My client loaned money to the 501(c)(3) she is the executive director of. Let's say it was 10-20k. Does the organization have to pay her interest and if so, can the interest be set up to accrue and be paid when the loan is repaid?
-
-
TTB, page 3-18, "If interest is less than the applicable federal rate, the foregone interest may be taxable interest income to the lender...."
There are exceptions for certain loans of less than $10,000.
No, your client does not have to charge interest, but if your client does not, the interest that should have been charged would still be taxable.
To get around this, yes, you can have the interest accrued and paid at the end of the loan, provided your client eventually has to pay tax on the interest income. -
Thanks Bees
I just needed some confirmation on a topic I knew just enough about to be dangerous.Comment
-
Of course, if your client really does not want to charge interest, have the non-profit pay the interest on the loan in the end, and your client donate the interest back to the non-profit. That way, it is a wash - the taxable interest income is offset by the charitable donation deduction.Comment
-
Isn't imputed interest taxable to the individual loaner in the year imputed even if not actually paid? Accrued interest is not but imputed interest is so the interest rate should be more than the federal imputed AFR rate.Originally posted by Bees KneesComment
Comment