Interest from Zidisha: Taxable?

Discussion in 'Zidisha | Fostering Peer2Peer Entrepreneurship' started by HaveMilesWillTravel, Dec 21, 2013.  |  Print Topic

  1. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    It's this time of the year... I am starting to think about taxes.

    I haven't done a ton of Zidisha lending, and I haven't really kept track, but my 2-4% interest loans probably have generated a dollar or two interest. Is that taxable income and will Zidisha issue a 1099-INT for it? I don't worry about having to pay income tax on the interest, but I want to make sure I handle it properly (would suck to get a tax audit over not reporting $5 in interest).
     
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  2. Wandering Aramean
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    Wandering Aramean Gold Member

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    I would assume that it is taxable. I cannot think of why it wouldn't be.
     
  3. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    I can't either, but I haven't found any reference on Zidisha's website. You'd think they'd make this clear, and also indicate how they plan to notify their members of their interest earnings (1099-INT?).

    In fact, what they do say is:


    • Why does the Zidisha website not track the precise financial returns earned on my loans?
      Zidisha is a nonprofit microlending service whose value proposition is primarily social impact. We are not intended as a financial investment platform, and are not licensed to market loans as financial securities. We do not display tracking of financial returns in order to avoid giving the impression that our service is a good place to store financial assets or to make for-profit investments, and in order to ensure that we are in compliance with United States regulations governing the marketing of financial securities.
    https://www.zidisha.org/microfinance/faq.html

    That leads me to believe that they won't issue any 1099-INT and leave it up to me to figure out what to do.
     
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  4. LIH Prem
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    LIH Prem Gold Member

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    Next time bid all your loans at 0% interest and it won't be an issue :)
     
  5. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Indeed.

    I have emailed Zidisha about this.
     
  6. Randy Petersen
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    Randy Petersen Founder

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    There will certainly be other with more in depth information but my understanding is that the typical IRS di minimus rule here would not apply (less than $600) since this involves interest - that is, compensation for the use of money, and that payment is in the form of cash. For information reporting purposes under IRC Section 6049 (the information reporting provisions for Form1099-INT), all interest totaling $10 or more per incident (assume this to be per loan per calendar year) is typically reported to the IRS and the person receiving the interest. These fine print caveats may be reason to suspect no 1099's will be forthcoming on a per loan basis.

    Again, I am not formally able to provide advice and this is just a somewhat learned observation.
     
  7. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Guess Zidisha may be similar to Lending Club. There seems to be more information on the web about what they do.
     
  8. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    My email to Zidisha:

    Their reply:

    Not sure how my tax advisor (aka TurboTax) is going to be able to tell me if Zidisha will issue a 1099-INT or provide the relevant data online. :-/
     
  9. Wandering Aramean
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    They are clearly doing their best to maintain the image of not being an investment house so as to avoid the paperwork and regulatory oversight which come from such actions. Oops.
     
  10. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Yes. But just because you say you aren't one doesn't mean the rules don't cover you. If you quack like a duck, you are a duck, even if you say you are a zebra.
     
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  11. Wandering Aramean
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    Wandering Aramean Gold Member

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    And it will be quite interesting when the IRS and/or SEC decide to mention that to them. :oops:
     
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  12. KyRoamer
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    KyRoamer Gold Member

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    I limit individual loans to $25 so none pay more than $2.50 (I limit interest rates to 10%, usually less). I have assumed (maybe incorrectly) that there is no reporting required.
     
  13. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    My loans have all been $25 or less, and my interest rate requests all below what was offered, typically in the 2-4% range.

    You probably know what they say about people who assume, right? ;)

    It's not the thought of having to pay taxes on the meager amount of interest that bugs me. The effort to actually figure it out by far exceeds the tax expense. I don't see any place on their website where they break out the interest earned. The transaction history just shows repayments -- how much of it was interest is not shown. In fact, I don't even see a way of finding out the interest rate I bid or receive (except for loans that expired).

    Fortunately my portfolio is rather small with only $250 invested as an experiment in January of 2013, but even those have generated 70 lines of transaction history to work through. I can only imagine how thrilled I would be if I had my Kiva portfolio in Zidisha :-/

    For the time being, I am not making any new Zidisha loans. Repayments will probably be withdrawn.
     
  14. gleff
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    gleff Co-founder

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    1099-INTs are generally sent when $10 in interest cumulatively over the course of the year has been paid to a single tax entity.

    It's not $10 per loan --

    If you earn $1 a month in interest from your bank, you earn $12 for the full calendar year, your bank will send you a tax form for the $12 interest (since you hit the $10 threshold).

    Strictly speaking your tax liability does not stem from receiving a tax form. But you won't generally receive the tax form for less than $10 earned during 2013.

    Hard to imagine that there wouldn't be some sort of tax reporting required for amounts exceeding the threshold, whether or not that will happen I can't speak to here.
     

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