Blog
Click here to go back
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
The filing status you choose when you file your 2012 tax
return will affect the tax breaks you'll qualify for, your standard deduction
amount, and ultimately the amount of tax you'll pay. Are you single, head of
household, married filing jointly, or married filing separately?
Here are seven facts that will help you choose the right
status.
1. Your marital status as of the last day of the year is
your marital status for the entire year.
2. If you qualify for more than one status, choose the one
that results in the lowest tax liability for you.
3. Single filing status is likely to be your filing choice
if you are not married or you are divorced or legally separated.
4. Married individuals can file a joint return. If your
spouse died during 2012, you generally may still file a joint return for 2012.
5. Married couples may file "married, filing separately"
if they choose.
6. "Head of household" status is available to you
if you are not married and you paid more than half the cost of maintaining a
home for yourself and a child.
7. The status "qualifying widow(er) with dependent
child" is available if your spouse died during 2010 or 2011 and you have a
dependent child. Other conditions may apply.
Last Updated by Noel Dalmacio on 2013-03-15 06:32:32 PM