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Speaker 1 (00:00):
and you can rent your
home to your business for up to
(00:02):
14 days per year.
Your business deducts it as alegitimate business expense.
You don't pay personal taxes onthat income either.
Speaker 2 (00:16):
Welcome to what your
CPA Wants you To Know.
Speaker 1 (00:20):
Tax and accounting
help can be expensive, so we've
created this podcast to helpguide you through it all and
make you feel like you have aCPA in your back pocket.
Speaker 2 (00:30):
I'm Carson Sands.
Speaker 1 (00:31):
And I'm Taryn Sands.
Speaker 2 (00:33):
I'm a CPA with over
10 years of experience helping
people start and grow theirbusinesses.
Speaker 1 (00:39):
And I'm an MBA with a
specialization in marketing and
entrepreneurship.
Taxes suck and we want to makesure you don't pay more than
your fair share.
Speaker 2 (00:49):
We're here to share
everything your CPA wants you to
know in a fun and easy tounderstand way.
Let's get started.
Speaker 1 (00:57):
Let's do it.
Speaker 2 (01:03):
Welcome back to
another exciting episode of what
your CPA Wants you To Know.
Speaker 1 (01:08):
We have another tax
saving tip for you.
Speaker 2 (01:11):
Just what you've been
dreaming about.
Speaker 1 (01:13):
This is kind of
boring to talk about, but so
important because you definitelyneed to be doing this in your
business if you are not.
Speaker 2 (01:20):
Right, it's just free
tax savings.
Speaker 1 (01:23):
Yeah, and every
little bit counts.
I tell this to people all thetime because I say, oh, you
should do X, y or Z and they'relike, well, that's not that much
money.
That's only like you knowhowever much thousands is saving
them.
Then what is it actually savingthem in taxes?
You know, I'm like, yeah, butevery little thing that you do
really adds up.
So if you're listening to someof these, you need to do all of
(01:46):
them.
Speaker 2 (01:46):
That's how people
really save themselves a lot of
taxes.
Yeah, and if you do all of thelittle tricks we say, it almost
always saves you two or threetimes what you pay us.
So I mean it's totally worth it.
Speaker 1 (01:54):
Absolutely.
Today we're breaking down a taxstrategy that most people
actually have not heard of, butonce you do, it's like, oh wow,
I absolutely need to do this.
Speaker 2 (02:04):
It's called the
Augusta rule.
Speaker 1 (02:06):
And I bet you haven't
heard of it, have you?
Speaker 2 (02:08):
I bet you've heard of
Augusta, if you like golf.
Absolutely so, carson tell uswhat the Augusta rule is so that
we can tell you how to use it.
The Augusta rule is a specialrule that allows you to rent out
your personal house for 14 daysor less per year and you don't
have to pay tax on that rentalincome.
Speaker 1 (02:27):
And, yes, it's 100%
legal.
We're telling you only legaladvice on this podcast.
Speaker 2 (02:32):
Now, if you happen to
live at the Augusta Golf Course
where they hold the Masters,then you might actually want to
rent it out to just randompeople because you might get
enough money in those I don'tknow that week that the Masters
tournament is there to pay foryour mortgage for the whole year
.
I'm not kidding.
But let's say you're not amillionaire that has a house on
(02:53):
a Masters golf tournament course.
Then another option is to paythat rent out of your business.
Well, why would you need torent your house out, I don't
know.
Let's say, once a month to yourbusiness.
There's a very good reason.
You have meetings there, clientmeetings.
I have businesses that rent outtiny little rooms up at the
event center all the time tohost meetings or seminars or
(03:14):
different things.
Those are tiny, crappy to behonest, little rooms that cost a
small fortune.
When maybe you have a big,beautiful house with a great
area to meet people and for thatsame money you're paying to
that conference center or maybeeven more because it's a bigger,
higher square footage, muchnicer finished out house, then
you can pay that rent toyourself.
Now how does this help you?
(03:35):
Your business gets to deductthat rent expense but that's not
taxable income to youpersonally as long as it's less
than 14 days for the year.
Speaker 1 (03:44):
So basically you're
just taking that money out of
your business and not payingtaxes on it.
Speaker 2 (03:47):
Yay, yeah, exactly.
You transfer the money toyourself or write yourself a
check, but instead of it beingsalary to you or distributions
from your business or whatever,it's just non-taxable money that
you get to have from thebusiness.
Speaker 1 (04:01):
So what does this
look like if you don't own a
golf course home and you're justtrying to do this to help you
save taxes?
Because if people like that aregoing to take advantage of this
tax law, then absolutelyeveryone should right.
So what would this look likefor just a normal person?
This would look like you wantto host a monthly strategy
session or a team meeting orsomething like that for your
(04:22):
business and you want to rentout your home or your dining
room or some space in your homefor that, and under the Augusta
rule, you can rent your home outfor those events for up to 14
days.
So let's just say one of thosedays you're going to charge
$1,000 for your company to usethis space at your house for the
meeting, which is a fair marketrate to use in event space.
(04:42):
Then you could possibly take14,000, so 1,000 for each day up
to 14 days in expenses that youtake from your business, but
you don't have to pay incometaxes on personally.
Speaker 2 (04:53):
Exactly, and she used
the example of 14 days, but I
love to tell people that havinga once monthly meeting is a
great option because that's only12 days.
It keeps you under that 14 daylimit and it's also very
reasonable that you would have amonthly strategy session with
your team leaders or that youwould have a monthly seminar for
(05:14):
potential clients or anythinglike that Board meetings,
planning days.
Speaker 1 (05:20):
if you need content
for your business team retreats,
yeah, once a month.
I can totally think of so manythings that most business owners
could do in that space withtheir team or a part of team
from their business Exactly.
So now that they understand howit works and why you would want
to do it, I guess let's getinto a little bit of the fine
(05:40):
details.
Speaker 2 (05:41):
Okay, perfect.
So the first thing you want todo is determine the fair market
rent.
There's a few ways.
You the fine details.
Okay, perfect.
So the first thing you want todo is determine the fair market
rent.
There's a few ways you can dothis.
You want to look at local eventcenters where you could rent a
place, or hotels where they haveconference rooms, things like
that, and figure out whatthey're charging per hour, per
day, whatever it is, and comparethat and compare the score
(06:01):
footage of those areas to whatyou're providing to the business
, to your own business, andthat's a good starting point.
Speaker 1 (06:08):
Now, like we said,
$1,000 is kind of a rule of
thumb for us and we're in Texasand that definitely is a
reasonably priced rate to rentsomething out a space for an
hour or two locally.
So I feel like that's a reallygood rule of thumb, but the IRS
does want you to make sure thatyou're using a rate that's
reasonable in your market.
Speaker 2 (06:29):
Right now.
If you live in New York City orin Silicon Valley or something,
then it's probably a biggernumber.
You can't hardly rent abathroom for $1,000 there.
Speaker 1 (06:39):
So once you determine
the fair market rent, you want
to create a rental agreement.
Now, just keep in mind thatthis rental agreement does not
have to be submitted to the IRSand they can ask for it.
So that's why you want to goahead and have this in place, in
case they were to ask for itduring an audit or something.
But it is not something thatyou need to give your CPA.
(06:59):
It's not something that youneed to submit with your tax
return.
So this is just something thatyou have on hand so that you're
all good to go and you're doingeverything by the book.
Speaker 2 (07:12):
Exactly.
Speaker 1 (07:12):
You have it in your
files from day one of using this
strategy and you keep itupdated.
And it can be super simple andshort.
It just needs to be the datesof rental use so you could say
every single month on the firstwe did this.
These are the dates, thepurpose of each meeting, how
much you're charging andsignatures between both parties.
But, moving forward, you needto make sure that you actually
send an invoice from yourself toyour business and get that paid
.
Okay, so if you are paying theinvoice, that's where this
(07:35):
question comes in how do you payit?
Like, do you have to pay it acertain way?
Does it have to be a check?
Like what are the details ongetting the invoice paid and
getting the money from yourbusiness to your personal
account?
Speaker 2 (07:45):
No, you don't have to
pay it like a caveman just
because you're paying from yourown business to yourself.
You can transfer it from yourbusiness account to your
personal account via directtransfer or a Venmo or a Zelle,
or write yourself a check.
If that's what you want to do,it doesn't really matter.
I wouldn't recommend cashbecause you know that makes it a
(08:08):
lot harder to track and we wantto make sure we have a good
record of everything.
Um, but yeah, you know, createthe invoice and give it to your
business and then have thebusiness pay it the way that you
normally pay bills.
Now I will say this people areoften like oh, that's easy, I
already have accounting software, I'll create the invoice in
there.
Not so fast.
You can't create it in yourbusiness accounting software
because it's not an invoice fromyour business to your personal,
it's an invoice from yourpersonal to your business, and
so you're probably going to needto have I don't know chat, gpt,
(08:31):
create one, or just find atemplate for one online or
create one in a Word document.
It really doesn't matter.
Just you know, make sure itlooks good and that it's
legitimate and that it outlinesall the terms, the dates, the
amount and everything like that,just to make sure it's above
board and keep that on file andyou're good to go.
Speaker 1 (08:49):
So you're going to
pay yourself up to 14 times
during the year, like Kirstensaid, sometimes he recommends
just doing it once per month.
It's easy to remember that way.
And then you're going to makesure that you have a rental
agreement on hand and you areactually going to invoice the
company and pay it out of thebusiness to your personal
account and then categorize thatjust like you would any other
(09:09):
business expense, and it will bea rental expense.
Speaker 2 (09:12):
And step two don't
pay tax on it for your personal
side.
Speaker 1 (09:16):
Right.
You will not pay taxes on themoney that comes to you, however
much it ends up being.
You do not pay taxes on that,which is the whole reason that
we're doing this right.
Speaker 2 (09:26):
Right, and this might
be a little bit different than
what you're used to.
If, say, you own a commercialbuilding that you rent to your
business, a lot of people havethat arrangement.
Now, that's a great way to setthings up and there's some tax
advantages there, but that isnot the same thing.
That is something you arepaying rent to yourself but
you're reporting that rentalincome because you're using it a
lot more than 14 days out ofthe year.
Okay, this is different, sodon't pay tax on this Augusta
(09:50):
rent.
Speaker 1 (09:51):
And if you're working
with a CPA, of course you can
reach out to them and ask themany further questions that you
have.
But if you're giving them yourstuff for taxes, it's pretty
simple.
I mean, you're justcategorizing that as rental
expense in the year, It'll justbe on your tax return as a rent
expense and you're doing nothingwith the actual income that you
made so pretty simple, right?
(10:11):
And then a bonus tip.
If you want to go like aboveand beyond and you have your
rental agreement, you're doingit.
You're documenting everything.
You can put all of these onyour calendar too, just in case
you were to be audited.
You have all the things thatyou need, but it's not very
likely that that would happen.
Speaker 2 (10:24):
But it doesn't hurt
to have it on hand just in case,
and maybe even take pictures ofthe events that you have If
it's a company party that youhave for Christmas or whether
it's team.
Keep notes from the teammeetings that you have there and
you know, and you should bedoing that anyway, just to make
sure you're not wasting yourtime at your meetings, but you.
But it also helps withdocumenting that you're
(10:46):
legitimately using your home.
Speaker 1 (10:53):
And we have a lot of
content creators that we work
with and it can absolutely justbe a content creation day that
you're sitting and planning.
So when you get together to dothose, you could definitely take
some photos of that and justhave documentation on hand.
Speaker 2 (11:01):
True.
Speaker 1 (11:02):
So a little recap of
this.
This is called the Augusta Rule, and you can rent your home to
your business for up to 14 daysper year.
Your business deducts it as alegitimate business expense.
You don't pay personal taxes onthat income either, and you
should do all the steps tocreate a rental agreement and
make sure it's a fair market,rent and document everything.
(11:25):
But you absolutely should beusing this strategy and it's
100% legal.
Everybody should be using this.
Speaker 2 (11:32):
Well, that concludes
our very exciting episode on the
Augusta Rule.
So until next time.
Thank you so much for listeningto.
Speaker 1 (11:40):
What your CPA Wants
you to Know.
Podcast Bye.