What Is The Augusta Rule?
Vance Wealth & Simplify365 help proactive business owners with payroll optimization, business & tax planning & retirement plan design.
Watch this short video of Tyler Tilton walking you through the Augusta Rule, also known as IRC Section 280A(g), and some potential risks.
If you’re an S corporation or C Corporation, you may be eligible to rent out your home to your corporation for 14 days, and the rental income received essentially works like a tax-free distribution from the company.
We understand this may sound too good to be true, so what are the potential risks?
- Not having a business purpose
- Not having documentation to support the business purpose
- Determining fair market value rent
That is where we come in at Vance Wealth and Simplify 365. We will help you with the compliance aspect of implementing the Augusta Rule.
For our clients implementing Simplify365, also known as the Augusta Rule, we structure a monthly planning day outside the office where they can work on key issues for their company and review their goals.
We find that many business owners struggle to work ON the business versus IN the business and need help with the work-life balance. We highly recommend working on three key issues by taking a dedicated day outside the office per month.
Our 7-step Implementation Process
- Decide how your business will rent your home for up to 14 days
- Simplify365 Day/Monthly business planning meetings = 12 days
- Annual Officer’s/Minutes Meeting = 1 day
- Annual Planning/Staff Appreciation Day = 1 day
- Ensure you aren’t using the house for clients, entertainment, or personal reasons
- Make sure to consult your tax professional about all the limitations and requirements
- Reserve the 14 days on your business calendar and schedule the meetings at your primary residence. *Do not exceed the 14 days.
- Create an agenda and take detailed notes
- Documentation is essential in establishing the business purpose.
- Get comparables
- It is essential to charge the business in line with comparable rates in your area (i.e. a hotel). Inquire how much a hotel charges for a full-day room rental.
- Rental Agreement
- It is best practice to have a rental agreement in place equivalent to the daily rent charge. Update rental agreement annually.
- Personally, invoice the business for the expense
- Based on the comparables that are provided in the package, send your business an invoice for the daily rental rate. We recommend that you pay rent on a regular basis.
- As a business, you will need to issue the homeowner a 1099 at the end of the year
- The business will need to ensure that all the invoices have been paid. Then, issue a 1099 form for the homeowner (you).
- Claim the income on your individual taxes
- You will need to claim the income on your taxes as “non-taxable income under IRS Code Section 280A(g).” This shows the IRS that you are following the guidelines outlined in the IRC. Leave no room for mistakes. Ensure that your tax professional doesn’t include this as taxable income.
If you’re interested in learning more if this tax code applies to you, please visit our website and schedule an appointment with one of our wealth advisors, and we can walk you through our process.
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Disclosures: Vance Wealth, Inc is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Vance Wealth and its representatives are properly licensed or exempt from licensure. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
Figures produced using our internal calculator vary based on the following assumptions. The business owner has a separate business entity, the business owner owns a house, the business owner does not use their primary residence as their primary place of business, the business owner is filing as married filing jointly or single, the business owner’s savings may vary based on their taxable income, tax bracket, rental price and days home rented to the business. The figures used are generalized and not indicative of actual results, which may differ substantially. This does not reflect the impact that material economic and market factors may have had on decision making. The results shown were achieved by means of a mathematical formula. If you qualify for a QBI deduction your net benefit may be reduced.
