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Financial Planning / Tax Strategies
|Subject: Re: Accrued Interest||Date: 6/3/2001 9:16 PM|
|Author: gailkay||Number: 51455 of 122503|
The reason you are having a difficult time finding the answer is because it isn't an easy question (despite looking simple).
Generally, individuals are cash-basis taxpayers - which means that they recognize income when received and expenses when paid. However, what does "received" mean? We could spend days discussing constructive receipt issues.
When you say the interest is not payable until you call the loan - could you demand the interest earlier? If yes, you may have constructive receipt and if you have constructive receipt you would recognize the interest, and the company would deduct the interest, when paid.
Are you an owner, or related to someone who owns the stock, or do you own a company that owns stock in the company you loaned money to?
If yes, the rules differ - not for you, but an accrual based corporation with loans from a related taxpayer is placed on the cash basis with respect to that loan - and the interest expense is not deductible until the same tax year that the receiving interest party recognizes the income.
Now, aren't you sorry you asked?
Generally, tho, the answer to your question in most cases would be no, you recognize the interest income in the tax year in which it is actually paid.
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