Why You Should Charge Interest If You Lend Money to Friends or Family
Many would agree that lending to friends or family is a terrible idea – it can lead to ugly problems. However, if a loved one is stuck and you are thinking about doing it anyway, here is a case to charge them interest.
It might feel wrong to charge interest, but as Business Insider explains, not charging interest could get you in trouble with the IRS. For example, the IRS may charge you taxes on interest you may have received on a loan. Business Insider explains:
The annual limit for tax-free gifts to individual family members is $ 14,000, so especially in situations where your loan will tip you in excess of this limit, the minimum percentage you want to charge is the applicable federal IRS rate. Currently, these rates are 0.68% for “short-term” loans for up to three years, 1.33% for “medium” loans from three to nine years and 2.07% for “long-term” loans for more than nine years. …
The IRS lists these rates on their website and they change frequently. In general, when it comes to personal loans, the IRS places the burden on lenders, not borrowers. It’s worth learning the rules before spending money. For more information, go to the full version of the message at the link below.
Yes, you should charge family members interest when you lend them money – that’s how much | Business Insider