Jill and I were discussing Lending Club [1] tax reporting last weekend, and we thought it would be a helpful discussion for everyone, since many of you have taken advantage of Lending Club sign up bonuses [2].
Is Lending Club taxable? How do you report interest earned on Lending Club loans on your taxes? What do you do if you don’t get a Lending Club tax statement?
Let’s take a closer look at all of the Lending Club [1] taxation topics.
Is Lending Club taxable?
Yes. How’s that for a direct answer? Just like income you receive from a savings account or other investment, your net earnings from Lending Club [1] loans are taxable. So do yourself a favor and report it.
To get started, you’ll need three sets of statements for your Lending Club tax reporting: your year end statements, your monthly statements and your tax statements. You can find all three in your Lending Club account under the statements tab.
How do you report interest earned on Lending Club loans on your taxes?
Lending Club [1] will produce various 1099s [3] for you based on your investments. The most common is the 1099-OID (which stands for original issue discount). Here’s how to report it:
- 1099-OID: If Lending Club sent you a 1099-OID, you’ll report it on Schedule B, Line 1. The 1099-OID for newer Lending Club loans replaces the 1099-INT they sent for loans a few years ago. More specific instructions for how to report OID tax forms are in publication 1212 [4] on page 6, under how to report.
- Reconcile your 1099-OID with your year end statement.
- If there are differences (which I’m going to bet there will be), add any net earnings not reported on the 1099-OID to your taxes (see below for how to calculate the amount).
What do you do if you don’t get a Lending Club tax statement?
Chances are, if you are investing only $25 in each loan, you’re not going to get a 1099-OID.
Lending Club [1] will only produce a 1099 for you when an individual loan has interest above $10. So, even if you have dozens of loans that together were greater than $10, you’re still not going to get a tax statement.
So that means many of you who are diversifying across lots of loans, as the social lending [5] model is built on, are going to be in this situation.
Here’s how to handle it, since the Lending Club earnings are still taxable, even if you don’t get a tax statement.
- Review the earnings summary on your year end statement.
- Calculate your taxable earnings. Taxable earnings = loan interest + late fees – servicing fees.
- The loan interest and late fees are displayed on your year end statement.
- Unfortunately the servicing fees aren’t, so you have to look back through your account to add those up. They are displayed on your detailed monthly statements. Hopefully, Lending Club will fix that in the future, because I have to be honest, that’s a pain point.
If you are adding your self calculated net earnings to the amount on your 1099-OID, be sure you don’t double count any of your loans by mistake.
Lending Club Charge Offs
Another tricky Lending Club tax topic? The charge off.
I had a charge off [6] awhile back which was even stickier when it comes to taxes. Based on all of the regulations I’ve read, there could be a few different ways to report your charge off.
By the way, because I know some of you are going to ask…. I handled the charge off by reporting it as a personal bad debt and showing the net loss as a capital loss on Schedule D.
Lending Club Taxes
When it comes to taxes, Lending Club investments do take a bit of work; it’s something we need to add to our Lending Club Review [7].
But obviously, if you scored a Lending Club sign up bonus [2], free money is worth a little extra paperwork.
Hopefully the instructions above will help make it a little easier! I realize it’s a lot to take in, and I wish there was a more straightforward way to explain Lending Club taxes.
Be honest. Does this make the Lending Club tax situation more clear? Or are you even more confused than before?