Taxation of Profits from Loan Interest as an LLC

[Yael Fuerst]

Hi,

I have an LLC that I opened for my real estate properties and have an opportunity to loan $30,000 for 10% over 1 year.

My question is what would be my tax on the profit? From reading other posts do I understand correctly that it is 15%?

Are there any tax benefits in receiving the interest in monthly installments as opposed to the end of the year when loan is returned? 

Thanks!

[Eamonn McElroy]

@Yael Fuerst

Interest is taxed at ordinary bracketed rates and may be subject to additional taxes (NIIT) depending on your AGI.  It is not taxed at long-term capital gains rates.

Individuals are cash basis taxpayers for the most part.  You'll be taxed on the interest when received or when made available to you.  The promissory note will specify when interest is to be paid.

You can defer the tax by specifying in the note that all principal and interest are due when the note is due (i.e. one big lump sum at the end), however that entails more risk to you for which you should be compensated.