Hi all, I am thinking of lending money to a friend as a promissory note. From what I understand, the interest on the note is subject to my personal marginal income tax rate. Is that correct?
Any ideas on how to reduce the tax liability? Different structure for lending the money? Thanks
Interest from private loans is taxed at your ordinary income tax rate, just like the interest you earn from your bank (which probably isn’t much).
One thing you might look into is a Self-Directed IRA. With those, it's possible to make private loans and have the gains be tax-deferred.
As always though, I like to say consult your own tax professional for specific advice because everyone’s situation is different.
Gotcha, thanks for the insight. Definitely will consult a CPA once I get a better feel for it.