[Disclaimer: I am not an accountant nor am I qualified to provide tax advice. This post merely shares how Lending Club and Prosper are presenting their tax information this year. You should seek professional advice before taking action on any of the ideas presented here.]

I know I am late with the tax post this year and I apologize. I am filing an extension and have only just got my own tax situation sorted out. I also want to give a big shout out to Lend Academy intern, Nick Armstrong, who did a lot of research for this post and helped put it together.

It was Albert Einstein who said, “The hardest thing in the world to understand is income taxes.” This seems to be especially true with regards to p2p lending. Pairing an extraordinarily complex tax code with a burgeoning young investment model that is not specifically addressed by the IRS can make filing taxes challenging to say the least. This post attempts to bring a little clarity for investors in Lending Club and Prosper.

Lending Club Taxes

A welcome change at Lending Club this year was the introduction of a five-page tax guide. This helpful guide provides a general overview of the documents LC provides. It explains which investors will receive which forms, what information is included and lays out what information is reported by LC to the IRS. This information is helpful both to individuals filing their own taxes as well as tax professionals who might not be familiar with Lending Club.

Lending Club does a good job presenting the pertinent information succinctly in the following tables. If you want to know what forms you should have received take a quick look here (click on any of the graphics below to view a larger image). [Read more…]

[Update: There is now a 2014 Lending Club and Prosper Tax Guide.]

[Disclaimer: I am not an accountant nor am I qualified to provide tax advice. This post merely shares what I have learned from Lending Club and Prosper and how I am doing my taxes this year for my p2p investments. You should definitely seek professional advice before taking action on any of the ideas presented here.]

The tax issue continues to be somewhat complicated for p2p lending investors. Unless you have recently opened your account or have all your investments in some kind of retirement account you would have received a 1099 from Lending Club and/or Prosper this year. This post will try to cut through some of the complexity and explain what all the numbers mean. I will also be sharing how I am doing my taxes for 2012.

Lending Club Taxes

The big change this year is that Lending Club now reports all the interest you have earned on their 1099-OID. In previous years it only included interest for notes where the total interest earned during the year was more than $10. So, if you had a portfolio of only $25 notes you would never even receive a 1099. But legally you were still required to declare all your interest income to the IRS.

Your 1099’s at Lending Club are available in the Statements tab at the top right of your screen. Then click on Tax Statements and you will see the PDFs to download. Important: You will not receive a 1099 in the mail – you must download your statement from that page. If you don’t see a link for Tax Statements that likely means you have a retirement account. Lucky you – you can avoid this whole tax headache.

An Explanation of the Lending Club 1099s

1099-OID – Now, your 1099-OID should accurately reflect your total earnings. Service fees are now deducted from the amount of your 1099 as well.  Here is the exact formula for the number in box 1 of your 1099-OID as provided by Lending Club:

1099 Interest = (regular interest + regular late fee – service fee) + (recovery interest + recovery late fee – recovery service fee)

Lending Club issued an amended 1099-OID on February 21st so that the OID amount is now net of service fees, this was not the case in previous years.

1099-B (Recoveries) – This 1099-B was not released until February 21st and it includes any recoveries from charge-offs. If you received a payment in 2012 from a previously charged off loan then you will have a 1099-B. The amount in Box 2a is the net amount recovered less any collection or service fees.

[Read more…]

[Update: This post was written in 2012 and in 2013 Lending Club changed their policy to include all notes on their 1099-OID, not just those notes that earned at least $10 interest. You can read the 2013 Lending Club and Prosper Tax Guide here.]

This past weekend I spent a good couple of hours working out my taxes for my Prosper and Lending Club accounts. The process is actually pretty simple once you know what to do but it is figuring out where everything goes that takes time. Hopefully this guide will help.

Of course, before I go on I need to point out that I am not a CPA and so this should not be construed as tax advice. You should always consult a tax professional before taking action on any advice presented here. To be clear, everything discussed in this post only applies to taxable accounts – if you have an IRA account at Lending Club and no other p2p lending investment you can ignore this post.

The process for doing your taxes for Lending Club and Prosper is pretty much the same. Both companies record their data a little differently but both provide helpful year-end statements that contain most of the information you will need. However, there is a small challenge that affects Lending Club investors. [Read more…]