lending money

[space-time]

I want to lend some money to a very good friend to help him with a project. he knows what he's doing, and so do I, and I trust him. I have no doubt he will pay me back, and I don't need interest.

How do I go about this, I obviously don't want him to pay tax on this money, and neither do I when I get it back. write a check, will IRS ask what the check is for? cash in a suitcase?

let's say the sum is more than 10k but below 100k

EDIT: there is no point debating whether I should do this or not, or how this could affect the friendship, or what happens if this and that, or else, then, and what not. I just want to know the simplest way to avoid running into tax trouble on both sides.

[hal]

oy...

sorry... I know I should help answer your question, but I just cant get over what a bad idea this is...

have you considered:

what happens if the money is 'lost'? This could happen many ways. Your friend is robbed, injured, house set on fire, asteroid strikes?

I would only do this if you can afford a 100% loss without hurting your family.

Sorry - I hate it when people reply with answers to questions not asked, but I couldn't help it...

[Speedy]

Or dies. It happens.

[space-time]

I know. Many things can happen. let's assume this is a theoretical question.

[cbelt3]

It's called a loan. You must charge interest at a minium rate or be taxed as a gift. Or have him sell you part of his business, partnership deal , etc.

Nothing wrong with going for friends and dreams . Just put it on paper to cover both of you.

[Paul F.]

Hmmm... There's got to be a way for him to borrow the money from you, with a contract, and have it not be "income" since it's a LOAN..

Don't know how you'd go about it though... other than document, document, document....
If the IRS asks, you'll BOTH want to have a contract of some kind, receipts, payment schedules, etc.

[raz]

Beyond echoing what was said above ...

The IRS will treat the difference between the going rate for a loan and your zero interest as a gift. If that's less than 10K/year, you're probably ok on that front. (I am not a lawyer or tax attorney, please check with a real one).

But, really, if this is a business investment, then treat it as such. Get a lawyer, draw up a contract. If your buddy pays it off, fine. If something unforeseen happens, you can write it off.

[graylocks]

to protect both of you IRS-wise: write up loan paperwork at a minimum interest rate. then, if you truly don't want the interest you can gift it back to your friend.

if you don't set a rate and the gov gets involved they may tax you for the interest you SHOULD have made. you can google how to determine the lowest rate possible. given how piss poor savings rates are you could probably set the rate pretty darn low.

i've done a number of projects in my life with person to person loans with friends and supporters. they were all paid back in full. some were simply forgiven after a few years of payments and were low enough to be under the gift threshold. but i always did paperwork in case the IRS came a calling.

[mrlynn]

:agree:

With what graylocks (and others) said. Any large transactions (even within families) should be documented, and terms clearly spelled out. S[tuff] happens.

/Mr Lynn

[Mike Johnson]

Gift loans are complicated. http://www.smartmoney.com/borrow/debt-st...bers-9654/

If you want to do it, do it. If you don't want to hire a lawyer, you don't have to, but you should still have a contract and know what you're doing.