I am loaning my parents $25K to pay off some land. I dont expect any income or interest out of this. But, if the business is really profitable then I would like to stay as a partner and get a monthly profit. If its just doing alright, they will pay me the $25K in 2 yrs. Im looking more into getting the $25K back.
2007-05-19 06:46:09 · 4 answers · asked by nena 2 in Business & Finance ➔ Taxes ➔ United States
My parents live in Dominican Republic and the land will be in my mom's name and mine.
2007-05-19 08:36:06 · update #1
The repayment of principal ($25,000.00) will not be taxed. Any interest will be taxed. If you do not charge interest, the IRS will impute an interest rate to the loan. You will then have a choice, you can pay the taxes on the imputed interest, or you can make a "gift" of the interest to your parents (and deduct same from your lifetime credit which may not be a good idea), or your parents can pay the tax on the interest (you "forgave" the interest and that is income them, according to the IRS).
The second option above may allow you to do what you want without tax consequences for you or your parents. However, it must be done correctly. Talk to your accountant or attorney. You can create a real problem by doing this without proper help.
Also, since this appears to be a business, you should have a formal partnership agreement drawn up. That will require an attorney. A number of my clients always ignored that advice because they were going into business with a family member. If one of the members dies, inheritance laws, not the "understanding" between the family members, will determine who receives the dead person's share of the business. That can devastate a small business, ultimately leaving all the owners with nothing.
2007-05-19 07:54:04 · answer #1 · answered by mcmufin 6 · 0⤊ 0⤋
The tax would be on any interest paid, not the principle. You would also have to pay tax on any profit money you may get. Keep in mind, however, even though it's your parents you're loaning to, it is always a good idea to put it down in writing and sign it. That way there are no misunderstandings.
2007-05-19 13:54:20 · answer #2 · answered by Angie 6 · 0⤊ 0⤋
Since you are not looking at getting back any interest there would be nothing to tax.
If the business goes well, have your parents pay your monthly profit in cash.
2007-05-19 13:51:18 · answer #3 · answered by ? 7 · 0⤊ 0⤋
The $25,000 in question is already after tax income, and is yours as such. The only amounts which would come into taxable status are the profits, if any, which are more than the original $25,000 you lend.
2007-05-19 13:51:21 · answer #4 · answered by acermill 7 · 0⤊ 0⤋