posted on January 21, 2002 12:37:48 PM
Say that I get a $1000 loan from a friend to buy some extra inventory. Then I pay the loan back $1100 in like 35 days. How would I show that it was a loan that was deposited into my business checking account without making it seem like it was income? Also couldn't whoever gave me the loan get in trouble if they didn't report the 100 of income on their side?
posted on January 21, 2002 12:57:34 PM
Presumably there is some paperwork on this loan that would show it wasn't income? I wouldn't worry about the fact that a $1000 entry appeared on your bank account being caught by the IRS, amounts like that come and go all the time that aren't income.
If you don't have paperwork, make a copy of the check you used topay it back and file it in your records, noting that it was a repayment of a loan from such and such a date, with $100 of interest.
Theoretically your friend should report interest income. Chances of getting in trouble on this amount are pretty small.
posted on January 21, 2002 02:22:59 PM
The loan is income of a sort the interest on it is deductable.
The loan funds and any interest you made on that money will be treated just like income Then you get to add the interest paid back to your deductions for the year as long as your deductions are not already over or under the allowed amount.
There are some loan funds that are not counted as income such as Such as buying a home, land, car ECT.
Short term loans for a business are the worst kind larger loans can be used for deductions for years and you only need to count the income once in that time.
posted on January 21, 2002 02:51:42 PM
I would just use the money (a $1000 in your checking account could be money you stored under your mattress or money you got when you sold your dresser that you paid 2,000 for last year). Pay back the friend and take him out to dinner to thank him for helping you out when you needed it. You don't want to go putting a loan from a friend through the wringer (unless this is what your friend does for a living..and then I think the interest would be lower). Some states have laws governing the amount of interest a person could charge before they are considered a loan shark ($100 on $1000 loan for 35 days may be considered excessive in your state..if my math is correct this is 104% annual interest..not compounded, or a shade over a quarter of a percent a day), and I'm sure you don't want to set your friend up to be questioned. You don't want to make this into something too big, if it's just a friend, by putting the interest down as a deduction, and making your friend claim the interest as income.
posted on January 21, 2002 03:55:34 PM
it depends on how credit worthy is the borrower and what cost of fund is the lender getting his money from?
if the lender does not have 1000 sitting around to be loaned out,he is using his line of credit of his credit card say at 19 %,how much is that after one billing cycle?
what about that 1000 dollars turned into inventory and it does not sell,now what?can the borrower repays ?? in full,in part??
the easiest way to lose your friend is to borrow money from them.
the easiest way to make enemy is to lend money to your relative.
posted on January 21, 2002 04:18:02 PM
it depends on how credit worthy is the borrower and what cost of fund is the lender getting his money from?
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SW:
I think you misunderstood my answer. I thought the question was just about the tax ramifications, not the pay back or where the lender got the money. I'm not saying it's right or wrong what amount he's charging for interest. I'm saying, the guy is nice enough to lend you the money (may be a matter of opinion on nicieites at that rate) so why take a chance on getting him in trouble by you claiming the interest as a deduction on tax papers, if he isn't planning to claim it as income? Or pointing a finger at the guys practice of possibly over charging legal interest and being arrested as a loan shark.
Sort of reminds me of something that happened several years ago..a neighbor who paid another neighbor (who was my tax client) to babysit her kids in an emergency for several weeks. The neighbor charged way low compared to the going rate..felt sorry for the mom. The original gal claimed the sitters fees as a tax deduction (she even gave her SS number..no idea where she got it)..the neighbor didn't know it,(she had literally charged the fee to feed the kids and transport them to school), and she didn't claim the money..what a tax mess it turned into in the end.
You try to do someone a favor, and it ends up costing more than you bargained for. Well, that was more info than anyone needed or wanted.
posted on January 21, 2002 04:37:27 PM
life is so complex,sometimes one never know what is the real intent of asking the question?i am just responding in general cost of fund and interest income,not really from a tax angle/
there is one posting a person said paypal locks up her account and asked her to submit ss and bank statement,she does not want to do that,so she is asking how to get her money back without submitting ss and bank statement.
then there is one person who has his accounts locked up to the tune of 38,000 ,i bet he will kill to fax ss and bank statement to unlock his account so he can conduct his business!!!!!!
i just killed my spouse,i dont feel like going to the police,what is the best way to dispose of the evidence,any one has a good idea?
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