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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
There are many reasons why the Internal Revenue Service could be contacting you. Some contacts involve very minor corrections; some are for serious changes that could involve a lot of money. Sometimes the IRS is correct in what they are seeking; sometimes they are wrong.
An IRS notice can be something as simple as a correction to a social security number or as significant as a billing for more taxes, plus interest and penalties.
So, what should you do if you get a letter from the IRS?
Here is a list of do's and don'ts concerning contact from the IRS.
* Don?t panic, but don't ignore the notice; the problem will not go away.
* Act promptly. A quick response to the IRS may eliminate further, more complicated correspondence.
* Follow the instructions in the IRS notice. Any correspondence you have with the IRS must make reference to the specific notice you are addressing.
* If you agree with the IRS adjustment, you do not need to do anything unless a payment is due.
* If the IRS is requesting more money or a significant amount of new information, be sure to contact your tax preparer immediately.
* Always provide your tax preparer with a copy of any IRS notice, regardless of how minor it appears to be.
* Keep a copy of all the IRS correspondence with your tax return copy for the year in question.
If you would like more information or assistance with any tax matter, please contact our office. We are here to help you.
Last Updated by Noel Dalmacio on 2013-05-15 12:06:27 PM