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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
Planning to change employers this year? As you look forward
to starting your new job, you're probably not thinking about taxes. But actions
you take now can have an impact next April - and beyond.
Here are three tax-smart tips:
* Roll your retirement plan. You may be tempted to cash out
the balance in your employer-sponsored plan, such as a 401(k). But remember
that distributions from these plans are generally taxable.
Instead, ask your plan administrator to make a direct
rollover to your IRA or another qualified plan. If you're under age 59½, this
decision also avoids the additional 10% penalty on early distributions. Bonus:
Your retirement money will continue to grow tax-deferred.
* Adjust your withholding. Assess your overall tax situation
before you complete Form W-4 for your new employer. Did you receive severance
pay, unemployment compensation, or other taxable income? You might need to
increase your withholding to avoid an unexpected tax bill when you file your
return.
* Keep track of your job-related expenses. Unreimbursed
employment agency fees, résumé preparation costs, and certain travel expenses
can be claimed as itemized deductions.
Are you moving at least 50 miles to your new job? You may be
able to reduce your income even if you don't itemize. Eligible moving expenses
are an above-the-line deduction.
More tax issues to consider when you change jobs include
stock options, employment-related educational expenses, and the sale of your
home. Give us a call. We'll be happy to help you implement tax-saving
strategies.
Last Updated by Tax on 2013-07-17 12:12:17 PM