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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
It's likely to be a daily occurrence: Your e-mail inbox
contains at least one message touting a too-good-to-be-true offer. You probably
shake your head and delete the pleas from mysterious mock millionaires who need
your help recovering imaginary inheritances.
But what do you do when the e-mail has the Internal Revenue
Service web address in the FROM box and a subject line that claims you're about
to be audited by the Criminal Investigation Division?
*Step 1. Stop and think. You've never given the IRS your
e-mail address in relation to your tax return. Even if you had, the government
does not request personal information such as your bank account, credit card,
or social security numbers via e-mail.
*Step 2. Without clicking on any links or responding to the
e-mail, forward the entire message to the IRS (phishing@irs.gov). The IRS
established this e-mail box in 2006 to investigate and shut down online fraud.
Note: You will not get a response, either online or off,
from the IRS when you report scams.
*Step 3. Delete the e-mail.
Besides the audit subterfuge, other common e-mail tax
schemes to know and avoid include a promise of additional money due, bogus
government grants, and requests for you to check the status of your refund.
Tax scams never die, and they can be taxing. Before you
react to any communication from -- or purporting to be from -- the Internal
Revenue Service, contact us. We're here to help you resolve tax issues.
Last Updated by Noel Dalmacio on 2012-11-16 12:57:22 PM