Did you know about the Augusta Rule? If not, then you’re close to discovering a revolutionary tax-saving strategy that can help you save thousands of dollars each year. This loophole cleverly lets the owner of your home rent it out to an S Corporation (yes, your own company) and allows you to deduct the cost of renting it legally.
If you’re one of those who has searched commercial property for rent Augusta GA in hopes of finding tax-efficient ways to run your office space this law could make a difference. If you’re not looking to lease office space that isn’t in your home you can still profit from the IRS-approved business opportunity.
Let’s explore this tax-saving tool and find out how to get it working for your company.
What Exactly Is the Augusta Rule?
The Augusta Rule, also known by the name the IRS section 280A(g), allows homeowners to lease their house for as long as 14 days in a year-tax-free. Without tax.
Yes, that’s right. What is the income you make from the 14 days of rental? It’s not tax-deductible.
This law was created for residents of Augusta, Georgia (thus the term) and who let their houses in the course of each year’s Masters Golf Tournament. However, now entrepreneurs and business owners of small businesses have cleverly turned it into a tax plan.
What is The Augusta Rule Work with Your S Corporation?
This is the interesting part: the S Corporation can let you use your residence as a rental to be used for business purposes, such as planning sessions, board meetings or even training sessions.
In addition, since it is the Augusta Rule exempts the earnings that you earn from leasing your house for at least 14 days, this becomes a legitimate tax deduction to your S Corp, and tax-free earnings for you as a person.
This is like giving yourself a gift… And Uncle Sam does not even get the cut.
Why You Should Care as a Small Business Owner
If you’re managing the S Corporation from home, this method can be helpful:
- Then, reduce your company’s taxable earnings
- You can put more money into your pockets
- Keep on the IRS’s positive side (as long as you adhere to the regulations)
Any possibility to lower the tax bill with no warnings to the contrary is worth a look.
Basic Requirements to Use the Augusta Rule
Before you begin creating checks it is necessary to satisfy some prerequisites:
- The property must be your own house in your name.
- Your S Corporation must be an independent legal company.
- The rental should be legitimately for commercial purposes.
- It should not be more than 14 days in the calendar year.
- Document everything.
Don’t think about any of them you’ve heard of, or the IRS may come to your door.
Types of Business Activities That Qualify
Do you want to know what kinds of actions qualify? Here are a few examples:
- Annual shareholder meeting of the annual shareholder
- Sessions for strategic planning
- Events for team training
- Marketing and sales presentations
- Executive retreats (yes they can be, even if only you)
Make sure that the event is appropriate for your company. Are you planning to host a barbecue in your backyard? Most likely not. Are you planning a marketing seminar inside your dining room? It could be a good idea.
How to Determine a Fair Rental Rate
The most important thing is to give your company at a acceptable market rate—not an undetermined number that you make from thin air.
Do your homework:
- Find out what it costs to lease a conference space in your locality.
- Note the amenities and size of your living space
- Photographs are taken and kept on your computer
- Find comparable rates (even if you have looked up “commercial property for rent Augusta GA” ads)
So, in case you ever have to answer questions from the IRS should ever ask you questions and you’re questioned, you’ll have receipts–literally.
How to Document Everything the Right Way
Paperwork is the best companion Here. It is important to
- You should draft an official rental contract between yourself with S Corp. S Corp
- Include the dates, the reason, the time, and the number of participants in every event.
- Make payment with the help of a cashier’s check drawn from the business account
- Document your rental market rate
If you think of this as an actual commercial transaction (because it’s) then you’ll be protected and clean before the IRS.
Paying Yourself: How to Handle the Money
When your meeting is finished and done After the meeting is over, the S Corp should cut you an amount to pay.
However, don’t make a withdrawal and then forget about it. Instead, record it as rent expense rental expense in your accounting records, and then show the amount as rent-related income within your records. If you’re not over the 14-day threshold then you don’t have to include that revenue on your tax return.
Magic, right?
Beware of Common Mistakes using Augusta Rule Augusta Rule.
Here’s the worst thing you can not do:
- Limit 14 days to 14–even with just one day
- Don’t forget the documentation
- Use clear commercial purposes (“Just getting caught up” doesn’t suffice.)
- You can’t overcharge for the fair market value
Poorly recorded records and aggressive pricing can result in your deduction being rejected, or even trigger an audit.
How Much Can You Save?
Let’s do some quick math.
Imagine that you let your house to an S Corp for $800 a day. You can do this for 14 days and it’s $11,200 in tax-free earnings.
Additionally, your business gets the benefit of a $11,200 tax deduction. The tax bracket you are in will determine the amount it could save you many thousands in tax.
It’s not too bad to host a few meetings from your own house, isn’t it?
Do You Need to Use This Rule with an LLC or Sole Proprietorship?
The short answer is: Not really.
Augusta Rule Augusta Rule works best with C Corporations as well as C Corporations because of the fact that personal entities are separate from corporate entities.
If you’re a sole proprietor or sole-member LLC, leasing your house for “yourself” doesn’t fly with the IRS.
Augusta Rule vs. Home Office Deduction
You might be asking yourself: can I utilize each of my deductibles for home offices as well as The Augusta Rule?
Good question.
Yes it is, however, they are completely distinct. Home office deductions are intended for the ongoing utilization of a workspace that is dedicated to you. It is the Augusta Rule is for occasionally short-term rental for events of business.
Do not double-dip in the same spot simultaneously.
The Best Time to Use the Augusta Rule
A tip for you be prepared.
Schedule regular quarterly meetings for end-of-year reviews or scheduled training activities ahead of time. Be sure to not surpass the 14 days duration, and ensure that you make these occasions meaningful and essential.
The Augusta Rule Is Legal–but Not a Loophole to Abuse
It’s not some devious tax trick. This is a real one that’s written in the code of taxation. However, as with all rules the only way to be sure is as your tax compliance.
Be careful, record it meticulously, and be careful not to get overly greedy.
Conclusion: A Smart Play for S Corp Owners
If you’re looking to make the best value out of you S Corporation, the Augusta Rule is an amazing piece of advice. It’s an effective, legally-sound option to receive tax-free profits and give your company an official tax write-off.
It doesn’t matter if you’re searching for Augusta office space for rent or you just want to take advantage of the space you have already got, your house. This approach puts the power to you.
So, go ahead. Hold those gatherings in your home. Do it according to the rules.
