Quick Tax Tip: Loans As A (Tax) Strategy (LAAS)

Taking out loans against assets you own (for example, you can get loans on the value of stocks you own, or refinance and pull out equity in real estate you have) is a tax-free way to get cash, and is one of the most commonly cited tax strategies we see clients ask about as their income and wealth levels increase.

But in a circumstance where you are specifically taking a loan from a business (yours or anyone’s for that matter) - you actually need to follow some rules, otherwise the IRS will count that as income. To qualify, at minimum you need:

1) a signed agreement;

2) monthly payments; and,

3) a computed and assessed interest rate.

Without these things, you will have a hard time proving that it’s truly a loan and you can wind up with a lot more taxable income than you bargained for.