What is the attributed interest?
Most loans and investment tools consist of two primary components; Director and interest. principle refers to the amount borrowed or invested amount and interest is the financial fee paid or received on the basis of the percentage of principal. However, some loans and investments have no interest. In these cases, the tax authorities may assign an interest rate and adequately adjust the principal. Impotated interest is that interest that has not actually been paid but is considered to be paid by the government body. In some cases, this becomes taxable to the recipient and respected payer. In Austria, the company's tax codes allow companies to be used by companies to reduce their taxable base. Hong Kong recognizes imputed interest, but fails or does not allow it to be used to deduct.
In the United States, the attributed interest is evaluated against financial instruments that are not interest such as original discount bonds, bonds and bonds with zero coupon. These are purchased significantly below the nominal value and ripen to par. If a person is in a higher tax group, it would be beneficial for him to pay the bond tax only at maturity by means of a lower capital tax rate. The Internal Revenue Service (IRS) does not allow this potentially beneficial opinion and considers these bonds to be interest wearers by using the taxable imputed interest. In this way, part of the profit is taxed annually as a normal income.
The same position is occupied with personal, business and mortgage loans. Again, it could be beneficial for the sellers to raise their selling price and offer a low interest rate to benefit from lower tax liability. To prevent this, the IRS requires that the relevant federsazba Al (AFR) will be used for all loans for six or more months. AFR is published monthly and determines the minimum interest that should be assigned to different types of loans and investment vehicles.
If a person charges less than AFR, the amount to be charged is determined by the federal rate. This is the amount that the recipient will claim as income. If the interest paid as a deduction, such as a business loan or mortgage with real estate, this is the amount that the payer will show in his tax return. The difference between the real interest and imputed interest will be deducted from the director of the note.
For example, if a person receives an annual interest loan of $ 20,000 in the US (USD), his loan will be adjusted for tax purposes to show the principal and interest. If AFR is 10%for this type of loan, repayment of $ 20,000 will be reclassified as a main payment of $ 18.182 and interest payment of $ 1818 USD. The loan would be considered to be paid in full, but the creditor would be obliged to report the imputed interest as income. If the interest of the loan was qualified as a tax deduction, the debtor would claim a $ 1818 deduction.
In some cases, a person may want to borrowmoney to a child or other family member for small or no interest. Although there are some exceptions for small loans, in the US, these family loans are also subject to the rules for tax data. To avoid unforeseen financial consequences, it is advisable to consult a tax expert before this type of loan.