There is a federal mandate for a business to charge interest on loans to or from its owners or for other related party loans. Sec. 7872 was enacted as part of the Tax Act of 1984. This Code section required loans between certain related parties, usually in excess of $10,000, to bear a minimum amount of interest based on the applicable federal rates (AFRs). With short-term rates well under 1%, the resulting amounts of self-charged interest can seem negligible but should be done.

One of our customers made this comment “How can I create a cash basis amortization schedule on an EIDL? Firm received EIDL loan and did not make payments for the past year. Under cash basis rules, I believe 100% of the first payments will be interest until the back interest is paid. Thank you, you'll have a lot of EIDL questions in the future. Consider making a blog post guide on how to run the calcs.”

The Government Accounting Standards Board (GASB) issued Statement No. 87, Leases. This replaces the previous lease accounting methodology and establishes a single model for lease accounting based on the foundational principle that leases are a financing of the right to use (RTU) an underlying asset. Following are highlights from GASB Statement No. 87 – Leases (ca.gov).

The Rule of 78 is a method of allocating interest throughout the life of a loan. It is also known as sum-of-the-years-digits. The name comes from the way interest is allocated during a one-year loan. The Rule of 78 weights the earlier payments with more interest than the later payments, so twelve parts of the interest are allocated during the first month, eleven parts during the second month, ten parts during the third month, and so forth. During an entire year, there are 12+11+10+…+1 parts allocated or a total of 78 parts. Hence the name “Rule of 78.”

An annuity is an investment that provides a series of payments in exchange for an initial lump-sum payment. If you want to evaluate an annuity, you can start with how much you want to invest or you can start with how much you want in future payments to find out how much to invest today. The other factors to consider are how often the withdrawals occur and what would be your average annual return.

With this information you can do “what if” calculations to find the right combination of investment and return that will work for you. TValue software is an excellent tool to do these “what ifs”. For this exercise, we are going to look at a deferred annuity with a onetime payment. We will do two example cases: one determining a term and the other determining an investment.