires who want “0” estate tax – this would take care of your taxes, if your estate is more than $5.5 million or $11
- million for couples.
- * People who are subject to AMT – the one who will benefit the most are high-income earners that have deductions subject to
- AMT adjustments (meaning you need to add back your deductions because you are not getting any tax benefits for AMT
- purposes).
- * Donald Trump – surprise, surprise! All the items that I just mentioned just now will have a huge impact on Donald Trump’s
- taxes.
Losers
- * Upper-middle-income people with high state tax rate – because the state tax that you are paying will not be tax deductible.
- * Non-profit and charitable organizations – with the new proposal, the charitable deductions will be limited.
- * Taxpayers – national revenue would decrease by $6.2 trillion over a decade. That means a large increase in the national debt
- or huge decrease in federal spending.
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 2017-04-28 07:56:24 PM