In 2014 Bonnie,a sole proprietor,loaned her employee,John,$10,000 to help him buy a car.In 2016,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

According to the tax laws, forgiving a loan can be treated as income for the borrower in the year of forgiveness. Therefore, John should treat the forgiven amount as taxable income in the year of forgiveness, which is 2016. So, option B is the correct choice.

In 2014 Bonnie,a Sole Proprietor,loaned Her Employee,John,$10,000 to Help Him