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If I want to loan money to a family member so that they can pay off student loans quicker, I have a few questions.

  1. Is it inevitably taxed by the government?
  2. What is proper documentation procedure (or at least where does it start? A bank? A lawyer?)
  3. Is it better to ask several family members to help contribute so each person loans less? Or is it taxed the same?
  • Amount? If it doesn't exceed gift limits, that's simplest and avoids taxes. Otherwise, research intra-family loan; there are rules for minimum interest rate that you must charge (or at least that you will be charged tax upon but it's low enough thst I really wouldn't worry about it for most reasonable loans -- under 0.3% last time I checked. – keshlam Nov 16 '15 at 0:37
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    Gift it to them, or don't. – Pete B. Nov 16 '15 at 0:57
  • Tax questions require the OP mention the country. – mhoran_psprep Nov 16 '15 at 11:01
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    Don't forget the first rule of lending to friends or family. Never make a loan for an amount larger than what you're willing to give someone as a gift. – Dan Neely Nov 16 '15 at 22:01
  • Don't do it. The only upside is a small gain for you and a small benefit for them. The downside is a destroyed relationship. It is not worth the gamble. – Ben Miller - Reinstate Monica Dec 18 '15 at 13:13
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Is it inevitably taxed by the government?

Which government? Tax treatment of familial loans varies greatly be jurisdiction.

What is proper documentation procedure?

If you want to get paid back, definitely a lawyer ... each.

Is it better to ask several family members to help contribute so each person loans less? Or is it taxed the same?

If this is only a tax issue then see above. If it is a means of spreading risk then sure.

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assuming you are in the USA, i would recommend making this a gift. you can gift someone up to 14k$ per year without paying a gift tax. additionally, you can gift someone up to 5430k$, but it is a one-time deal (tied to inheritance tax).

you can have a general expectation with the giftee that they will return the money with some interest on some schedule. you can even write that payment schedule down. but for legal, tax and personal relationship reasons, you should both consider all these payments gifts. if you think failure to repay will put a strain on your relationship, then you shouldn't make the loan. if not, then the payments in both directions really are gifts.

as a gift, legal documentation can be really minimal. really, only the gifter has to document anything, and that is just on their tax return. even then, i think it is only necessary if you exceed the 14k$ annual gift limit. i would however recommend documenting any interest rates or payment schedules for personal reasons. being a gift, these numbers are just guidelines, but at least you won't find yourself arguing about whether or not the guidelines are being met.

depending on how large the amounts involved are, you might want to spread the load over several people to stay under that annual limit. but the limit is per tax year, so you could do half now and half in january.

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