lending money

[Ken Sp.]

Too bad this wasn't started last year. Anyone can gift anyone else $13,000 per year. You and your wife (or any family member) can gift him and his wife(or anyone) $13,000 totaling $52,000 per year.

Banks are required to report amounts over $10,000 in cash. Not sure about checks, since they already leave a paper trail.

[GGD]

graylocks wrote:
if you don't set a rate and the gov gets involved they may tax you for the interest you SHOULD have made. you can google how to determine the lowest rate possible. given how piss poor savings rates are you could probably set the rate pretty darn low.

Maybe use 13 week T-Bill rates as a starting point for the going rate for interest (about 0.06% now, that would be about $60/year on $100,000), that's what the government is willing to pay if they borrow money from you.

http://www.treasury.gov/resource-center/...=billrates

[mattkime]

bogleheads.org

[space-time]

mattkime wrote:
bogleheads.org

standard answer these days

[Wailer]

If you write a check and write "LOAN to be repaid by xx/xx/xx" in the memo, you will have done more than 80% of people when they loan money.

If you want to do it correctly, grab a crayon and some toilet paper and draft a Promissory Note. How much? What interest rate? When it will be paid back and how (payements or lump sum)? If you want to get fancy, you can say what will happen if he defaults or is late with payments.

Sign and date it. That's it.

If you don't charge interest the IRS can come and say you should have and charge you an imputed rate which, in theory, you should pay taxes on. If the interest would be less than $13k/year (which it would be on anything under $500k), don't sweat not charging any. That's the amount that you can gift someone each year, so you can legally gift him the interest that he'd pay you.

If this guy is really competent and he's starting a business, you should consider investing in him rather than loaning him the money.

[space-time]

Thanks, will consider the investment option as well. At lest I know a loan is possible without a large tax bill, that was what I was worried. Thanks everyone, good night

[Black]

Wailer wrote:
If you write a check and write "LOAN to be repaid by xx/xx/xx" in the memo, you will have done more than 80% of people when they loan money.

I would echo this advice, being owed a substantial sum of money and belonging to the 80%. I was clear in my head going in that this wouldn't affect the friendship no matter what happened, but that didn't turn out so well....

[Chakravartin]

space-time wrote:
let's say the sum is more than 10k but below 100k

Surely, you don't need us to tell you that you need a lawyer to draft the loan documents.

[Wailer]

Chakravartin wrote:
[quote=space-time]
let's say the sum is more than 10k but below 100k

Surely, you don't need us to tell you that you need a lawyer to draft the loan documents.
There are certain people I'd lend $10k to solely based on their word; their credibility is that good with me that I wouldn't care about a promissory note. Not coincidentally, these are the people who usually insist on putting it down in writing. Then there is the remaining 99.9% of the people who I wouldn't give $100 to even if I had the best contracts lawyer draft up a "ironclad" agreement that was notarized by the supreme court. If the guy doesn't pay the money back either because he's incapable or unwilling, you really can't do much other than sue him anyway. It all comes down to whether you trust the guy or not. Hiring a lawyer isn't going to help you figure that out.

[lazydays]

My grandfather loaned me money to purchase my first car. He had a printed contract that I signed with a stated schedule of payments. Every month I made my payment and he gave me a receipt. This is when I was in high school.

Years later a friend of mine wanted to borrow money from me. I found a contract on the internet with a scheduled payback amount and had him sign it. He made his payments and we were both happy.

When you sign a contract you create a legal document and he have a solid commitment from the other person. I highly recommend it. I am not able to tell you about irs ramifications though.