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TimeValue Software Blog

IRS Look-Back Method Interest Rate Calculation

By Martel Pellerin

Form 8697 is used to determine the interest due or to be refunded under the look-back method of section 460(b)(2) on certain long-term contracts that are accounted for under either the percentage of completion method or the percentage of completion-capitalized cost method. TaxInterest software is an excellent program to do the interest calculation.

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Calculating Annuity Factors

By Martel Pellerin

An annuity factor is a multiplier used to determine how much money will be paid out in the future at specific points of time under an annuity agreement. The simplest type of annuity is a defined series of identical future cash flows, starting exactly one period into the future. Using an annuity factor is a quick and easy way to determine the cash flows and to compare various annuity options.

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Officer or Shareholder Loans

By Martel Pellerin

Officer or shareholder loans are common for privately held businesses. These loans need to be monitored closely to determine whether they are truly loans, or compensation, dividends, or contributions to equity. For a loan to be genuine, both the lender and the borrower must intend that the debt be repaid. There are a couple general requirements that “a loan should be treated like a loan”. A shareholder cannot simply “say” something was a loan. They actually need to treat it as one and the borrower has to have the ability to repay the loan.

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Original Issue Discount (OID)

By Martel Pellerin

Original Issue Discount refers to the excess of an obligation’s stated redemption price at maturity over its issue price, and it is taxable as interest over the life of the obligation on a year-by-year basis. It is effectively interest income. Those debt instruments that may have OID include zero coupon bonds, debentures, notes, certificates, or other evidence of indebtedness having a term of more than one year.

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Imputed Interest using the Applicable Federal Rates (AFRs)

By Martel Pellerin

In 1984, the Tax Reform Act set provisions for applicable federal rates (AFRs). This is a minimum tax rate that must be charged on all loans, including personal loans. The IRS provides various prescribed rates for federal income tax purposes each month and TimeValue Software offers them on our website at Applicable Federal Rates | TimeValue Software.

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