18 Jul The Augusta Rule: What is it and how can it help me improve my tax-saving strategies?
Posted at 07:59hin TaxesbyAngie Noll
The Augusta Rule (AKA Section 280A Deduction) is a tax strategy that allows business owners to rent out their primary residence to their business for up to 14 days each year. This rental income does not need to be reported as part of the business owner’s taxable income. Your business can write off the expense, reducing the business’s taxable income.
You read that right!
It’s a legal way to increase tax deductible business expenses and personal income, without paying more in taxes. You can turn some of your personal expenses into legitimate business deductions. It’s not tax evasion, but a legal tax strategy.
The name Augusta Rule came from homeowners in Augusta, GA renting out their homes during the Masters Golf Tournament.
At Reconciled Solutions, we aim to organize a multi-day leadership retreat each year. I want the environment to be comfy and friendly, so I utilize my home for the event. While I operate the biz day-to-day from an office space above my detached garage, we host the Leadership Retreat in my living room. We have comfortable couches to sit on and the ability to feel like we are away from the office grind.
I now use the Augusta Rule to write off the expense of opening my private home for business. I love being able to offer a retreat from the office, while not having to set up a retreat center that will fit our small company needs.
How can I use the Augusta Rule in my business?
Plan business meetings at your home.
There is no minimum participant requirement. This must be your primary residence, and not a full-time rental property. Just remember, these can’t exceed 14 days per year.
Be able to prove the legitimacy of your meetings to use the Augusta Rule
To prove that these are legitimate business meetings, make sure to take minutes. Thorough documentation will help protect your 280A deduction, so you should also make sure to have documentation that proves the duration of the rental was less than 14 days.
Charge your business a fair market rent
Make sure the rent that your charge your business is in line with local venue rates. You must charge your business a Fair Market Rent, and have a written rental agreement. The rental rate does not include the cost of business meals.
Have proper documentation
Be able to provide documentation that the business has been invoiced by you, the home owner. An invoice which is eventually stamped as PAID is good.
Be able to provide documentation that the business has paid the invoice. A business check provides a good paper trail.
Understand how the income is reported under the Augusta Rule
This income will be reported on your personal tax form, but because you rented your home to your business for less than 15 days, the income is tax free. Your business writes it off as a rental expense. Remember, if you do not report the income, you also cannot deduct any expenses related to the rental. If the rent paid from the business exceeds $600, a Form 1099-MISC would need to be issued from the Business to the Individual for this rent paid, even though the income will not be taxable to you as an individual.
Is your business entity eligible?
Single Member LLCs are eligible, but Schedule C (self-employment income) entities are not.
If you meet these conditions, the Augusta Rule can be beneficial to you. Your business could hold planning sessions or company parties at your personal property, which would justify the rental.
Always consult with a tax professional or the IRS guidelines when considering utilizing these provisions to ensure you comply and gain the maximum benefit with this tax strategy.
