Tax Talk Tuesday: Your Family and AFR's

Hello and welcome to another Tax Talk Tuesday with Todd Koch, CPA and Partner at John A. Knutson & Co., PLLP. So often we think of taxes as just income tax, but sometimes we can use the tax code to do some really positive things for our family. And one of those things you can do is look into the low interest rates using that to help out your family. The IRS sets interest rates that must be charged; they are minimum rates you can always charge above that, but there’s a base rate that you have to charge. This is adjusted monthly. These rates are called Applicable Federal Rates, or AFR’s. It sets three different rates. One if you loan is 3 years or less, one if you loan is 9 years or less, and one if your loan is over 9 years. Currently these rates are pretty low, but they’re on their way up. So, it might be time to think about it. Rates currently for May will be about .15% if you loan is 3 years. It will be about 1.1% if your loan is 9 years or less, and 2.2% if you loan is over 9 years. This is a change from the prior month. In April, the short-term rates were about the same, but both the rates for the under 9-year and over 9 year loans went up by .2%. Doesn’t sound like much, but if you look where it has been for the past year the short-term rates have dropped .1%, the mid-term rates have gone up .5%, while the long-term rates have gone up 1%. So, is now the time to help your family? If you want to know more about this and some other options for family loans, please give us a call. We’d be happy to talk to you. www.jakcpa.com 651-641-1099