Episode 3: Augusta, Not Just a Golf Tournament But a Brilliant Tax Strategy
In this episode Eric & Melissa tackle the Augusta Rule. One of our favorite tax loopholes that allows business owners to rent their personal residence for up to 14 calendar days per year – tax free and the importance and benefits of bookkeeping.
What is the “Augusta Rule” and what is the importance of bookkeeping? The Augusta Rule is a tax strategy often referred to as the “14 day” rule or 14 day rental rule allows business owners to host events for a variety of business purposes (team meeting, client appreciation events, sales trainings, networking events, etc) for up to 14 days in a calendar year at their personal residence.
How can you implement the Augusta rule? First, you’ll need to first establish the fair market value of the place you are renting. Get 3 different fair quotes from places that are similar to your venue in the general area. Be sure to include any additional amenities.
Documentation is key. Document cost of comparable venues. If possible get quotes for comparable venues in writing. Track, date time and purpose of event. Issue your business an invoice for ‘venue’. Process payment in full via check from business to self. Document. Document. Document.
The business, your business is renting your home from you personally and as such your business is paying you for the use of said house. Because it is being done less that 15 days per calendar year the monies received are not taxable. Making this a deduction for your business. For additional information on the Augusta Rule check out our webinar – registration available at INeedBookkeeping.com.
The importance of Bookkeeping. As a business owner Bookkeeping it is very important. Not only will it help to prepare you for taxes but proper and timely bookkeeping will allow business owners to ensure that potential deductions are not missed or overlooked.
A guide for your business. Bookkeeping allows business owners to be sure of their business decisions without guessing.
Reduce or avoid fraud. When using a bookkeeper you can keep track each month of your business patterns and it can help catch random charges that are not supposed to be there or subscriptions that you did not know were there before. Poor bookkeeping can result in fraud not being caught and a loss of a lot of money.
Not all bookkeepers are created equal. Not all bookkeepers are the same and just because a bookkeeper has been doing bookkeeping for years does not mean they are doing it correctly.
Communication is key. Be sure you are talking with your tax person and relaying to your bookkeeper what they say as far as what needs to be changed. It is also important to keep in contact with your bookkeeper about any transactions that need special instruction on where you want it to be categorized. Some transactions are not obvious on where they go and it helps later when filing taxes to have everything properly sorted.
