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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.

 

06 Dec 2017
Top 6 Year-end Tax Moves Before Tax Law Changes

Posted in general

Are you following the most recent tax proposal development? If not, no worries - I will give you the most up-to-date development.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Both the House bill and the Senate measure calls for the elimination of most itemized deductions (that is Form 1040 Schedule A Itemized deductions). And in case they finalized the tax proposal this month, it won’t take effect until the 2018 tax year. However, we still need to plan since it could affect some of your 2017 year-end tax moves.

Here are six itemized deduction-related moves that you need to do now:

  1. Pay your state taxes. If you live in a state that tax salary & wage income, you need to pay your state taxes as much as you can this year while they're still deductible. A great way to do this is to make your final state estimated tax payments before the year-end.

 

  1. Pay your real estate taxes early. The House bill is allowing up to $10,000 of real estate tax deduction. If your property tax bill is higher than that, then pay it in December instead of early next year, to avoid losing some deductions.

 

  1. Prepay your January mortgage. The increased standard deduction amounts could make your mortgage interest deductions irrelevant. So by prepaying your January mortgage in December, it will increase your deductible mortgage interest for 2017.

 

  1. Bunch medical expenses. If you had a challenging year as far as your or family members' health, this is the year to make sure you don't waste any expenses. So, in addition to year-end doctor and dental visits, make sure you don't overlook other possible medical deductions. And if you are scheduled for a major surgery next year, I would recommend doing it before year-end.

 

  1. Bunch miscellaneous expenses. If you are an employee, make sure you deduct all unreimbursed expenses that you incur while performing your job. Also, don’t forget to deduct such things as job search costs, investment related costs, safety deposit box, accountant fees or tax preparation software costs.

 

  1. Donate to your favorite charities. If your other itemized deductions are gone and the standard deduction amount is increased, you might not have enough in donations to file a Schedule A form. So consider increasing or doubling up your donations this year when you can still claim the deductions.

So those are the six itemized deduction-related moves that you need to do now in order to maximize your deductions this year before the tax law changes.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Last Updated by Tax on 2017-12-06 12:55:13 AM