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By O. EARL YANCEY,CPA
Rannhannock New* Contributing Writer
It’s not unusual for individuals to lend money to family members, friends, and to their own businesses. It’s also not uncommon for some of these loans to end up as uncollectible bad debts.
The IRS is very suspicious of loans to family, friends and one’s own business and will try to force you to prove certain things if you try to deduct such loans as bad debts. The IRS will expect you to prove that you did indeed make a loan and that the money was not a gift to a family member or friend or a capital contribution to your company. The IRS will look for evidence that the bad debt that you want to deduct is in fact uncollectible. Finally, if you try to treat the loan as a business loan with its more favorable tax treatment rather than as a personal loan with less favorable treatment, the IRS will expect proof that the loan was business related.
Do the necessary paperwork at the time you make the loan, business
Tax Guides
Available
The 1985 Farmer’s Tax Guides are now in supply at the Rappahannock Extension Office. Call 675-3619 or come by to receive your copy.
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