01-11-2013, 03:17 AM
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.
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.