Money is being loaned by my parents; decision?

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star fox

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Re: Money is being loaned by my parents; decision?

Postby star fox » Tue Jan 31, 2017 3:09 pm

Entrepreneurial ventures fail at like a 65 % rate and a lot of entrepreneurs are serial entrepreneurs. About 25 % return a modest sum upon exit (usually a sale) and 10 % become really successful and net the founders and early investors a big return. Not withstanding that it's not really clear whether the money that would be lent for education is a no strings attached lump sum loan for any purpose (it probably isn't) the odds are very strong that money being lent for a business is just money going down the drain and nothing to show for it (except I guess a lesson in the struggles of running a business) whereas a degree confers a lifetime of human capital that can impact earning potential for the rest of your life.

Npret

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Re: Money is being loaned by my parents; decision?

Postby Npret » Tue Jan 31, 2017 3:54 pm

katthegreat11 wrote:
Npret wrote:
katthegreat11 wrote:
Npret wrote:
katthegreat11 wrote:I highly recommend everyone check out r/personalfinance on reddit- you can find a lot of stories of people paying off $100k+ in law school or other student debt in an extremely short amount of time. How do they do it? Strict budgeting and avoiding lifestyle creep.

I think an important point here is that no one is saying one way is better than the other. It is entirely a matter of priorities. If you prioritize paying off your debt as quickly as possible, by making sacrifices in your apartment, meals, "fun" purchases, retirement savings, etc. you will be able to do it on a biglaw salary. But if you don't want to, because you just worked damn hard for three years and you want to spend your hard-earned money, then do so! Take the 10 years or whatever to pay off the debt! That is 100% fine!

I personally want to take the former route and get rid of my debt as fast as possible, so that I have the freedom to change jobs if I am unhappy- and so I'm not totally screwed if I lose my biglaw job. I am planning on living the same way on a $180k salary as I do now on a $43k salary until my debt is paid off. My current expenses (living in downtown DC with a roommate) are about $2000 a month (including rent, utilities, food, transportation, and fun stuff). I am confident I can live similarly and pay off close to $50k a year after law school.


How is this working with clothing and socializing at your biglaw job? What are you buying to wear to work so you look like a professional? What do you do when your colleagues go out? What do you do for entertainment?
Edit:
Oh sorry are you still in law school? Do you have a biglaw job? I thought you did because you said you wanted to be sure you weren't screwed "if you lost your biglaw job."


I said "I am planning on living the same way"- not in law school nor do I have a biglaw job yet.


Sounds like you are also planning on big law. Be careful because it isn't a sure thing. Not everyone who wants or expects biglaw is going to get it.

Just saying it may not be as easy to live on that budget as you think. You will need clothes as the very least. Of course things will be more expensive in 3-4 years as well but salaries won't be increasing, I wouldn't plan on it anyway.


I am pretty confident I will get a biglaw job. And I understand living on that budget won't be easy, that's why it's a sacrifice. I fully recognize the possibility of me not being able to stick to it, it's just something I want to strive for.


Yes, everyone is confident they will get biglaw if they get into a certain school. Otherwise how could they justify mortgaging their future for a hundred thousand dollars or more. Yet, it doesnt happen. Not for everyone ho is counting on it.

LotsofPrivledge

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Re: Money is being loaned by my parents; decision?

Postby LotsofPrivledge » Tue Jan 31, 2017 4:41 pm

pancakes3 wrote:your parents are making a gift to you > exemption so they'll be subject to gift tax.

one way or another, someone is getting taxed.

yet another reason to cop scholarship, which is not taxed.

edit: whether or not the money passed through your hands has nothing to do with whether it's counted as income or gift. it's the economic benefit that you receive and whether or not it was in exchange for consideration.


That is just not true. Tuition paid directly to the institution does not count as income or a gift to me. In fact, they can still pay me 14k a year (each) on top of it if they wanted (which would cover COL).

https://www.wsj.com/articles/pay-tuitio ... 1435599143

http://blog.taxact.com/gift-tax-support ... -children/

LotsofPrivledge

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Re: Money is being loaned by my parents; decision?

Postby LotsofPrivledge » Tue Jan 31, 2017 4:47 pm

CPA-->JD wrote:
mvp99 wrote:You actually/probably have to recognize the saved interest as income. The loan from your parent surpasses the irs threshold

I believe(would need to double check this) they would have to pick it up as interest income by the lender(parents here). However, if the loan is less than 100k, the interest would limited to the amount of investment income earned by the borrow(OP). See IRS pub 550.


CPA - JD seems like a good person to answer this question. Since tuition paid does not count as a gift, what interest income is there? I am not paying them back any interest, and the only gift I would be receiving is cost of living payments (less than the gift amount needed to report). I don't see what would need to be reported?

CPA-->JD

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Re: Money is being loaned by my parents; decision?

Postby CPA-->JD » Tue Jan 31, 2017 4:52 pm

LotsofPrivledge wrote:
CPA-->JD wrote:
mvp99 wrote:You actually/probably have to recognize the saved interest as income. The loan from your parent surpasses the irs threshold

I believe(would need to double check this) they would have to pick it up as interest income by the lender(parents here). However, if the loan is less than 100k, the interest would limited to the amount of investment income earned by the borrow(OP). See IRS pub 550.


CPA - JD seems like a good person to answer this question. Since tuition paid does not count as a gift, what interest income is there? I am not paying them back any interest, and the only gift I would be receiving is cost of living payments (less than the gift amount needed to report). I don't see what would need to be reported?

Is it a gift or a loan?

katthegreat11

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Re: Money is being loaned by my parents; decision?

Postby katthegreat11 » Tue Jan 31, 2017 4:54 pm

Npret wrote:
Yes, everyone is confident they will get biglaw if they get into a certain school. Otherwise how could they justify mortgaging their future for a hundred thousand dollars or more. Yet, it doesnt happen. Not for everyone ho is counting on it.


No, but some bets (aka schools) are surer than others. And I'm willing to take a big risk if it means I will get to pursue what I love.

BigZuck

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Re: Money is being loaned by my parents; decision?

Postby BigZuck » Tue Jan 31, 2017 5:02 pm

katthegreat11 wrote:
Npret wrote:
Yes, everyone is confident they will get biglaw if they get into a certain school. Otherwise how could they justify mortgaging their future for a hundred thousand dollars or more. Yet, it doesnt happen. Not for everyone ho is counting on it.


No, but some bets (aka schools) are surer than others. And I'm willing to take a big risk if it means I will get to pursue what I love.

You love big law?

LotsofPrivledge

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Re: Money is being loaned by my parents; decision?

Postby LotsofPrivledge » Tue Jan 31, 2017 5:12 pm

CPA-->JD wrote:
LotsofPrivledge wrote:
CPA-->JD wrote:
mvp99 wrote:You actually/probably have to recognize the saved interest as income. The loan from your parent surpasses the irs threshold

I believe(would need to double check this) they would have to pick it up as interest income by the lender(parents here). However, if the loan is less than 100k, the interest would limited to the amount of investment income earned by the borrow(OP). See IRS pub 550.


CPA - JD seems like a good person to answer this question. Since tuition paid does not count as a gift, what interest income is there? I am not paying them back any interest, and the only gift I would be receiving is cost of living payments (less than the gift amount needed to report). I don't see what would need to be reported?

Is it a gift or a loan?


I don't really know the answer to that question. I just researched a little more and it seems like they would have to charge me interest to keep this above water (what you were referencing before). I guess they could give me a gift of up to $28k a year, and then loan me the rest to be repaid at the approved federal rate (1.53% for nine years and under?). I guess that would still be better than federal interest rates.

CPA-->JD

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Re: Money is being loaned by my parents; decision?

Postby CPA-->JD » Tue Jan 31, 2017 5:27 pm

LotsofPrivledge wrote:
CPA-->JD wrote:
LotsofPrivledge wrote:
CPA-->JD wrote:
mvp99 wrote:You actually/probably have to recognize the saved interest as income. The loan from your parent surpasses the irs threshold

I believe(would need to double check this) they would have to pick it up as interest income by the lender(parents here). However, if the loan is less than 100k, the interest would limited to the amount of investment income earned by the borrow(OP). See IRS pub 550.


CPA - JD seems like a good person to answer this question. Since tuition paid does not count as a gift, what interest income is there? I am not paying them back any interest, and the only gift I would be receiving is cost of living payments (less than the gift amount needed to report). I don't see what would need to be reported?

Is it a gift or a loan?


I don't really know the answer to that question. I just researched a little more and it seems like they would have to charge me interest to keep this above water (what you were referencing before). I guess they could give me a gift of up to $28k a year, and then loan me the rest to be repaid at the approved federal rate (1.53% for nine years and under?). I guess that would still be better than federal interest rates.

If they are straight up paying your tuition I believe that's not a taxable gift as you mentioned. If they are loaning you the money then, as I mentioned, they would have to pick up the forgone interest as income, unless it is less than 100k and you have no investment income. Just google "irs publication 550" for the rules on forgone interest.

Also, even if it's a gift, there are life exemptions from gift tax around 500k or so therefore they prob wouldn't need to pay anything but would have to file a gift tax return which isn't a big deal.

BigZuck

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Re: Money is being loaned by my parents; decision?

Postby BigZuck » Tue Jan 31, 2017 5:32 pm

"No, no, it's not a LOAN, it's a GIFT haha lulz *wink, wink* Are you picking up what I'm putting down?"

-Future lawyer



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