So, you own a business... Could a Single Tax Rule Save you $6,160 in Taxes EVERY YEAR until you Retire?

Ok, ok, ok... I know the claim that you could save $6,160 in taxes EVERY YEAR until you retire sounds too good to be true - but hang with me for just a minute. (If you can't hang, but just want to get to the "good stuff" you can drop down to the end to see how I came up with that number... )

It isn't common knowledge that the great, great majority of the United States Tax Code is devoted to Deductions and Expenses - and NOT to determining income or taxes. What that means is finding good, defensible deductions and expenses should be the number one job of your accountant and CPA.

Question: Has your accountant talked to you about the "Augusta Rule?"

Well, here goes: the IRS allows a business owner to make use of her home, for business purposes, as an event location, for up to fourteen (14) days per year without recognizing the income. Let me explain. You can use your home for employee events, for board meetings, for marketing planning, for monthly, quarterly financial report review, and for holiday events... and LEGALLY charge your business "rent" to use your home for these purposes.

Now, under "normal" rules... if you charged your business "rent" for these events, your business would get to deduct a "rent expense" but would need to issue you a 1099 for rental income... so this would simply "shift" the income from your business to you... with no impact on your taxes (for the tax buffs out there, I realize there could be self-employment taxes - but in the interest of simplicity...)

Enter Section 280A(g). Often called the "Augusta Rule," this code section allows you to GET the business deduction WITHOUT recognizing the income. In case you missed it, you get the money with NO TAXES! Yes, it's amazing.

Here's what you have to do: First, get some local quotes for how much it would cost to rent out a board room or event room for a day. Ask the vendors providing the quotes to separate the cost of the room rental from the food and drink expenses. Get three to five quotes so you have a good sense of what it could cost your company to rent space for a boardroom or event.

Second, every time you need to do an employee event, have a board meeting, do a marketing planning meeting, etc., consider using your home as the location. Each time you use your home, issue a quick invoice to your company from you (using a figure derived from your quotes) - and have your company PAY the invoice to you. DON'T do this more than fourteen (14) times per year.

A common question I get is... Well, I have a small company, I'm the sole owner, what if I'm the only person attending the board meeting, or the marketing planning session - the good news is that's OK!

One caveat is, you need to actually have a company, as in an S Corporation or C Corporation, in order to take advantage of this deduction. I don't recommend it for Sole Proprietorships or Single-Member LLCs.

Now for the proof in the pudding: Let's say you got several quotes that are around $2,000/day for renting an event center or well-appointed boardroom. Let's say that you could find fourteen (14) days per year to use your home for business purposes. That means, your company could recognize a $28,000 rental deduction. Let's say that you are in the 22% income tax bracket (taxable income for married individuals < $168,400)... then 22% x $28,000 = $6,160 in tax savings, each year!

Now, I feel like stealing the catchphrase from Capital One: "What's in your wallet?" - but I won't. I'll just ask this: Even if you already have a tax preparer or CPA... if you're a business owner, and not taking advantage of the Augusta Rule, give me a call to see what else you may be missing out on.

Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.