Author Topic: Peter's Tax Post  (Read 49112 times)

PennySaved

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Re: Peter's Tax Post
« Reply #30 on: April 07, 2013, 04:51:35 PM »
Are you investing with Lending Club or Prosper or both?  Did you read Peter's tax guide?

http://www.lendacademy.com/the-2013-lending-club-and-prosper-tax-guide/

I do my taxes by hand and don't use Turbo Tax.  But people might be willing to any questions if we had more details.  Basically, the 1099-OIDs include all interest received plus late fees minus service fees.  You don't need to worry about any adjustments for accrued interest.  Other posters are arguing that the OID interest should include accrued interest for various reasons, but actually LC and Prosper are not including it.  This is causing confusion.

OID interest gets reported on Part I Interest of Schedule B along with any other interest your received from other accounts.  The total of that interest gets reported as Taxable Interest on line 8A of Form 1040.  Charge-offs of principal from notes, get reported as short term losses on Form 8949.  You can report them in a shorthand way as Peter describes in his writeup with just the total losses with date acquired (a) and date sold (b) as "various".  Report the total chargeoff amount as Cost or other basis in column (e).  Proceeds in column (d) is zero.  Leave adjustment columns (f) and (g) blank.  Report total loss as a negative number in column (h).  For description in column (a) you would put something like Lending Club Note Defaults- Bad Debt.
OR
You can do as I did and report each charged-off note individually on Form 8949. For (a) description of Property, I would write Lending Club Note ID xxxxxxx- Bad Debt Statement attached, where xxxxxx is the specific Note ID #.  For column (b) date acquired, I would put the date of issue of the note and for column (c) date acquired or sold, I would put the date of chargeoff.  Proceeds in column (d) is zero.  Cost of other basis in column (e) is the amount of principal remaining unpaid for that the note that was charged off.  You will have to get the dates and the principal amount charged off from looking at the note history online.  You can also get some of the data from downloading a spreadsheet of data for your own notes.  Leave adjustment columns (f) and (g) blank.  Report amount of unpaid principal per note as a loss in column (h).  Total the losses and report in total column at bottom of page.  I had to report mine on two pages. 

Be sure to check Box C at the top of the page (Form 8949) if you are reporting losses from Lending Club.  Box C is for Short Term Transactions not reported to you on Form 1099-B.  If you are reporting Prosper losses, then according to Peter, they provide these numbers on a 1099-B.  Then you may have to check Box A or B on Form 8949 depending on whether the basis was or was not reported to the IRS. I believe that is shown on the 1099-B.  I don't have Prosper losses, only losses from LC, so I don't know for sure.  Then I attached a generic Statement of Bad Debt to cover an explanation for all the charged off -notes.  I think I provided this in another post, I will have to go back and pull it out.

Onward to Schedule D, where you need to report the short-term loss total from Form 8949 in Part I of Schedule D on lines 1, 2 or 3 depending on whether the loss is associated with Form 8949 checkboxes A, B or C, respectively.  You add these short term losses to any other short term losses or gains you reported.  Then combine them with any long-term gains or losses reported in Part II of schedule D.  Then just keep following instructions for reporting on Schedule D, Capital Gains and Losses.

PennySaved

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Re: Peter's Tax Post
« Reply #31 on: April 07, 2013, 05:04:56 PM »
In second paragraph below is the Statement of Bad Debt I provided to IRS with my 2012 Federal Taxes.  I also provided a table showing them for charged-off note, the Borrower  ID, Loan ID and Note ID, date of loan issue, original amount of note, repayment term (36 or 60 mos.), date of last payment made, remaining unpaid principal, charge-off date and reason for charge-off.  Pub 550 Instructions say for each bad debt, attach a statement to your return that contains:

A description of the debt, including the amount and when it came due.
The name of the debtor, and any business or family relationship between you and the debtor
The efforts you made to collect the debt
Why you decided the debt was worthless.  For example, you could show that the borrower has declared bankruptcy, or that lega action to collect would probably not result in payment of any part of the debt.

So the table I provide along with the attached statement, I feel fullfills the requirement of the IRS instructions in Publication 550 regarding bad debt.  Others may not provide this much detail in their tax return, but absent any specific direction from IRS on reporting losses on charge-offs on peer-to-peer lending notes, this is what I did to cover myself.

Attached Statement for Form 8949, Tax Year 2012
My Name and  SSN

LendingClub Bad Debt on Defaulted Notes for Consumer Loans

The bad debt of $487.80 I am reporting on IRS Form 8949 for tax year 2012 is for 21 notes issued by LendingClub for  “peer-to-peer” consumer loans now in default of payment and charged off by LendingClub in 2012 after unsuccessful collection attempts.  LendingClub (www.lendingclub.com) acts as an agent between the lender (myself) and the borrower. For each loan LendingClub makes to a borrower, it issues notes to individual lenders investing in the loan.

Most of the defaulted notes were issued for loans for borrowers wishing to consolidate existing credit card debt.  LendingClub employs a collection agency which made several attempts to collect payments on the loans.  Loans are usually charged off by LendingClub if payment collection is unsuccessful after 120 days or if the borrower has declared bankruptcy.  All collection activities are noted in the LendingClub collection log notes and payment loan history online.

I do not know the names of the debtors. Only LendingClub knows the names of the debtors. I only know the debtors by their LendingClub Borrower ID, Loan ID and Note ID.    Also I do not have any family relations to any debtor.
Please see attached table for further detail of each charged-off note, which includes Borrower  ID, Loan ID and Note ID, date of loan issue, original amount of note, repayment term (36 or 60 mos.), date of last payment made, remaining unpaid principal, charge-off date and reason for charge-off.

Since the debt is not collateralized I do not expect to receive anything from any bankruptcy proceeds. I therefore deem this debt worthless.  Any amounts of charged-off notes that LendingClub has recovered from these bad debts and reported on Form 1099-B will be reported by me as capital gains on Form 8949 and Schedule D.

LendingClub contact info:  LendingClub Corporation, 71 Stevenson St., Suite 300, San Francisco, CA  94105 (888) 596-3159

My Name _______________________________   Date__________________   
         (signature)

American in Busan

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Re: Peter's Tax Post
« Reply #32 on: April 07, 2013, 08:09:47 PM »
What's the worst that could happen if I don't report anything at all?

PennySaved

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Re: Peter's Tax Post
« Reply #33 on: April 08, 2013, 11:33:12 PM »
If you decide to not report your interest, see IRS Topic 652 - Notice of Underreported Income – CP-2000
http://www.irs.gov/taxtopics/tc652.html "The IRS compares the information reported by employers, banks, businesses and other payers on forms W-2, 1098, 1099, etc., with income and deductions reported on your income tax return. If you failed to report any income, payments, and/or credits (or if you overstated certain deductions) on an income tax return, you may receive a Notice CP-2000."

and see also:
IRS Topic 653 - IRS Notices and Bills, Penalties and Interest Charges
http://www.irs.gov/taxtopics/tc653.html

If you decide to not pay taxes on interest income, then see
The IRS Collection Process- Publication 594
http://www.irs.gov/pub/irs-pdf/p594.pdf

You probably won't have to go to prison like Wesley Snipes, unless you owe the IRS millions.

Happy Lending!

American in Busan

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Re: Peter's Tax Post
« Reply #34 on: April 09, 2013, 05:42:58 AM »
Ah, thank you. I was curious because it seems that many of my cohorts don't file a 1040 at all, and the most I owe on my 1099s is like 100$ or so.

PennySaved

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Re: Peter's Tax Post
« Reply #35 on: April 09, 2013, 04:58:41 PM »
The best thing to do is report all your income and pay your taxes to stay out of trouble.  Do you really want to go through all the headache and hassle of getting caught?  Also, it would be fair to those of us who do pay our taxes to pay your fair and required share.  Our govt needs the money and it is the right thing to do even if the IRS does not take enforcement action first.  This is partly how Greece got into financial trouble.  Too many people dodging their taxes and too little enforcement of payment.  OK, lecture over.  :)

dontvote

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Peter's Tax Post
« Reply #36 on: April 10, 2013, 12:37:07 AM »
I want to give the opposite view: screw them before they screw you. Pay nothing until you have to. Admit nothing.

Dont(you know)
dontvote

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Lloigor

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Re: Peter's Tax Post
« Reply #37 on: September 18, 2013, 06:45:49 PM »
So I'm taking advantage of the extension this year and just reading up now, and going to bring back a dead thread.  What do those with expertise think is the appropriate way to handle trading?  If I understand correctly, selling will be a capital loss or gain depending on the discount or markup.  The two situations I have to deal with are buying at a premium and holding to end-of-year, and buying at a markup, holding for several payments, and then selling at a markup.  Any sound advice would be much appreciated.

BruiserB

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Re: Peter's Tax Post
« Reply #38 on: February 09, 2014, 02:50:28 PM »


Per Code Section 166, non business bad debts are treated as short term capital losses, regardless of how long you've held the debt instrument.  See generally, http://www.fool.com/school/taxes/2000/taxes000107.htm for why that matters.  If you have net short-term capital loss, you can deduct against ordinary income up to $3k per year.

Note that the mandatory short-term rule only applies to losses, not to gains.  If you buy a note, hold it for a year, and sell for a gain over your adjusted basis, you get long-term capital gain (yippee!).


In Lending Club's 2013 Consolidated 1099 Package, they say losses on notes held for more than one year should be reported as long term losses and losses on notes held less than one year should be short term losses.  I did look up Code 166 and do see where it says non business bad debts should be reported as short term losses.  I'm wondering which is correct?  Is there a chance that our loan fractions aren't considered "debt" but rather more like a security (or a bond).  If a bond issuer were to default, is that different than simple debt?

standby

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Re: Peter's Tax Post
« Reply #39 on: February 12, 2014, 04:55:35 PM »
Hey PennySaved,  I wanted to thank you for your super-knowledgeable post about charge off tax reporting, etc.  Thank you, thank you!  I hope you don't mind if I consider using your form letter template.  You're awesome!    ;)  .....Laurie 
« Last Edit: February 12, 2014, 04:57:28 PM by standby »

Peter

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Re: Peter's Tax Post
« Reply #40 on: February 15, 2014, 11:53:09 AM »
In Lending Club's 2013 Consolidated 1099 Package, they say losses on notes held for more than one year should be reported as long term losses and losses on notes held less than one year should be short term losses.  I did look up Code 166 and do see where it says non business bad debts should be reported as short term losses.  I'm wondering which is correct?  Is there a chance that our loan fractions aren't considered "debt" but rather more like a security (or a bond).  If a bond issuer were to default, is that different than simple debt?

There is still no clear consensus on this issue. I have been working on this year tax post and should have it out in a week or two where I will address questions such as these.
Publisher of the Lend Academy blog

See my returns here: http://www.lendacademy.com/returns

PennySaved

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Re: Peter's Tax Post
« Reply #41 on: February 16, 2014, 01:28:33 AM »
Hey PennySaved,  I wanted to thank you for your super-knowledgeable post about charge off tax reporting, etc.  Thank you, thank you!  I hope you don't mind if I consider using your form letter template.  You're awesome!    ;)  .....Laurie

You are welcome to use the form letter.  Actually, I borrowed most of it from somebody else who had posted it somewhere.  I just tweeked it a little for my needs.

PennySaved

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Re: Peter's Tax Post
« Reply #42 on: February 16, 2014, 08:45:42 PM »
Looking at my Lending Club 2013 Consolidated 1009 Package and Details, I see for the charge-offs that Lending Club has a line at the top that says "Note- Information to Report Charged-Off Notes Have Not Been Reported to IRS on 1099-B".  Fine, but then at the bottom of the listings for the long term chargeoffs where they subtotal the amount, they state "Subtotal Long Terms Transactions for which basis is NOT reported to the IRS- Report on Form 8949, Part II, with Box E checked."

But checking Box E would be WRONG because that is for transactions that have been reported on a 1099-B with no basis reported.  Lending Club did not report the chargeoffs on 1099-B at all. You should be checking Box F, which is for long term transactions not reported to you on Form 1099-B.

Likewise with the short term chargoffs, LC put a note by the subtotal saying "Subtotal Short Term Transactions for which basis is NOT reported to the IRS- Report on Form 8949, Part I, with Box B checked."  Again, WRONG, instead you would report them on Form 8949, Part I, with Box C checked, for short term transactions not reported to you on Form 1099-B.

If I have got this wrong, then please enlighten me.

qval

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Re: Peter's Tax Post
« Reply #43 on: March 11, 2014, 03:33:40 PM »
Thank you to AmCap, Pennysaved, and Peter for all the information. Last year I did the simple adjustment of the 1099OID amount, but I think I have more losses and sales this year and wil have to do the full complex 8949/Schedule D treatment. Peter, are you going to make a 2013 tax post this year (and title it for the tax year, not the current year :-)?

Lovinglifestyle

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Re: Peter's Tax Post
« Reply #44 on: March 11, 2014, 06:36:16 PM »
Looking at my Lending Club 2013 Consolidated 1009 Package and Details, I see for the charge-offs that Lending Club has a line at the top that says "Note- Information to Report Charged-Off Notes Have Not Been Reported to IRS on 1099-B".  Fine, but then at the bottom of the listings for the long term chargeoffs where they subtotal the amount, they state "Subtotal Long Terms Transactions for which basis is NOT reported to the IRS- Report on Form 8949, Part II, with Box E checked."

But checking Box E would be WRONG because that is for transactions that have been reported on a 1099-B with no basis reported.  Lending Club did not report the chargeoffs on 1099-B at all. You should be checking Box F, which is for long term transactions not reported to you on Form 1099-B.

Likewise with the short term chargoffs, LC put a note by the subtotal saying "Subtotal Short Term Transactions for which basis is NOT reported to the IRS- Report on Form 8949, Part I, with Box B checked."  Again, WRONG, instead you would report them on Form 8949, Part I, with Box C checked, for short term transactions not reported to you on Form 1099-B.

If I have got this wrong, then please enlighten me.

My Box E said ...1099B...for which BASIS was not reported... , so it seemed to me that LC was clear when they reported the event but made the basis not reported notation and directed me to Box E.  It took me a while to differentiate between sale only reported or sale + basis reported and actually read all the boxes.  So I went ahead and followed LC instructions. Don't know if that is good or bad. The only thing I didn't like this year was having to add up the columns with adding machine tape in my low tech world, lol. 

fwiw, my losses went $800 over $3K, afterI had just gotten (the carryover amount) to 0 finally last year, so don't know what I'll do this year.  Maybe just let more charge off if/after I lose $2200!

I try hard not to err at all, but if I do by accident I want it to be in favor of the IRS.  Life is too long for that kind of an argument.