SOURCE: US Tax Professionals

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October 19, 2016 19:28 ET

US Tax Accountant Says Lending to Friends Can Be Risky Business

US Tax Accountant in Vancouver cautions that lending money to friends can lead to tax complications without the right preparation

VANCOUVER, BC--(Marketwired - October 19, 2016) - Mark Schiffer is a US Tax Accountant who specializes in cross-border taxation. His specialty is making sure cross-border clients living in Canada and Mexico remain compliant with IRS requirements. An article recently published in his newsletter talks about lending money, stating that unplanned generosity can lead to serious tax complications. For more, go to:

"Lending money to a cash-strapped friend or family member is a noble and generous offer that just might make a difference. But before you hand over the cash, you need to plan ahead to avoid tax complications for yourself down the road," states the blog.

For example, a person may decide to lend money at zero percent. However, making an interest-free loan to someone subjects the lender to below-market interest rules.

IRS rules state that you need to calculate imaginary interest payments from the borrower. These imaginary interest payments are then payable to the lender, who will need to pay taxes on these interest payments when filing a tax return. If the interest payments exceed $14,000 for the year, there may be adverse gift and estate tax consequences.

The IRS will ignore the rules as long as the aggregate loan to a single borrower is less than $10 000, and the borrower doesn't use the loan proceeds to buy or carry income-producing assets.

If no interest is charged-or it's below the market rate, the IRS might consider the loan a gift, especially if there is no formal documentation.

Formal documentation generally refers to a written promissory note that includes the interest rate, a repayment schedule showing dates and amounts for all principal and interest, and security or collateral for the loan, such as a residence (see below). Make sure that all parties sign the note so that it's legally binding.

As long as the gift includes an interest rate that is at least equal to the applicable federal rate (AFR) approved by the Internal Revenue Service, it's possible to avoid tax complications and unfavorable tax consequences.

To learn more about the tax implications related to making loans, it's important to speak to a knowledgeable tax professional. For more information, contact Mark Schiffer at (604) 949-1559.

About the Company

US Tax Professionals specialize cross borders tax services for American citizens living in Canada and Mexico. Founded in 2013, they specialize in individual taxation, taxation and accounting for business, and accounting and taxation of alternative investments, including private equity funds and hedge funds.

For more information, visit or call (604) 949-1559.

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