Interest-free Loans to Your Business

If you lend money to your business but fail to charge sufficient interest—at least the IRS’s applicable federal rate (AFR) for the term of the loan—the uncharged interest is still taxable interest income. If the loan is a demand loan outstanding for all of 2025, the AFR is 4.22%. For example, you lend your S corporation $10,000 and don’t charge any interest; the loan is payable on demand. The interest income for 2025 is $422 ($10,000 x 4.22%). #IdeaoftheDay