You?ve Got Questions ~ We?ve Got The Answer: Family Loans

Q: My parents would like to give me a loan of $150k. How can we structure this loan so that we are in compliance with any rules from the IRS?

A: To structure a loan in compliance with the IRS rules, you need to take the following steps:

? Prepare a written loan document. It?s best to have one drafted by a lawyer but in a pinch, you can create one from various websites that feature legal document templates.
? Include a stated interest rate with the rate being no lower than the IRS published Applicable Federal Rate (AFR) listed at:
? Also include an amortization schedule showing the dates that payments are due and reflecting the interest that will be accruing and due with each payment. has a great online loan amortization tool.
? Stick to the payment schedule.

One strategy is for your parents to forgive the interest that you need to pay each year by making a Gift to you. In that case, the person lending the money won?t pick up the interest earned on their tax returns as income. And the borrower won?t deduct the interest paid.

A portion of the loan balance can be Gifted too. The total amount of the interest and principal that can be Gifted each year is limited to the $15k per person per year Gift limit. That means your parents can Gift you and your spouse $60k per year, assuming they are both still living and married. The amount that can go towards the principal and interest would be $60k less any other gifts made to you during the year. (Gifts in excess of the $15k per person per year need to be reported on a Form 709 Gift Tax return and reduce the total wealth a person can shield from Estate Taxes when they die.)

On the other hand, if you use the money to purchase or improve your primary residence or second home, or to refinance an existing mortgage, you can deduct the interest paid during the year that does not exceed a total of $750k of mortgage debt (or up to $1 million if refinancing a mortgage in existence prior to 12/2017). To claim the mortgage interest deduction you would need a lawyer to record this loan at your state?s Registry of Deeds as a mortgage and attach it to your deed.

Interest rates are still quite low. And your parents or other relatives might be looking to get a little higher interest rate on a portion of their savings than they can currently earn on bank CDs and Money Market accounts. In situations like that, a family loan might end up being a Win-Win for both parties involved.

Is A Gift of Money Reportable?

The general rule is that any gift is reportable but there are exceptions. The following gifts are usually NOT:

? Gifts that are not more than the annual exclusion for the calendar year (currently $15,000).
? Tuition or medical expenses you pay for someone (the educational and medical exclusions).
? Gifts to your spouse.

What To Do If Your 401(k) Account Value Declines

From CBS Interactive/ By Steve Vernon?

man shocked at billHave you ever opened your 401(k) account statement and stressed out because the balance has declined? Don?t panic. Instead, try these strategies to address the inevitable stock market fluctuations that will occur during your lifetime.

Workers Under 50:

If you’re less than 50 years old, “do nothing” is most likely the best course of action when market tumbles lead to a drop in your 401(k). One of the worst things you could do during a stock market decline is to sell out, locking in your losses and potentially foregoing the chance for future gains. At your current age, you most likely won’t need to tap into your 401(k) account for at least 10 years, so you have time for the stock market “double-double” to work for you. This term refers to two historical stock market trends:

– Since 1926, the S&P 500 has been positive in more than twice as many years than years with negative returns. To be exact, 68 years had positive returns vs. only 25 with negative returns.
– When the S&P 500 experiences a positive annual return, the magnitude of the average gain is almost twice as large as the magnitude of the average annual loss.

Since your investing horizon is 10 years or more, you have time to ride out stock market declines.

If you’re still concerned, you might want to revisit your investing strategy with the goal of helping you ride out stock market declines. One good strategy is to commit to only “buying low” and “selling high” rather than ever “buying high” and “selling low.” You can do that by investing in a fund that has a specified asset allocation between stock and bonds and that periodically rebalances its portfolio.

Older Workers and Retirees:

Older workers are in a different spot — they don’t have as much time available to ride out a market drop and rebuild on the rebound. But if you’re an older worker or retiree with a thoughtful strategy to convert your hard-earned savings into a portfolio of retirement income, this should allow you to sleep at night even during stock market volatility, such as the wild swings that have become common recently.

If you don’t have such a strategy in place and are approaching your retirement years or are already retired, you should shift your thinking from accumulating assets to generating retirement income.

Here’s one strategy that can work for many people:

– Cover your basic living expenses with “retirement paychecks” that don’t drop if the stock market crash-es. Sources include Social Security, pensions, low-cost payout annuities, bond ladders and tenure payments from reverse mortgages.
– Cover your discretionary living expenses with “retirement bonuses” that have the potential for growth though stock market investment. However, be prepared to reduce your discretionary spending if stocks tank.

This strategy can help you ride out any market declines because you know you have money to pay for housing, food, utilities and health insurance premiums.

Refinancing This Summer? Buying A New Home?

Don?t forget these 10 points when considering and selecting your lender and loan officer:

1. Research the lender and loan officer to ensure they are a good fit for you.
2. What is their knowledge, experience, and commitment to service?
3. Are they local and respected by the realtor community?
4. Will your lender be willing to meet in person, if that is important to you?
5. Will they help you with budgeting, credit cleanup, and other information to customize a financing plan that is best for you?
6. Will they be available to you, your realtor, listing agent, and attorney to help win your offer and throughout the loan process?
7. Will they be available in the evening and during weekends when you might be submitting an offer or have questions?
8. Will they have the best loan programs for which you qualify?
9. Do they offer rates and programs from many banks to help with more program flexibility and better rates?
10. Will the loan officer be accessible post-closing to answer any questions you may have? Will they provide periodic mortgage check-ups and help with possible refinancing, home equity lines of credit, or other loans in the future?

By Guest writer Bob Cahill.
Bob is a Senior Mortgage Banker with Leader Bank whom we?ve worked with for over ten years. He can be reached at 781.589.8756 or

This Summer, Work Through Your 2019 Tax Projection

As we shared this winter in an article called Why Is Your Tax Refund Smaller for 2018 (written by Shira Schoenberg and including quotes from Andrew Schwartz CPA), many individuals were surprised that they had smaller tax refunds or owed more in federal income taxes than they had expected in connection with filing their 2018 tax returns.? What many taxpayers didn’t notice, however, was that the total federal income taxes they were paying went down as well in most cases.

That was due to the passing of the Tax Cuts and Jobs Act of 2017 (TCJA) at the end of 2017. This new tax law is considered to be the largest tax reform in 30 years and most individual taxpayers would be impacted beginning with the 2018 tax year.

As part of passing these new rules, the withholding tables were adjusted to give taxpayers access to their lower federal taxes sooner, but ended up reducing the withholdings by more than most taxpayers would save.

The new legislation brings a variety of changes to everyone’s tax planning.? Some concerns you may have with the new tax law include:

  • How does the new tax law impact my mortgage interest deduction?
  • Can I still deduct my charitable contributions?
  • How am I affected by the new AMT thresholds?
  • Will I be itemizing my deductions given the new SALT (State and Local Taxes) limitation?
  • How does the new pass-through deduction available to Sole Proprietors, S-Corp Shareholders, and LLC Members impact me?
  • Are my tax withholdings on my 2019 paystub properly adjusted for the new tax rates?

We strongly believe that tax planning is not just a year-end activity conducted when preparing your tax returns.? Given the issues with the TCJA passed more than a year ago, tax planning should be given a higher consideration and provided at an earlier point in the calendar year than in pre-2018 years.

There are numerous planning opportunities and recommendations available to you now to address these new rules before the end of the year. Some areas of focus with your 2019 planning include: setting up a donor advised fund for your future charitable donations, maximizing retirement plan contributions, adjusting tax withholdings, installing solar panels, in addition to other planning moves to consider.


Tips for Kids with a Summer Job

Will your child be working at a summer job? If so, here are a few items to consider:

  • How to complete Form W-4. When you child begins their summer job and will be paid as a W-2 employee, their new employer will require them to complete a Form W-4, instructing the employer how to withhold income taxes from your child?s paycheck. While completing the form, be aware that IRS will allow a taxpayer to claim an exemption from federal tax withholdings if:
  1. Last year the taxpayer had a right to a refund of all federal income tax withheld because the taxpayer had no tax liability, and
  2. This year the taxpayer expects a refund of all federal income tax withheld because the taxpayer expects to have no tax liability.

Thus, if your child expects a small amount of wage income to be earned this summer and did not owe taxes the prior year, your child can write ?Exempt? on line 7 of the Form W-4 and no federal income taxes will be withheld from his or her pay.? With the new tax rules, most likely if your child has no investment income and his or her wages earned will be less than $12,200 for the year, then there will be no federal tax liability for your child for 2019.? (Although there will be no federal income taxes withheld from the paycheck your child will still be subject to social security and Medicare taxes being withheld from his or her paycheck.)? ?Additionally, if no federal income taxes are withheld, your child?s wages are below $12,200 for the year, and there is no other income received by your child then no federal tax return will be required to be filed by your child.

  • Consider making a Roth IRA contribution. If your child has earned income from a summer job, he or she will be eligible to make a contribution to an IRA under their name, even if no tax return is required to be filed by your child.? The maximum IRA contribution amount will be limited to the lesser of the child?s earned income or $6,000.? In most cases, the income earned by your child will be free from income taxes, assuming total income for your child will be less than the new standard deduction of $12,200; thus, in this situation there would be no tax benefit to contributing to a traditional IRA.? Your child will want to make the IRA contribution into a Roth IRA.? The earnings in the Roth IRA grow tax free over your child?s lifetime.? Additionally, the Roth IRA contribution can be funded by the parents as a gift to the child, but must be funded into an IRA under the child?s name.?
  • E-file your child?s federal income tax return for free. If your child?s employer does withhold income taxes from your child?s pay, your child can easily file a tax return early the following year in order to get the withheld taxes refunded back by accessing the IRS website.? The IRS allows a taxpayer to e-file their tax return for free via the IRS website if the taxpayer?s income is below $66,000.? The IRS link to this free e-filing option is