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Started By
Message
need help with a tax situation Re: barrowed money
Posted on 3/5/14 at 9:47 am
Posted on 3/5/14 at 9:47 am
so against the wishes of the money talk, i barrowed 10,000 dollars from my MIL last year to purchase some equipment for my business. basically i bought someones "lot" everything in thier building including desks, chairs, fixtures, shelving, gym equipment ect.
im not sure how to show this on my taxes. she basically wrote me a check for 10g i put it in my bank account long enough for it to clear then paid out of my acct one lump sum for the equipment. now i pay my MIL back in 275 dollar installments monthly. should i show this as income and then expense? or should i show this as a loan, with monthly repayment?
im not sure how to show this on my taxes. she basically wrote me a check for 10g i put it in my bank account long enough for it to clear then paid out of my acct one lump sum for the equipment. now i pay my MIL back in 275 dollar installments monthly. should i show this as income and then expense? or should i show this as a loan, with monthly repayment?
3
Posted on 3/5/14 at 9:53 am to gsvar2004
A loan is generally not taxable income unless the lender forgives part or all of the loan amount.
Paying back the principle on the loan is not an expense. Only the interest on a business loan is considered a business expense.
Paying back the principle on the loan is not an expense. Only the interest on a business loan is considered a business expense.
This post was edited on 3/5/14 at 9:55 am
Posted on 3/5/14 at 9:55 am to gsvar2004
quote:I think the IRS allows gifts up to $13,000 per person per year. you do not have to report a thing. if the irs comes asking, just say that it was a gift.
i borrowed 10,000 dollars
Posted on 3/5/14 at 9:56 am to LSURussian
quote:
A loan is generally not taxable income unless the lender forgives part or all of the loan amount.
ok perfect. so would i deduct the full 10g or the number of 275 dollar payments i made?
forgive my ignorance please
quote:
I think the IRS allows gifts up to $13,000 per person per year. you do not have to report a thing. if the irs comes asking, just say that it was a gift.
yea i know, i would really like to deduct that purchase tho as its used 100% for business purposes
This post was edited on 3/5/14 at 9:58 am
Posted on 3/5/14 at 9:59 am to gsvar2004
quote:I guess I'm not communicating very well.
so would i deduct the full 10g or the number of 275 dollar payments i made?
You don't include the $10,000 in income nor do you deduct the $10,000 nor the part of the payments you make which represent paying back the principle.
Are you paying interest on the loan or is it interest free?
Posted on 3/5/14 at 10:01 am to LSURussian
interest free. I see what your saying. basically act like the loan isn't happening?
so at that point the purchase made with the loan is not tax deductable?
so at that point the purchase made with the loan is not tax deductable?
Posted on 3/5/14 at 10:07 am to gsvar2004
quote:The loan itself does not trigger a taxable event unless your MIL forgives it, meaning you don't have to pay it back. If she forgives it, then you can consider it a gift under the annual gift exclusion rule and you still don't have to include it in your income.
I see what your saying. basically act like the loan isn't happening?
If I were accounting for the loan on a business financial statement, I'd either classify it as debt on the balance sheet or I'd let it be equity (assuming the loan as a gift excluded under the annual gift rules of the IRS).
Either way it's not taxable income.
Posted on 3/5/14 at 10:08 am to LSURussian
quote:
You can deduct certain capital expenditures, such as office equipment, 100% under IRS section 179. LINK
yea thats what i was thinking, i was just unsure of what to deduct since i "paid" 10g but only really pay 275 monthly
quote:
The loan itself does not trigger a taxable event unless your MIL forgives it, meaning you don't have to pay it back. If she forgives it, then you can consider it a gift under the annual gift exclusion rule and you still don't have to include it in your income. If I were accounting for the loan on a business financial statement, I'd either classify it as debt on the balance sheet or I'd let it be equity (assuming the loan as a gift excluded under the annual gift rules of the IRS). Either way it's not taxable income.
ETA makes since thanks
This post was edited on 3/5/14 at 10:10 am
Posted on 3/5/14 at 10:15 am to gsvar2004
quote:Forget the $275/month. That's not an expense. You are repaying the debt principle without any interest. Only interest is subject to being a deduction.
, i was just unsure of what to deduct since i "paid" 10g but only really pay 275 monthly
Think of it this way, since the $10,000 loan is not taxable, then you can't deduct as a business expense your repayment of the principle of that loan.
Buying the equipment is an expense. The only question is does all of qualify as fully deductible in the year you bought it or does some of it have to be depreciated partially each year?
I'm thinking you really need to not do your own taxes if you're this unclear about what is taxable and what is an expense.
If you're running a business now, you probably don't know you have to complete a Schedule C to show your business income from your sales after deducting your expenses.
Posted on 3/5/14 at 10:22 am to LSURussian
quote:
Buying the equipment is an expense. The only question is does all of qualify as fully deductible in the year you bought it or does some of it have to be depreciated partially each year? I'm thinking you really need to not do your own taxes if you're this unclear about what is taxable and what is an expense. If you're running a business now, you probably don't know you have to complete a Schedule C to show your business income from your sales after deducting your expenses.
i understand. ive been running my own business for several years and up til 2013 its just been income in expenses out, have never had to barrow money. i was just confused as to how or if to show it but i completely understand now. thanks
eta i do file a schedule C im familiar with that.
This post was edited on 3/5/14 at 10:24 am
Posted on 3/5/14 at 10:28 am to gsvar2004
Did you have any paperwork drawn up documenting the loan?
IRS isn't a fan of interest-free loans. There are some rules regarding imputed interest, especially in loans between related parties.
In reality, you have two different transactions, which are handled differently. You have a loan between you and your MIL, which is non-taxable, and you have a purchase of equipment, which is an asset purchase with a deduction potentially available for depreciation and/or Sec 179 expense.
IRS isn't a fan of interest-free loans. There are some rules regarding imputed interest, especially in loans between related parties.
In reality, you have two different transactions, which are handled differently. You have a loan between you and your MIL, which is non-taxable, and you have a purchase of equipment, which is an asset purchase with a deduction potentially available for depreciation and/or Sec 179 expense.
Posted on 3/5/14 at 10:40 am to LSUFanHouston
quote:
IRS isn't a fan of interest-free loans. There are some rules regarding imputed interest, especially in loans between related parties.
This is true, but if I'm not mistaken, it would just be classified as a gift, and since this loan is only $10K, the entirety of it would fall under the gift tax exclusion of $14K anyway. It shouldn't be an issue at all. If it were a $250K loan, he might have problems.
Also, to the OP - please start spelling "borrow" correctly if at all possible. Thanks
This post was edited on 3/5/14 at 10:42 am
Posted on 3/5/14 at 10:41 am to LSUFanHouston
quote:
Did you have any paperwork drawn up documenting the loan
no and ive been seeing that the more ive read.
i think if push comes to shove ill say its a gift
quote:
Also, to the OP - please start spelling "borrow" correctly if at all possible. Thanks
This post was edited on 3/5/14 at 10:44 am
Posted on 3/5/14 at 10:42 am to LSUFanHouston
quote:Not for a $10,000 loan.
There are some rules regarding imputed interest, especially in loans between related parties.
quote:LINK
De minimis loans aggregating less than $10,000
In general, the below-market rules do not apply to gift loans between individuals when the aggregate outstanding amount of loans between these individuals does not exceed $10,000.
Even loans up to $100,000 may not require reporting of imputed income if the amount of imputed interest is less than the annual gift exclusion amount. However, the amount of forgiven interest which is considered a gift, must be included with any other gifts each year in arriving at the gift exclusion amount.
Posted on 3/5/14 at 10:46 am to LSURussian
quote:
Even loans up to $100,000 may not require reporting of imputed income if the amount of imputed interest is less than the annual gift exclusion amount. However, the amount of forgiven interest which is considered a gift, must be included with any other gifts each year in arriving at the gift exclusion amount.
Never looked it up myself, but this is what I figured the case was.
Posted on 3/5/14 at 10:54 am to kennypowers816
quote:I'm familiar with the rules only because my wife and I loaned a relative money in January to buy their first house. The loan amount was well above the threshold where the imputed income would be less than the annual exclusion amount and the $100,000 limit of interest free loans.
Never looked it up myself, but this is what I figured the case was.
Posted on 3/5/14 at 11:17 am to gsvar2004
Are you just repaying the $10,000, or will you pay interest? If you are paying interest then you should set up a loan amortization schedule and report interest paid to your mother-in-law on Form 1099-Int. You would be entitled to a deduction for the interest paid as a business expense.
If you are only paying back the $10,000, then the imputed interest on the loan can be considered a gift from your mother-in-law to you. Since the amount of the interest is less than the annual gift exclusion, the gift should not be taxable unless your mother-in-law made other gifts to you greater than $26,0000. (I'm assuming you are still married to her daughter and would take advantage of gift splitting.)
If you are only paying back the $10,000, then the imputed interest on the loan can be considered a gift from your mother-in-law to you. Since the amount of the interest is less than the annual gift exclusion, the gift should not be taxable unless your mother-in-law made other gifts to you greater than $26,0000. (I'm assuming you are still married to her daughter and would take advantage of gift splitting.)
Posted on 3/5/14 at 11:40 am to Poodlebrain
quote:I thought the annual amount for gift splitting with a spouse was $28,000 effective 1/1/13??
greater than $26,0000. (I'm assuming you are still married to her daughter and would take advantage of gift splitting.)
Posted on 3/5/14 at 11:52 am to Poodlebrain
quote:the GOAT has spoken
Are you just repaying the $10,000, or will you pay interest? If you are paying interest then you should set up a loan amortization schedule and report interest paid to your mother-in-law on Form 1099-Int. You would be entitled to a deduction for the interest paid as a business expense.
If you are only paying back the $10,000, then the imputed interest on the loan can be considered a gift from your mother-in-law to you. Since the amount of the interest is less than the annual gift exclusion, the gift should not be taxable unless your mother-in-law made other gifts to you greater than $26,0000. (I'm assuming you are still married to her daughter and would take advantage of gift splitting.)
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