Perhaps you have a relative to come to you for a loan, for various reasons. Most of the time it is because a loan from you would mean they would not have had to pay interest on the loan, as opposed to that interest payment and is obligated to comply with a rigid repayment schedule if they are to to go to a bank or credit union. It looks like a win-win situation because on one hand help you a relative of, and on the other hand, they get a much needed break on funding costs. But before you jump ahead and do it, there are a handful of things you might want to consider because it can not as well run as previously thought.
Most likely, if you are approached, it is because it is common knowledge that family members really are repayment strict rules on each other, which means that the loan is repaid in a fairly casual schedule, if there are any plans at all. Also, they’re not really expecting much interest to pay, it is a potentially thorny issue. Let us examine these two issues in more detail. First off, consider whether the family member that you are considering borrowing money is actually going to pay you back. This is the kind of thing can quickly sour and ruin a relationship that was very good. A loan is a loan, but in the context of family relationships, people can say that it is not right that you love a family member if they do not pay you back. However, ideally, better safe than sorry. Make sure you get your money back.
Then there is the serious issue of the tax consequences of a loan to a relative. If you borrow money, it’s in your best interest to treat it as a loan to any other person. That means you documentation to gather to support this. Namely, you have to have documents showing that there is sufficient income from the loan repayment support. You also need some form of management interest, at least equal to the applicable federal judged. Finally, you must have a contract ready and have both parties sign it. Every detail has to be construed as any company would if their children out of the loan. And to be on the safe side, you should certainly be a tax expert to consult to ensure that you comply with all applicable laws will. If it can do you a higher tax bill than expected to pay.
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