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Delaware is a popular state for corporations because it offers business-friendly laws, a specialized court for corporate cases and tax advantages for companies operating outside the state. For businesses incorporated or operating within the state, it’s important to understand the Delaware corporate tax rate, its application and the process for filing corporate taxes. A financial […]

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","

A financial advisor can offer you personalized guidance for your business needs.

","

What Is the Delaware Corporate Tax Rate?

","

As of 2025, Delaware’s corporate tax rate is 8.70%. This rate applies uniformly, as Delaware does not have a graduated corporate tax system with varying brackets. Instead, all taxable corporate income is subject to the same rate.

","

In addition to Delaware’s corporate tax rate, a franchise tax is levied on entities incorporated in the state, regardless of whether they conduct business there. The amount varies based on factors such as the par value of the company’s stock and number of authorized shares.

","

How Does the Delaware Corporate Tax Rate Work?

","

The application of Delaware’s corporate tax rate depends on a corporation’s activities and presence within the state. Corporations operating inside and outside of Delaware are treated differently:

","

Domestic corporations: These are companies incorporated in Delaware. They are subject to the state’s corporate income tax on earnings from business activities conducted within Delaware. Additionally, they must pay the annual franchise tax and file an annual report by March 1 each year.
Foreign corporations: Companies incorporated outside of Delaware but doing business within the state are also subject to Delaware’s corporate tax rate on income earned in the state. They are not required to pay the franchise tax, but must file a corporate income tax return.

","

For corporations incorporated in Delaware but operating elsewhere, these are required to pay the annual franchise tax and file an annual report with Delaware.

","

How to File Your Delaware Corporate Taxes

","

","

Filing corporate taxes in Delaware involves several steps to maintain compliance with state regulations. Here are five general steps to help corporations complete the filing process. A tax consultant can also provide insights into this process.

","

1. Determine Your Filing Requirements

","

Before initiating the filing process, it’s important to understand your corporation’s specific obligations:

","

Domestic corporations: Must file an Annual Franchise Tax Report and pay the associated franchise tax by March 1 each year. Additionally, if conducting business within Delaware, they must file a Corporate Income Tax Return (Form CIT-TAX) by the 15th day of the fourth month following the end of their fiscal year, typically April 15 for calendar-year taxpayers.
Foreign corporations: If conducting business in Delaware, they are required to file Form CIT-TAX to report income earned within the state. The due date aligns with that of domestic corporations.

","

2. Gather Necessary Documentation

","

This step can include:

","

Financial statements: Prepare detailed income statements and balance sheets reflecting the corporation’s financial activities.
Pro forma federal tax return: Delaware requires corporations to attach a completed copy of a pro forma federal tax return, including all schedules and attachments, to the state tax return.
Records of gross receipts: If subject to the gross receipts tax, maintain records of all revenues to ensure accurate reporting.

","

3. Complete and Submit Required Forms

","

These forms include:

","

Form CIT-TAX: Used for reporting corporate income tax. Ensure all income, deductions and credits are accurately reported.
Annual franchise tax report: Filed online through the Delaware Division of Corporations’ website. The report requires information about the corporation’s directors, officers, and authorized shares.
Form CIT-EXT: If an extension is needed, this form requests additional time to file the corporate income tax return. Note that an extension to file does not extend the time to pay any taxes due.

","

4. Make Necessary Payments

","

Those could include:

","

Franchise tax: Payment is due by March 1. The amount varies based on the corporation’s capitalization and can be calculated using the authorized shares method or the assumed par value capital method.
Corporate income tax: Payments are due by the original due date of the return, typically April 15 for calendar-year taxpayers. Estimated tax payments may also be required throughout the year.
Gross receipts tax: If applicable, this tax is typically filed and paid on a monthly or quarterly basis, depending on the business activity.

","

Payments can be made electronically through the Delaware Division of Revenue’s online portal or by mailing a check with the appropriate payment voucher.

","

5. Maintain Compliance With Ongoing Requirements

","

These can include:

","

Estimated tax payments: Corporations expecting a tax liability exceeding $5,000 are required to make quarterly estimated tax payments.
Record keeping: Maintain all tax records, including filed returns and supporting documentation, for at least three years in case of audits or inquiries.
Stay informed: Tax laws and rates can change. Regularly consult the Delaware Division of Revenue’s website or a tax advisor to stay updated on any changes affecting your corporation.

","

Bottom Line

","

","

Delaware’s corporate tax structure is designed to attract businesses with its favorable legal environment and competitive tax policies. Delaware’s franchise tax is a key consideration for corporations incorporated there, even if they conduct business elsewhere. Whether you’re a domestic or foreign corporation, given the complexity of tax regulations and potential legislative changes, working with a top financial advisor in Delaware can provide valuable guidance in navigating corporate taxes in the First State.

","

Tax Planning Tips

","$53","

Photo credit: ©iStock.com/Liubomyr Vorona, ©iStock.com/FreshSplash, ©iStock.com/Deagreez

"],"experts":null,"link":"/taxes/delaware-corporate-tax","modifiedIso":"2025-03-05T13:30:21.000Z","published":{"datetime":"2025-3-4","readable":"March 4, 2025","readableExtended":"March 4, 2025, 7:03pm ET"},"publishedIso":"2025-03-04T19:03:34.000Z","shareInfo":{"title":"Delaware Corporate Tax: What It Is and How It Works","origin":"/taxes/delaware-corporate-tax"},"isNewsArticle":true},{"id":"cG9zdDoyNzIyMTQ=","databaseId":272214,"postId":272214,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1623,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNg==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":{"pageInfo":{"offsetPagination":{"total":138,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-planning","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$54","date":"2025-01-16T13:14:49","excerpt":"

Dividing tax debt during a divorce depends on when the debt was incurred, state laws and other factors. Responsibility for back taxes may be shared or assigned to one spouse, often based on whether the debt arose before or during the marriage. However, IRS rules may not align with a divorce court’s decision. A financial […]

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His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":809,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":{"url":"https://secure.gravatar.com/avatar/5ae1da874ddac2010e70c7b0a0def3f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. 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","

Overview of Debt Division During Divorce

","

When dividing debt in a divorce, courts look at the type of debt and when it was incurred. Debts taken on during the marriage are typically considered shared, making both spouses liable.

","

Debts from before the marriage are usually treated as separate, with each spouse responsible for their own obligations.

","

Tax debt is often treated the same way. Whether the debt was accrued jointly or individually, and whether it occurred during the marriage, are important factors in determining responsibility.

","

Community Property vs. Equitable Distribution States

","

How tax debt is divided depends on whether the state follows community property laws or equitable distribution principles. In community property states, marital debts, including tax debt, are generally split equally between spouses, regardless of income or contributions. The nine community property states are:

","

Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin

","

In community property states, courts may decide that both spouses share the responsibility for any tax debt incurred during the marriage. This means the debt is typically divided equally, regardless of income differences or contributions.

","

In equitable distribution states, tax debt is divided based on what the court considers fair, not necessarily equal. Factors like each spouse’s financial situation, earning potential and contributions to the household are considered. As a result, one spouse may be assigned a larger share of the tax debt. This approach applies in all states except the nine that follow community property laws.

","

Does the IRS Honor Divorce Settlements?

","

A divorce settlement may assign tax debt to one spouse, but the IRS can still hold both spouses jointly liable for tax debt if they filed jointly during the marriage. Even if a divorce decree states otherwise, the IRS can pursue payment from either party.

","

To reduce this risk, individuals can seek innocent spouse relief from the IRS. This provision relieves a spouse of responsibility for tax debt if their ex-spouse improperly reported or omitted income on a joint tax return without their knowledge.

","

To qualify, the requesting spouse must show they were unaware of the errors and that it would be unfair to hold them liable. The IRS considers factors like financial involvement, personal benefit and financial circumstances.

","

To apply, individuals must file IRS Form 8857, explaining their situation and including supporting documents. The IRS will review the application, considering the couple’s financial details and communication during the marriage.

","

What Is Separation of Liability Relief?

","

","

Separation of liability relief allows joint filers to divide responsibility for understated tax liabilities between themselves and their ex-spouse.

","

The IRS assigns each spouse a portion of the tax debt based on their individual contributions and circumstances, offering a way to separate financial responsibility after a divorce or separation.

","

Unlike innocent spouse relief, this option is only available to those who are divorced, legally separated, or have lived apart from their spouse for at least 12 months.

","

To apply for separation of liability relief, individuals must submit IRS Form 8857. The IRS will review the application, considering factors such as each spouse’s financial contributions and their involvement in the tax reporting process.

","

What Is Equitable Relief?

","

Equitable relief is available for individuals facing unfair tax liability due to their spouse’s or ex-spouse’s actions, even if they were aware of the errors. This type of relief covers both understated tax liabilities and unpaid taxes, offering broader protection compared to other forms of relief.

","

This is different from separation of liability relief, which splits tax debt between spouses. Equitable relief applies when holding one spouse responsible would be unfair.

","

To qualify, the requesting spouse must demonstrate that holding them responsible for the tax debt would be unfair under the circumstances. The IRS considers factors such as financial hardship, the current financial situation of the requesting spouse and any evidence of abuse or deceit by the other spouse.

","

To apply for equitable relief, you must file IRS Form 8857. This form will allow you to explain your situation and provide evidence supporting your case.

","

Bottom Line

","

","

Dividing tax debt in a divorce can be difficult, especially with joint tax returns and IRS rules. Options like innocent spouse relief, separation of liability relief and equitable relief can help avoid unfair responsibility for a former spouse’s tax debt. A tax professional can guide you through these options.

","

Tax Planning Tips

","$6b","

Photo credit: ©iStock.com/Prostock-Studio, ©iStock.com/fizkes, ©iStock.com/IURII KRASILNIKOV

"],"experts":null,"link":"/taxes/who-pays-back-taxes-after-a-divorce","modifiedIso":"2025-01-16T13:16:38.000Z","published":{"datetime":"2025-1-16","readable":"January 16, 2025","readableExtended":"January 16, 2025, 1:14pm ET"},"publishedIso":"2025-01-16T13:14:49.000Z","shareInfo":{"title":"How Tax Debt Is Divided During a Divorce","origin":"/taxes/who-pays-back-taxes-after-a-divorce"},"isNewsArticle":true},{"id":"cG9zdDoyNzcwMTE=","databaseId":277011,"postId":277011,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1623,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNg==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":{"pageInfo":{"offsetPagination":{"total":138,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-planning","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$6c","date":"2025-02-12T17:31:20","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyNzcwMTk=","databaseId":277019,"altText":"The iconic \"Welcome to Wyoming\" sign along the border between Colorado and Wyoming.","date":"2025-02-12T17:27:04","fileSize":325331,"mimeType":"image/jpeg","modified":"2025-02-12T17:29:57","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2025/02/iStock-1530608281.jpg","__typename":"MediaItem"},"modified":{"datetime":"2025-2-12","readable":"February 12, 2025","readableExtended":"February 12, 2025, 5:31pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. 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If you want to meet Wyoming residency requirements for taxes you must have a primary and permanent home in the state. Factors such as property ownership, vehicle registration, voter registration and time spent in the state also contribute to determining residency status. Additionally, individuals may need to update their driver’s license and mailing address while severing ties with their previous state of residence. Establishing clear intent to reside in Wyoming can help avoid complications with tax authorities from other states that may still claim tax obligations. A financial advisor can help you learn more about state tax requirements and rates.

","

What Are the Wyoming Residency Requirements?

","

Wyoming has no personal income tax, making it an attractive option for those looking to establish residency. But, this also means that residency requirements for tax purposes primarily involve establishing domicile – the place considered a person’s permanent home. To be recognized as a legal resident for tax and other legal matters, an individual must demonstrate an intent to make Wyoming their primary residence and sever ties with their previous state.

","

While Wyoming law does not specify a minimum number of days required to establish residency, individuals who spend more than 183 days per year in another state may still be subject to that state’s tax laws.

","

People moving from states with high taxes could face scrutiny from tax authorities in their former state. So, it’s important to document your intent to move. Wyoming doesn’t ask for formal statements or affidavits to prove residency, but having consistent evidence that you live and work there helps establish your tax domicile. A tax consultant can also help explain what you need to do.

","

Wyoming Residency for Business Owners and Entrepreneurs

","

Entrepreneurs looking to avoid taxes from their previous state need to establish their personal home and make sure that their business mainly operates in Wyoming. This involves registering the business with the Wyoming Secretary of State, keeping a local office or physical presence through yourself or a registered agent, and potentially hiring local employees.

","

If you’re moving from a high-tax state, maintaining business connections there can challenge your new residency status. For example, if you run a Wyoming LLC but still handle operations, meet clients, or earn significant income in your old state, that state may still want to tax your earnings. To reduce this risk, move your operations to Wyoming, use a Wyoming-based registered agent, and make management decisions within the state to reinforce your residency claim.

","

Examples of Moving from High-Tax States to Wyoming

","

","

Here are two examples to show how a move from a high-paying state to Wyoming can impact your taxes.

","

First, let’s take a look at a business owner from New York. They relocate to Wyoming to avoid state income taxes. Then, they buy a home in Casper, update their driver’s license, register to vote, and open a Wyoming-based bank account. They also relocate their business headquarters to Wyoming, switch to a local doctor and spend most of the year there.

","

When New York income tax authorities review their case, they confirm no remaining ties to the Empire State, as the owner has no property, bank accounts, or business interests left there and spends less than 183 days in the state, solidifying their residency in Wyoming.

","

Now, for a second example, let’s take a look at a semi-retired consultant from California. They move to Wyoming but keep a second home in Los Angeles, where they spend their summers. They continue to use a California doctor and bank with a Los Angeles branch.

","

During an audit, California’s tax authorities discover that the consultant spent more than 183 days in the state and still maintains significant ties there. As a result, despite their Wyoming residency claim, California deems them a resident for tax purposes, requiring them to pay state income tax.

","

Pros and Cons of Moving to Wyoming for Tax Reasons

","

Wyoming’s absence of state income tax and favorable business policies attracts individuals seeking lower taxes. However, moving to Wyoming for tax reasons requires more than just a new address. Previous states may still claim taxes, and Wyoming’s cost of living and lifestyle might not be suitable for everyone.

","

Advantages

","

If you plan to move to Wyoming, here are four advantages to consider:

","$79","

Disadvantages

","

Before you move to Wyoming, consider these four tax disadvantages:

","$7a","

Bottom Line

","

","

Moving to Wyoming can offer tax benefits, but you must clearly establish residency to avoid issues with tax authorities from other states. Business owners need to move their operations to Wyoming to escape tax duties from their previous states. While the lack of state income tax and a favorable business environment are attractive, consider other factors like the local climate, available amenities, and the possibility of residency audits before deciding.

","

Tips for Tax Planning

","$7b","

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\n","featuredImage":{"id":"cG9zdDoyNDEwOTI=","databaseId":241092,"altText":"A mother and daughter calculating the interest for a gift loan.","date":"2024-03-13T03:25:32","fileSize":224610,"mimeType":"image/jpeg","modified":"2024-03-22T13:12:37","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/03/iStock-1347451317.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-3-22","readable":"March 22, 2024","readableExtended":"March 22, 2024, 1:13pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMzY=","databaseId":136,"userId":136,"avatar":{"url":"https://secure.gravatar.com/avatar/1d295f71ad5f26fc505155b8d7e5e2a0?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Jeff White is an Editor for SmartAsset. He's an expert in a variety of personal finance topics, such as investing, banking and retirement, and also holds the Certified Educator in Personal Finance (CEPF®) designation. 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A gift loan is essentially a loan with an interest rate well below the market average, or even no interest at all, which can be a strategic way to support family members financially or for estate planning purposes. As beneficial as these loans may appear, with their potential tax benefits and flexible repayment options, they demand a clear understanding of the legal and financial requirements involved as they can be classified as gifts. A financial advisor can help you determine the way you need to structure any gifts or loans that you might be considering.

","

What Is a Gift Loan?

","

A gift loan is a financial arrangement that straddles the line between a gift and a traditional loan. It’s a loan given at an interest rate below the market average, or sometimes, with no interest at all. This crucial feature distinguishes it from conventional loans, where interest rates reflect current market conditions. You might be giving, or receiving, a loan without realizing that it may be classified as a gift. That can have big tax implications.

","

This type of loan is commonly used to offer financial support to family members without the stringent conditions of a bank loan. And in terms of estate planning, gift loans can also be a strategic way to transfer wealth to heirs while maintaining control over assets.

","

Generally, a gift loan can offer potential tax benefits and flexible repayment options:

","

Tax advantages: By structuring the transaction as a gift loan, the donor may utilize gift tax exemptions or deductions that could potentially reduce their taxable estate.
Flexible repayment: The borrower enjoys flexibility in repayment terms, which can be tailored to their financial situation, including no repayment obligation if the loan is structured as an outright gift.
Income tax savings: Depending on the arrangement, the borrower may also benefit from reduced income tax liabilities when compared with traditional loans, especially if the interest rate is below market rates or if interest payments are waived entirely.

","

You should note, however, that in some circumstances you could be offering a gift loan to someone without realizing that it could be taxed as a gift. And that can create a financial issue for the borrower, and potentially for you.

","

Gift Loan vs. Gift vs. Loan

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While a gift loan involves lending money to a family member or friend with the intention of repayment, a gift generally entails transferring assets or money to another person without the expectation of repayment.

","

The IRS may view the forgone interest on a loan you provide as a taxable gift, especially if you don’t require interest to be paid on the loan you’re providing. However, the annual gift exclusion could exempt the lender from gift tax obligations if the amount is within the allowed limit, which is currently $18,000 for the 2024 tax year.

","

When compared with a traditional loan, a gift loan may offer more flexible terms and potential tax benefits. Traditional loans typically require repayment with interest according to predetermined terms and conditions, without the same potential tax advantages or flexibility in repayment options.

","

Understanding Interest Income in Gift Loans

","

","

Imputed interest refers to interest that is not paid, but is considered to have been earned for tax or accounting purposes. It typically arises in situations where a transaction involves a loan or financing arrangement with below-market interest rates or no interest charged at all.

","

The IRS has specific regulations concerning gift loans and the reporting of interest income, which are aimed at preventing the avoidance of income tax through undercharged loans. Any actual interest received, as well as the interest that would have accrued at the market rate, must be reported.

","

To illustrate how this works, let’s say you lend $10,000 to a sibling with no interest for one year. If the applicable federal rate (AFR) is 3%, the foregone interest you should report is $300. This calculation is vital for lenders to understand, as it affects the assessment of the gift loan’s benefits and the lender’s taxable income.

","

How to Prepare Your Taxes for Potential Gift Loans

","

If you’re considering a gift loan, you’ll want to keep thorough records, including a formal written agreement that outlines the loan terms so that you can report anything that needs to be reported.

","

If the gift loan surpasses the annual exclusion limit, filing Form 709 becomes mandatory. Income from imputed interest must be reported using Schedule B (Form 1040), “Interest and Ordinary Dividends,” and in some cases, Schedule 1 (Form 1040), “Additional Income and Adjustments to Income.”

","

Additionally, if the loan is tied to an investment that yields income, the lender may benefit from an interest deduction on Schedule A (Form 1040), “Itemized Deductions.” So, for example, if a gift loan is used to buy a rental property, the interest on that loan could potentially get deducted by the lender as an investment interest expense.

","

Bottom Line

","

","

A loan you make to a loved one might actually be considered a gift if you don’t charge enough interest. Therefore, you should understand the potential tax consequences, including applicable federal rates and the proper use of tax forms like Schedule B and Form 709.

","

Tips for Tax Planning

","$8e","

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