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The Complete Idiot's Guide to Person-to-Person Lending by Curtis E. Arnold, Beverly Harzog

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Chapter 24
Taxing Matters for Lenders
In This Chapter
• How the IRS classifies P2P lending websites
• What you need to know about federal income tax on interest income
• Understanding Form 1099
• State tax issues
• Why gift tax issues are tricky when it comes to taxes
 
Comedian Jay Leno once said about taxes, “Worried about an IRS audit? Avoid what’s called a red flag. That’s something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That’s a red flag.”
That’s one of those so-funny-it’s-sad things, isn’t it?
Let’s begin by taking a look at how the IRS views P2P lending websites—in a way that’s similar to brokerage houses.

IRS Classification

Under Internal Revenue Service section 6049, ...

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