Subscribe
Logo
Logo
  • Topics Icon Topics
    • AI Icon AI
    • Banking Icon Banking
    • Blockchain/DeFi Icon Blockchain/DeFi
    • Embedded Finance Icon Embedded Finance
    • Fraud/Identity Icon Fraud/Identity
    • Investing Icon Investing
    • Lending Icon Lending
    • Payments Icon Payments
    • Regulation Icon Regulation
    • Startups Icon Startups
  • Podcasts Icon Podcasts
  • Products Icon Products
    • Webinars Icon Webinars
    • White Papers Icon White Papers
  • TechWire Icon TechWire
  • Search
  • Subscribe
Reading
Don’t Throw Away Your P2P Lending Gains at Tax Time
ShareTweet
Home
News Roundup
Don’t Throw Away Your P2P Lending Gains at Tax Time

Don’t Throw Away Your P2P Lending Gains at Tax Time

Peter Renton·
News Roundup
·Dec. 13, 2010·2 min read

As 2010 winds down it is always good to think about your tax situation. You might be very pleased with your peer to peer investment gains for the year, but I have news for you. All the interest earned on your p2p investments is fully taxable.

The IRS Wants Their Share

Your interest income from both Lending Club and Prosper are treated as ordinary income by the IRS. So, depending on your tax bracket you will owe some money to the IRS come April 15th. The amount of money you will owe depends on numerous factors but here is an example to provide some hard numbers.

Let’s say you are single and have a $50,000 adjusted gross income (AGI). For simplicity’s sake we will assume some round numbers. You have a $10,000 investment in Lending Club and you earned a 10% return on your money. This means you generated $1,000 in interest income. But that is before the IRS takes their share. At $50,000 you are in the 25% tax bracket so the IRS will want you to pay them $250 (25% of your interest income). Depending on what state you live in you may also owe state income tax – in Colorado where I live the rate is a flat 4.63% (in California it would be 9.55%). Let’s assume a 5% state tax rate, so you would owe another $50 in state income tax. So this 10% return has been reduced to a 7% return and you have given up $300 of interest income.

Now 7% after taxes is still a great investment return but it is a long way from 10%, your actual return. No one likes sending cash to the IRS, but if you keep your investment in a regular taxable account you will have to pay these taxes. Luckily, there is a solution that is provided by one p2p lender: Lending Club.

The Perfect Solution: a Lending Club IRA

Regular visitors to the Social Lending Network will notice the banner ad at the top of the page touting the Lending Club IRA. I feature this ad most prominently on my site because I firmly believe that this is the best way to invest with p2p lending. Currently, Prosper doesn’t offer any IRA, so if you want to shield your investments from the tax man then Lending Club is your only option.

Personally, I think if you have a Lending Club account you really should have some or all of your investment in an IRA. According to Rob Garcia, Senior Director of Product Strategy at Lending Club, over 90% of IRA’s are opened by people who already have an existing Lending Club account. This makes sense because people can put in a small amount to test out Lending Club and then move in their retirement funds once they are comfortable with the concept. Garcia also points out that the average account size is $40,000 for an IRA and the returns range from 2.4% – 20.1% with the average return 11.4%.

I rolled over my wife’s entire IRA and 401k into a Lending Club IRA earlier this year and I will be opening another IRA in my name next year (I would do it this year but I have already committed my 2010 IRA contribution). The Lending Club IRA really is the best way to invest in p2p lending because you can avoid the demands of the tax man come April 15 and you get to keep all your interest income.

  • Peter Renton
    Peter Renton

    Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

    View all posts
Advertisement
Tags
IRALending Clubtaxes
Related

april sees strong demand for self-guided, mobile tax filing

LendingClub exceeds expectations in strong Q1 earnings

LendingClub delivers better than expected earnings in Q4 2023

New SBA Lending Rules Are Only a Start

Popular Posts

Today:

  • TechNexus The AI IssueSteal Like an AI? Defining Fair Use & Creativity Jun. 25, 2025
  • Revised-AI-InvoiceAI Faces Skepticism. Startups Say: OK, Pay When it Works Jun. 25, 2025
  • Stylizedhouse-with-EKGFintech x the One Big Beautiful Bill Jun. 26, 2025
  • Globe-money-symbolsOPINION: Why Brazil and India are leading the global digital shift through payment innovation Jun. 24, 2025
  • PayabliFunded: Payments infrastructure co Payabli lands $28M Series B to AI-ify Jun. 20, 2025
  • Email-AI-pieceAvatar CEOs Have Entered the Meeting Jun. 18, 2025
  • ai-work-nexusWalkMe Vets Declare War on SaaS Bloat with $10M Seed for Autonomous Agents Jun. 10, 2025
  • TechNexus The AI IssueThe AI Paradox Jun. 18, 2025
  • WP UmbrellaTo Bank or Not to Bank: The ILC Question Jun. 5, 2025
  • WP-Funded2Funded: Maze nabs $25M Series A to stop cloud breaches before they start Jun. 13, 2025

This month:

  • WP UmbrellaTo Bank or Not to Bank: The ILC Question Jun. 5, 2025
  • DanMurphy-FN-headshotCFPB’s Next Open Banking Battle Begins Jun. 3, 2025
  • GreenliteAI-Alex-WillGreenlite AI is on a mission to revolutionize banking compliance Jun. 10, 2025
  • Current stablecoin adoptionWhy Banks (and Fintechs) Need to Embrace Stablecoins Today Jun. 12, 2025
  • ai-work-nexusWalkMe Vets Declare War on SaaS Bloat with $10M Seed for Autonomous Agents Jun. 10, 2025
  • Ben Hemani, Founding Partner at Bison VenturesThe Risk and Reward of Betting Big on AI’s Next Frontier Jun. 4, 2025
  • Jon StonaTips from Airwallex x McLaren on Making the Best of a Fintech Sponsorship  Jun. 18, 2025
  • Ironclad State of AI ReportThe Economics of AI Trust Jun. 11, 2025
  • VancouverWeb Summit Dispatch: Debate Rages Over AI Applications’ Human Impact  May. 28, 2025
  • Fintech Nexus – Newsletter Creative (2)Building the Bot Workforce May. 28, 2025

Advertisement
  • About
  • Contact
  • Disclaimer
  • Privacy Policy
  • Terms
Subscribe
Copyright © 2025 Fintech Nexus
  • Topics
    • AI
    • Banking
    • Blockchain/DeFi
    • Embedded Finance
    • Fraud/Identity
    • Investing
    • Lending
    • Payments
    • Regulation
    • Startups
  • Podcasts
  • Products
    • Webinars
    • White Papers
  • TechWire
  • Contact Us
Start typing to see results or hit ESC to close
lis digital banking USA Lending Club UK
See all results