In 2014 Bonnie,a sole proprietor,loaned her employee,John,$10,000 to help him buy a car.In 2015,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

When Bonnie forgave the $10,000 loan, it became taxable income for John in the year of forgiveness. The fact that Bonnie tore up the note in recognition of John's job performance does not change the tax consequences of the forgiveness.

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