Are interest-free loans by firm taxable income? Forum

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Veronica2015

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Are interest-free loans by firm taxable income?

Post by Veronica2015 » Tue Apr 17, 2018 5:38 pm

As many other firms do, my firm provides salary advance in the form of interest-free loan. Does the loan count as income? If not, sounds like a great tax evasion mechanism.

sucsuroc

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Re: Are interest-free loans by firm taxable income?

Post by sucsuroc » Tue Apr 17, 2018 6:18 pm

generally, loans are not included in income.

It's not a good tax-evasion mechanism--you receive a tax-free loan during your stub year when you are at a low marginal rate, then pay it back during your first year, when you are not at the lower marginal rate. It would be better to take taxable income during your stub year in exchange for reducing your income by an equivalent amount during your first year.

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RCSOB657

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Re: Are interest-free loans by firm taxable income?

Post by RCSOB657 » Tue Apr 17, 2018 8:42 pm

Veronica2015 wrote:As many other firms do, my firm provides salary advance in the form of interest-free loan. Does the loan count as income? If not, sounds like a great tax evasion mechanism.
It'll still likely show up on your w2.

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BulletTooth

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Re: Are interest-free loans by firm taxable income?

Post by BulletTooth » Tue Apr 17, 2018 9:58 pm

No, the loan isn't income, but you'll have to pay the loan back eventually. You'll be taxed on the money you earn (which you then use to pay back the loan). The loan is only a tax-avoidance mechanism to the extent that you get cash from the loan and defer paying taxes until you earn the income that is used to pay off the loan. In most cases, I imagine you get the cash from the loan and earn the income to pay the loan in the same year, so there's no difference in your tax liability.

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Re: Are interest-free loans by firm taxable income?

Post by Anonymous User » Wed Apr 18, 2018 6:31 pm

they will deduct the loan from your paycheck after your start date and treat it as income. you will be taxed on it.

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