Over the past couple of weeks, I’ve been asked by several readers about how to handle your Lending Club earnings and expenses when it comes time to file your taxes. While I’m not a tax pro, I’m always willing to share our experiences, so… Here goes.
Paperwork, paperwork, paperwork
For starters, for all loans originated before 10/14/2008, Lending Club will issue a Form 1099-INT if the total interest received for all of these loans was $10 or more. That’s the good news.
The bad news is that for all loans originated on or after 10/14/2008, Lending Club will issue a Form 1099-OID for each note that generated $10 or more in earnings. Yes, you read that right. You’ll get a 1099 for each note that produced at least $10 in earnings.
If you’re expecting to receive any 1099-INT or 1099-OID forms from Lending Club, you’ll need to log in and click the “Statements” link in the header. Now scroll down the page past all of your monthly statements and you should see a link to your “Tax Statements” – click it and then click to download your 2010 forms.
Believe it or not, despite having invested a fairly significant sum with Lending Club, I didn’t receive any 1099-OID forms this year. The main reason for this is that I keep my notes small, so each one doesn’t generate a whole lot of income.
Last but not least, if you received any other sort of income from Lending Club, such as a signup bonus or referral fee, you will receive a Form 1099-MISC, but only if the total of such payments was at least $600. I believe that this form should have arrived in the mail, but I’m not 100% sure.
Collecting your numbers
Given that I didn’t receive any 1099 forms from Lending Club, I’m off the hook as far as taxes go. Right? Wrong. Whether or not the income is reported to the IRS, you are still legally obligated to pay income taxes on it.
The easiest way to figure out how much you earned during 2010 is to download your year-end statement, which you can retrieve by going through the “Statements” link that I mentioned above. On the first page of your statement, you’ll find your total earnings (loan interest + late fees) as well as your losses.
Unfortunately, the year-end statement lacks one critical piece of information… The service fees paid to Lending Club over the course of the year. To get this information, you’ll need to download all 12 of your monthly and tally up the service fees from each.
Of course, if you track your Lending Club investments in Quicken, you could pull your numbers from there. That being said, I’d rather get the data straight from the source to reduce the likelihood of errors.
Figuring your earnings
Okay, now that you have all of the numbers in front of you, simply add up your loan interest and late fees and subtract off your losses (from loan defaults) and services fees. The resulting value represents your net earnings.
Before moving forward with this number, be sure to subtract of anything that was reported on a 1099-INT or 1099-OID. You don’t want to end up paying taxes on that money twice!
From here, I’ve always just claiming the money that showed up on a 1099 (I actually did receive one 1099-OID last year) plus a lump sum of unreported earnings that corresponds to the net earnings described above minus the 1099-INT and 1099-OID earnings.
In other words, I don’t get into the nitty gritty of claiming earnings, losses, and fees. Instead, I factor all of those things into my net earnings and go from there. I’m not sure if this is the 100% correct approach, but it’s honest and accurate, and I haven’t had any problems thus far.
If you’ve been wrangling with your Lending Club earnings, please share your experiences – along with any tips or tricks – in the comments section.