In 2016 Bonnie, a sole proprietor, loaned her employee, John, $10,000 to help him buy a car. In 2018, before he repaid the $10,000, Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance. How should John treat the amount forgiven?

Question

Quizplus · Accepted Answer

The forgiveness of the loan is considered taxable income to John in the year of forgiveness, as it is not a gift but rather compensation for his job performance.

In 2016 Bonnie, a Sole Proprietor, Loaned Her Employee, John