the tax strategy that will save you five figures this year

Summary

one tax tip that can save business owners five figures this year. I’m not a CPA. I’m not a financial planner. this is not financial advice. it’s an idea to take to your accountant. talk to your CPA before doing anything.

1. the Augusta rule. nicknamed because it started in Augusta, Georgia, where homeowners rented their houses for the Masters and the IRS carved out a rule. you have to own your home, you have to have a business, and the rule lets you rent your home to the business up to 14 days a year without reporting the rental income personally.

2. start by establishing fair market value for the day rate. options include having a camera or film crew price what they’d pay to rent your space for a shoot, or asking a local hotel or convention center what they’d charge for an equivalent square footage of event space for the day. write the number down with documentation. say it’s $1,000 a day.

3. then run a real business event at your home. team planning summit, content day, brainstorming, leadership offsite. document everything, agenda, attendees, work product. the business writes you a check at the documented day rate.

4. now look at both sides of the books. for the business it’s a $1,000 deduction as a rental expense, real and legitimate. for you personally, the Augusta rule says you don’t report that $1,000 as income. you just made $1,000 tax free.

5. cap is 14 events per year. at $1,000 a day that’s $14,000 of tax free personal income plus $14,000 in business deductions. the rule has gotten popular enough that the IRS may eventually shut it down, but as of this recording it’s a real section of the code. document carefully, follow the 14 day limit, work it through your CPA, and you’ll have a clean win. try harder.

Transcript

not financial advice, talk to your cpa

The most impactful business is the business that genuinely improves another human, a better human business. And to grow a business like this, you have to continually improve yourself. This podcast is a documentation of that thesis, scaling businesses and also personal growth. My goal is for you to shortcut this journey.

So if you’re ready to try hard, subscribe. If you like what you’re hearing, please share and enjoy. All right, here is a quick tax tip that could easily save you five figures this year on taxes. So, ladies and gentlemen, I am Jerred Moon, and this is the Better Human Business podcast. I want to start this podcast by saying I am not a financial planner, certified financial planner. I’m not an accountant, not a CPA.

This is not financial advice. This is just something that you could do or maybe an idea that you could take to your accountant and make sure that it works for you. So today I’m going to be talking about the Augusta rule. If you have not heard of it, it is a section of IRS tax code. It is called the Augusta rule as its nickname because it started in Augusta, Georgia, where rich people were basically renting out their homes for the golf tournaments and stuff that they do there. So anyway, let’s get into the nuts and bolts of using the Augusta rule.

what the augusta rule is

First thing, you’re going to have to own your home. You have to own your home. You can’t rent or live with someone else or whatever. So you have to 100% own your home. And when I say 100% own your home, I’m not talking about like debt free. You just have to own it. You have to be the owner of your home.

And then you also have to have a business. And now what you would do from here is that you could go get an estimate of what your home would be worth. So say you have a 2000 or 3000 square foot house, you would essentially find out what the going rate for that would be. I mean, you can do this a couple of different ways.

I’ve had people or I know people who have done had camera crews come out and if they were going to film a commercial at your house, they would give you the an estimate of what it would what they would pay you to rent out your house for a day. And so that’s one way. You could also go to a local convention center or hotel and ask what they would charge for.

find your fair market day rate

So you do have a 3000 square foot home. Hey, what would you charge for a 2000, 3000 square foot space here inside the convention center? What would the day rate be? You can ask them that and they would give you a number. And then you could also look at other you could probably look at like nightly rentals, but you want to keep this more on like the business side of things.

And so say they the you do the hotel option. They say, hey, 2000 square feet of event space will be we pay. We would charge you a thousand dollars a day. And you’re like, OK, great. Thousand dollars a day. Now what you can do is you could host an event at your house for your business. So say you have a team of five or six people and maybe they’re all in the local area, maybe you’re a brick and mortar business.

And so you actually have your team local or maybe they’re virtual and you’re bringing them in for a planning summit, whatever it is. So you bring them all in for the day and they don’t have to necessarily spend the night at your house or whatever, because it could just be the day rate. Like you don’t have to spend the night at a convention center.

host the team event at your house

And so you’d kick off the day and you’d have the whole team come in. You could do brainstorming. You could do whatever you want, have dinner, lunch, like all these things, get some planning done, create some content, whatever you want to do during that day is up to you. You have to make sure you document it all, everything.

But then you can have your business write a check to you, the person for that thousand dollars, if that’s the rate that you determined was, was how much it would cost or that would be the fair market value. And so now you, the person are getting paid a thousand dollars and due to the Augusta rule, you don’t have to report this income on your taxes as income.

And for the business, it’s a $1,000 deduction as a rental fee. And so it’s a win-win. It’s reducing your tax liability on the business side by a thousand bucks. And it’s increasing your personal income by a thousand dollars. So hopefully that’s all making sense in your tracking on how valuable that truly is. You can’t do this more than 14 times in a year.

14 days a year, both sides win

And honestly, the Augusta rule is getting so popular. I’ve seen people talk about on Instagram and it was like a very, when I first heard about it, like many years ago, it was like almost no one knew about it. And now I feel like everyone knows about it and it’s getting bigger and bigger. So the IRS will probably eventually shut this down.

But right now it’s a very legitimate thing and something that you can do. So talk to your CPA about using this if you can legitimately do it. So again, making sure that your home is, is owned and appropriately priced. You’ve done the due diligence to find out what the rate would be for a similar size space. You’re actually, you know, bringing the team in, you’re having them do things with you for the full like day fee, and then you can pay yourself that amount and it’ll be a hundred percent tax free. So long as you don’t do it more than 14 times in a year.

And again, this is not financial advice, but if you do were to do that 14 different times throughout the year, that would be $14,000 that would be reduced on the business side as deductions and $14,000 of income to you personally that you don’t have to pay taxes on.

So very valuable strategy, something very easy to implement. But again, talk to your CPA, see if this is something that would actually work with you for you. And if you’re, if they’re comfortable doing it and they tell you how to do it exactly and document all the things, then you will have a winning strategy here to say five figures on taxes this year. And I highly recommend you do it. If your CPA agrees.