Private loan, rental income, audit preparation
I've borrowed money from a family member for medical expenses. I'm worried that we're going to get audited because there's a lot of money moving between our bank accounts as he sends me money and I slowly pay it back. I know we don't owe taxes on private loans, but how should I prepare for the audit that I fear is coming? Should we write something up explaining how much was loaned and what has been paid back? How do I do this without making it look fishy?
Part 2: The family member I borrowed money from is renting a house from me. We have agreed that any amount less than the rent is to be applied towards what I owe. So, if rent is $1,000/month and he gives me $600 one month, I am claiming $1,000 as income and paying taxes on that, but he is taking $400 off what I owe him. Or, if he gives me zero dollars one month, I'm still claiming $1,000 as income and paying taxes on that, but he is taking $1,000 off what I owe him. We are both fine with this arrangement, but I'm worried about that looming audit. How should I prepare? Should I write something up explaining this? A spreadsheet, perhaps, showing what money was applied to what debt?
I want to be as transparent and prepared as possible. Any help would be appreciated. Thank you.
