With such a friend, whether to loan money is an easy question to answer: yes, as long as I can afford to.
With anyone else I figure I’m not a bank (or a loan shark), so I shouldn’t get into a bank’s business.
It's not "get" if it's a loan.
The IRS might also be interested if you treat this a taxable gift rather than a loan... (unlikely they'd care for $1000).
https://www.irs.gov/faqs/interest-dividends-other-types-of-i...
https://en.wikipedia.org/wiki/Gift_tax_in_the_United_States
> Second, gifts in excess of the annual exclusion may still be tax-free up to the lifetime estate basic exclusion amount ($11.58 million for 2020).[9] For estates over that amount, however, such gifts might result in an increase in estate taxes. Taxpayers that expect to have a taxable estate may sometimes prefer to pay gift taxes as they occur, rather than saving them up as part of the estate.
The per year limit for 2023 is 17,000. A 11M lifetime limit would mean 647 years of giving.
I think the 11M figure is just totally way off. Not sure where they are getting that from.
Scroll down to ”Basic Exclusion Amount for Year of Death”
The gift giver pays the tax, but only after they give someone more than the lifetime amount.
But given we're talking about loans and gifts while a person is living, I think the correct tax to invoke is the gift tax that has a limit of $17,000 per year.
https://www.irs.gov/businesses/small-businesses-self-employe...
Neither taxpayer A nor taxpayer B have a federal tax liability for gifting more than the annual exclusion amount.
So I do not see how the gift tax, which would implicitly involve a tax liability for the gift, has a limit of $17k.
Am I incorrect?
If A is alive when that happens then that is wrong. B will be taxed on the amount of $1M - 17k because the gift tax applies not the estate tax.
If A were dead and gifted B in their will, then you would be correct because the estate tax applies in this scenario.
Again, since we're taking about loans and gifts while a person is alive in this thread, the first scenario of the gift tax applies.
https://www.irs.gov/businesses/small-businesses-self-employe...
>Who pays the gift tax?
> The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.
The paperwork only starts when you gift one person more than $16k (2022 value) in one year, which is quite a large gift and the lifetime estate tax exemption is also very high (currently $12M), so even if you do need to file paperwork because a gift is taxable, the tax rate is likely to be 0% for almost everyone. And as much as people complain about death being taxable, most people don't have that many tears for the tax impact on people who had a $15M estate.
But I understand the rest. I simply did not know that the rules are very reasonable. Myself I am in Canada not the US.
The IRS does require you to report it if it goes over $16k from one individual to another. This is solely to keep track of that $12M lifetime gift limit.
Totally reasonable IMO unless you don't believe in inheritance taxes at all.
so you could do $48k from a couple to their child and child's spouse.
But I also like the IRS limits. It limits how much my family/in laws think I might be able to give them in a year :)
Further, that tax is payed by the donor, not the recipient.
In other words, the IRS won't care if you can't pay rent and somebody gifts you $1000.
Seems like a major jerk move to structure the "loan" in a way where you remove these people from your life.
If you want be charitable, there's certainly more efficient ways than giving free money to random people who ask you.
Yes, because i don't like to call myself a shitty human.
Usually they're choosing between a set of bad options.
I think the minority would call you a victim of 'temporarily embarrassed millionaire syndrome'.
Well, some most likely are.
Misplaced pride? Or lack of self-awareness and acceptation of their shortcomings? Guilt that builds upon itself (where just talking about it first could ... just clear things up)?
Or they don't know/understand/weren't explained how to repay it (even if that's as simple as just paying back, or only saying "thanks"). Social rituals definitely help here.
And honestly, habitually soliciting money from friends shares a lot of similarities with using venture capital -- the reasoning that it's better to explode with someone else's money than your own.