A Tax Strategy You May Be Missing

One of my joys in April (just before tax season is over) is getting the iPad all cleaned up and updating the app to watch the Masters. The beautiful course is a needed refresher that helps me to persevere the last few days until April 15. The scenery is stunning, the competition is rigorous and the unexpected seems to happen. The app has many ways to watch the competition such as focusing on specific holes like Amen corner or player groupings. As my mind drifts into a post tax season mode, I wonder what it would be like to watch in person one year.

Augusta tax rule
Amen Corner at Augusta Golf Club

There are houses on the course that one must be able to rent….

How much is it to rent?  Do they pay taxes on the rental income?  Surprisingly, the answer to the tax question is they probably don’t pay taxes: the tax code has something called the “Augusta Rule.”  This strategy was created to allow residents of Augusta, Georgia to rent their homes during the Masters’ golf tournament, without having to include this rental income on their tax returns.

The Augusta Rule 

The Augusta Rule has become a tax planning strategy that allows your business to pay rent to you for the purpose of holding business-related meetings in your primary residence or vacation home. For example, if you have a monthly meeting with the board of directors, your company can pay a reasonable amount to rent your home to conduct these meetings. Your company gets to take an expense deduction on the business tax return and you do not have to report the income on your personal tax return. This can be used for a maximum of 14 days each year. Keep in mind that if you go over the maximum of 14 days, you will have to report the entire rental income, and you will not receive any tax benefit since you will have to report the money as rental income on your personal return.

Tax Savings for Your Business 

According to the Augusta rule, you can rent out your home to your business (or for other purposes like Airbnb) for a total of up to 14 days each year. This home can be located anywhere in the United States, and the income from the rental will be excluded from your taxable income. For example, a rental expense of $35,000 (paid to you) generates your corporation $7,350 in tax savings while providing you $35,000 of tax free income.

Establish Rental Rate  

To establish a reasonable rental price you first need to document local pricing standards. You can do this by contacting at least three local establishments where businesses would normally have meetings, such as country clubs or hotels, to get an idea of venue costs in your area. 

You can use your home for a variety of business purposes, including planning sessions and even company parties. It’s recommended that you schedule your meetings in your calendar system and send out an agenda, if possible, since this provides additional documentation at tax time. 

There is no minimum participant requirement for these meetings, but keep in mind: 

  • The daily rental rate doesn’t include the cost of business meals. 
  • The home can’t be considered a full-time rental property. 
  • If you rent out your home for more than 14 days, you’ll have to report all of the income, and you won’t get the tax benefit.

Execute a Rental  Agreement 

To comply with the tax code, a written rental agreement is required between yourself and your company.  Additionally, thorough documentation supporting the rental price must be maintained as well as meeting documentation such as meeting minutes or notes.

Furthermore, to take advantage of the Augusta rule, the business entity structure must be an S corporation, C corporation, or partnership. It can’t be a Schedule C (self-employment income), unless the entity is a Single Member LLC. 

So, if you want to make your accountant and other employees happy, post tax season, consider scheduling a tax planning meeting at your house, on that course near the Masters…and we can help you be compliant with IRS regulations.

Augusta Rule
Augusta Golf Club at Sunset
References: Internal Revenue Code sections and related regulations include PLR 8104117; IRC Section 280A; IRC Section 274(a)(1)(B);IRC Section 267(a)(2); IRC Section 262; IRC Section 162; Gregory v Helvering, 293 U.S. 465 (1935); Frank Lyon Co. v United States, 435 U.S. 561, 573 (1978); Rev. Rul. 76-287; Leslie A. Roy v Commr., TC Memo 1998-125 PLR 8104117 

Minimizing Tax Season Stress (6 Effective Tips That Work)

Minimizing Tax Season Stress

Arf! Arf! It’s me, Breyer, the office curator. This is the next installment of my Cook CPA blog, and I am still giving the best advice a dog can. 

I am so glad that we dogs rely on your humans to take care of us–we don’t have to worry about an annual tax filing. I am sorry to let you know that even though you provide great care for us, you can’t claim us as a dependent. 

What I can help you with, though, is by giving you some efficient tips on finding a way to minimize tax season stress. This blog will identify key steps you can take to make the process smoother, resulting in less stress for you.

Reducing Tax Season Stress By Reviewing Your Documents

Minimizing Tax Season Stress 6 Effective Tips That WorkThe most significant step you can take to make the process easier and alleviate tax season stress is reviewing your information and documents before handing these materials over to your CPA firm. 

This ensures that your CPA is able to accurately calculate your return on the first review. This will minimize any surprises since updated information may result in recalculating your return or what is owed. 

Another reason to review everything before handing the materials over is to avoid the kind of back-and-forth requests for information. 

These always remind me of a dog friend of mine who waits at the door to go out, two minutes later is waiting at the door to come in, and once in, is waiting at the door to go out again. By the time this exchange is over the dog and owner are frustrated. 

We suggest creating “financial mindfulness” which starts with having your documents organized as you move through the year, making sure that you are comfortable with the different technologies for retrieving and sharing those documents, and making a point to communicate questions early on. 

The Tax Organizer – A Tax Season Stress Reliever

Most CPA firms will ask you to complete a tax organizer; this is your opportunity to communicate about important tax events that happened during the year. The organizer will allow you to upload key documents. We recommend becoming familiar with technology so that you are comfortable sending and receiving documents.

Minimizing Tax Season Stress By Creating A Clear Communication Path 

Some other ways to minimize your tax season stress are about creating a clear path for communication. When you promptly respond to questions from your CPA firm, they can continue processing your return. 

Consider requesting an exit meeting to review tax returns since this can help you to understand a complex tax return and this meeting would give you an opportunity to clear up any question you may have. This type of meeting can also help you prepare for the next tax season, further minimizing stress. 

Eliminating Tax Season Stress (6 Powerful Tips) 

Eliminating Tax Season Stress 6 Powerful TipsWe dogs have a mental checklist as we prepare for our walks–leash (check), circle three times near the door (check), bark and nudge the door (check), and finally, get the owner on the end of the leash (check). Below is our 6-point checklist to help you work toward a more stress-free tax season: 

  • Save tax documents to a separate tax folder as they arrive
  • Schedule your tax appointment as early as possible to avoid last minute stress
  •  Use the tax organizer to make sure you have addressed everything. Don’t forget to completely fill out the organizer since doing so ensures you are ready for your appointment
  • Provide all documents such as W-2s, form 1099s, cost basis of securities sold, total of charitable donations, and a rental recap in excel to your CPA at the first meeting.  By providing all items, your return will be completed more quickly
  • Sign all documents such as the engagement letter and e-file authorization as timely as possible. Failing to sign these will create delays in filing which can lead to frustration for you
  • Be kind. It is a very busy time as deadlines change and there is an amazing amount of data for a CPA firm to process during this time. Kindness will create cooperation instead of adding more stress