• Page :
  • 1
  • Text Only
Voting History
rated:
I have some personal loans and paid interest to my lenders during 2012. Am I required to issue a 1099-Int to my lenders? I read the instructions for 1099-INT and it suggested I was exempt, although I welcome additional opinions.

http://www.irs.gov/pub/irs-pdf/i1099int.pdf

IRS said: Report only interest payments made in the course of your trade or business...

Exceptions to reporting. No Form 1099-INT is required to be filed for payments made to exempt recipients or for interest excluded from reporting.

Interest excluded from reporting. You are not required to file Form 1099-INT for interest on an obligation issued by an individual, ...

In case this matters, I plan on deducting this on my taxes as investment interest expense. I do not have a business, these are personal investments in stocks and the like.

Thank you.

Member Summary
  • Also categorized in:

I am not an expert on the topic and can't comment on specific situation, but I can say that generally, you as a borrower don't issue 1099-INT on any loans. Your lender should issue 1099-INT.

Kinasharma01 said:   I am not an expert on the topic and can't comment on specific situation, but I can say that generally, you as a borrower don't issue 1099-INT on any loans. Your lender should issue 1099-INT.
A lender can issue a 1098
The borrower can issue a 1099

Whether they are required or not, I'm not certain

At what point does number of creditors or amount of loans for full time trading become a investment business rather than personal investments?

How much is this subject to intrepation wrt to the irs and will deducting large amounts for paid interest without a paper trail (no 1099) and creditor reporting a,ounts without a1099 cause reason for audit for either the debtor or creditor?

I think if I loaned someone money and they issued me a 1099 for the interest I wouldn't loan them money anymore.

soundtechie said:   I think if I loaned someone money and they issued me a 1099 for the interest I wouldn't loan them money anymore.
Why? Are you loaning it under the table ?

I loaned money to a business associate and they issued me a 1099 for the interest so that they could deduct it

SUCKISSTAPLES said:   Kinasharma01 said:   I am not an expert on the topic and can't comment on specific situation, but I can say that generally, you as a borrower don't issue 1099-INT on any loans. Your lender should issue 1099-INT.
A lender can issue a 1098
The borrower can issue a 1099

Whether they are required or not, I'm not certain

Cool, learnt something new!

MikeR397 said:   At what point does number of creditors or amount of loans for full time trading become a investment business rather than personal investments?

How much is this subject to intrepation wrt to the irs and will deducting large amounts for paid interest without a paper trail (no 1099) and creditor reporting a,ounts without a1099 cause reason for audit for either the debtor or creditor?
It doesn't have to be a business to be deducted. It's an Investment Interest Expense deduction, which is itemized, limited by net investment income.

ETA: unless you're saying that only a business needs to issue a 1099.

scripta said:   MikeR397 said:   At what point does number of creditors or amount of loans for full time trading become a investment business rather than personal investments?

How much is this subject to intrepation wrt to the irs and will deducting large amounts for paid interest without a paper trail (no 1099) and creditor reporting a,ounts without a1099 cause reason for audit for either the debtor or creditor?
It doesn't have to be a business to be deducted. It's an Investment Interest Expense deduction, which is itemized, limited by net investment income.

ETA: unless you're saying that only a business needs to issue a 1099.

Yes, i am saying only business needs to issue 1099. Question is at what point it is considered a business for xerty? I realize for personal loans he can deduct the int exp and the creditor is obligated to reportthe int even without a 1099 issuance. So back to xertys question, is it needed or wise to file 1099 or just to deduct substantial amounts and the creditor report substantial amounts without a 1099 involved at all?

I don't think it's the amount of money that determines whether it's a business. It would have to actually be a business, like managing other people's money for a fee, or investing money from an account that belongs to a business.

You're not required to issue a 1099, but give your lenders a heads up that you're deducting the interest, so they shouldn't 'forget' to report it.

A simple audit asking you who you paid the intrest to isn't a big deal if all parties have properly reported it.

In the event that you're asked it would be good to have their SS numbers available.

Kinasharma01 said:   I am not an expert on the topic and can't comment on specific situation, but I can say that generally, you as a borrower don't issue 1099-INT on any loans. Your lender should issue 1099-INT.so I should be issuing my bank a 1099 for the interest they paid me?

Glitch99 said:   Kinasharma01 said:   I am not an expert on the topic and can't comment on specific situation, but I can say that generally, you as a borrower don't issue 1099-INT on any loans. Your lender should issue 1099-INT.so I should be issuing my bank a 1099 for the interest they paid me?

This discussion is on interest paid on money loaned, not on interest earned on a savings account or cd.

cak144 said:   Glitch99 said:   Kinasharma01 said:   I am not an expert on the topic and can't comment on specific situation, but I can say that generally, you as a borrower don't issue 1099-INT on any loans. Your lender should issue 1099-INT.so I should be issuing my bank a 1099 for the interest they paid me?

This discussion is on interest paid on money loaned, not on interest earned on a savings account or cd.

If the bank is the one sending me a 1099-int for the interest it paid me, xerty would be the one sending me a 1099-int for the interest he paid me. I wouldn't send a 1099-int to xerty any moreso than I'd send one to my bank, I'm the one who received the income in both cases.

With computer matching now, you should send the 1099 if you intend to deduct the expense. I got a really good laugh a few years ago when IRS sent me a statement for additional taxes on an omitted farm lease. Didn't file schedule E where their computer expects it but on Schedule F where farm income belongs. Moral of story they will match your 1099's for interest paid against you interest deducted as business expense. If they don't match, you get selected for further review. My case I just sent them a copy of Schedule F with the lease payment highlighted in its proper place. End of story. Not your result if you omit sending 1099's to payees. Then there is the nonmarket rate loan to relatives to worry about.

Thank you all for the responses so far.

nsdp said:    Moral of story they will match your 1099's for interest paid against you interest deducted as business expense.
There is no business, no Sch C or whatnot. Personal Sch A deductions are not itemized per source only in aggregate per category, so presumably proof of the expense and its appropriateness would only come up in an audit. It's not possible for them to do matching if I don't have to file a 1099, and if I don't have to, I certainly won't.

Treffen said:   You're not required to issue a 1099, but give your lenders a heads up that you're deducting the interest, so they shouldn't 'forget' to report it.

A simple audit asking you who you paid the intrest to isn't a big deal if all parties have properly reported it.

In the event that you're asked it would be good to have their SS numbers available.

I understand my creditors should report the interest they're paid, but how is that my problem if they don't? You allude to some difficulties in an audit, say if the other parties have not properly reported it. Does that cause problems for me, or just for them? Certainly my lenders don't provide SSNs, nor are they required to AFAICT.

The IRS system does not individualize the 1099s necessarily. They do cross check the total dollars of 1099's filed by you as interest paid against the amount of the interest deduction claimed. So if they do not match, expect at least a letter requesting you to itemize who you paid and how much and you will be dealing with a real live revenue agent. There are a lot of other deductions they have no way of matching but this one they do. It can also be the last few points to put you over the DIFF point cap and set up a full audit. It is like standing up and waiving a flag saying AUDIT ME if there is anything unusual about your return like not falling into Benford's Law. http://www.journalofaccountancy.com/issues/1999/may/nigrini.

Patriot Act requires EIN or SSN for both payer and payee. Not having that allows IRS/DOJ to use loan sharking statutes.

nsdp said:   With computer matching now, you should send the 1099 if you intend to deduct the expense. I got a really good laugh a few years ago when IRS sent me a statement for additional taxes on an omitted farm lease. Didn't file schedule E where their computer expects it but on Schedule F where farm income belongs. Moral of story they will match your 1099's for interest paid against you interest deducted as business expense. If they don't match, you get selected for further review. My case I just sent them a copy of Schedule F with the lease payment highlighted in its proper place. End of story. Not your result if you omit sending 1099's to payees. Then there is the nonmarket rate loan to relatives to worry about.
I tend to agree filing the 1099 will make it easier for the irs computer to trace your deduction to your creditors interest report, and thus decrease the chance of followup or audit for you, or perhaps even your creditor.

I am not sure, but i do not think filing the 1099 would affect any determination wrt to if you are a business or not. Assuming not, you are not obligated to file but choosing to do so to be more transparent with the irs, esp given that large dollar amounts are involved.

MikeR397 said:   nsdp said:   With computer matching now, you should send the 1099 if you intend to deduct the expense. I got a really good laugh a few years ago when IRS sent me a statement for additional taxes on an omitted farm lease. Didn't file schedule E where their computer expects it but on Schedule F where farm income belongs. Moral of story they will match your 1099's for interest paid against you interest deducted as business expense. If they don't match, you get selected for further review. My case I just sent them a copy of Schedule F with the lease payment highlighted in its proper place. End of story. Not your result if you omit sending 1099's to payees. Then there is the nonmarket rate loan to relatives to worry about.
I tend to agree filing the 1099 will make it easier for the irs computer to trace your deduction to your creditors interest report, and thus decrease the chance of followup or audit for you, or perhaps even your creditor.

I am not sure, but i do not think filing the 1099 would affect any determination wrt to if you are a business or not. Assuming not, you are not obligated to file but choosing to do so to be more transparent with the irs, esp given that large dollar amounts are involved.

I think you are asking for trouble if you submit unnecessary forms to the IRS for "transparency" or whatever. If it's a loan to a person by a person, I can't see issuing a 1099-INT. See this link for some pertinent discussion:

http://www.bogleheads.org/forum/viewtopic.php?p=781819



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

TRUSTe online privacy certification

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2014