How to Report Personal Loan Interest Income

The IRS taxes interest earned through personal loans as self-employment income. This includes any late penalties that you earned by extending the loan. You will need to report the income even if you made out the loan to a friend or family member, so long as you didn't consider the loan a gift. If you made the loan through an intermediary service, that company will send you a 1099 form annually if you earned more than $600. Even if you made less than $600, you will still be obligated to report the income to the IRS and pay taxes.

Instructions

1. Record how much you earned on personal loan interest income. Maintain detailed records of all bank transactions. Keep copies of the loan agreements for your records. This may be necessary if the IRS elects to audit you.

2. Maintain copies of all 1099 forms from intermediary loan facilitator companies (such as Prosper and Lending Club) that you may have received related to your personal loan income.

3. Pay all taxes on the income earned from your outstanding personal loans at your current tax rate according to the amounts that you reported to the IRS. If you are self-employed, you will have to file the income on a quarterly basis along with the rest of your tax returns. If you are primarily employed through another company, you will be able to file your taxes on personal loan income annually with the rest of your information.

References

• Prosper: Proper Investment Help

Resources

• TheSite: Tax and self employment
• IRS: Small Business and Self-Employed Tax Center