Big Law Bar Loan Tax Treatment Forum

[Anonymous User]

Doing my taxes, trying to figure out how to treat an interest free loan from my employer. Most was repaid last year, and the initial loan was treated as taxed salary.

How do you treat the repayment? If a loan was 20k, and you paid 10k in 2015, do you only disclose the 10k left over? Do you disclose it all, and put the amount you paid back in other deductions? How do you disclose that you were pretaxed on it? Are you responsible to research the inflation rate and list the value at disbursement vs. reimbursement (i.e. 20k in May 2015 is worth slightly more than 20k in March 2016).

Basically, if I paid back 20k, I don't want to get taxed as though I didn't as that would essentially be a loan with 40% interest.

[Anonymous User]

http://www.top-law-schools.com/forums/v ... n#p9205061

[ballouttacontrol]

http://www.top-law-schools.com/forums/v ... n#p9205061

If you want to be technical about it, the advice in that thread is wrong. Below market rate loans are taxable income w/r/t the marginal benefit of your below market interest rate and the applicable Federal rate (notwithstanding the $10k de minimis exception). E.g., 0% interest rate loan, the taxable benefit would be the %age less than the applicable Federal rate.

Source: IRC s 7872...google it.

edit: and for the applicable federal rate: https://www.irs.gov/pub/irs-drop/rr-16-07.pdf

[Anonymous User]

"initial loan was treated as taxed salary". Since when are loans taxed upon receipt? Sounds like a salary advance rather than a loan. Don't most firms do the, and then deduct cash from your paychecks to balance it out (e.g. get a 10,000 advance, firm takes 500 out of your paycheck for 20 weeks since they already paid you that amount).

[JDtoTAX]

If the bar loan was included in, and taxed as, wages when originally given, you can take an itemized tax deduction in the year you pay it back. If you pay back more than $3,000 in a year, you can do a deduction not subject to the 2% floor. Check out pg. 34 of this IRS Publication (https://www.irs.gov/pub/irs-pdf/p525.pdf)

Hope that helps!