The Augusta Rule

In some cases, helping your business save money is as easy as using your own home.

Utilizing something called, “The Augusta Rule”, you can legally rent your own home out for certain work-related practices.  It only applies if your home is not your primary place of business, but it’s an interesting tax break that could save you a chunk of money over each fiscal year.

What is the Augusta Rule?

This rule allows you to rent your home out for up to 14 days a year.  Though it’s technically called Section 280A, it’s often referred to as the Augusta Rule due to its history.  It was created originally to protect residents in Augusta, Georgia, who allow spectators to rent their home while attending the annual Master’s golf tournament.  While many homeowners in other short-term tourist towns utilize this rule, it’s also completely allowable for your business use.

To reiterate, this is only the case if your home is not your main workplace.  If you always use your home office to operate out of, different tax rules apply and you cannot use the Augusta Rule.

 

How does it work?

With this tax rule, business owners can apply reasonable rent to use of their home for business purposes.  That rent is then deductible from your taxes, so long as it shows on your business account and the amount spent is reasonable when compared to the alternatives.

There are, as always, a few rules within the Augusta Rule if you’re wanting to utilize it.  You have to be able to prove that your rent charge is reasonable, which can be done by researching similar business meeting venues (such as hotels, country clubs, etc.).  Print off the quotes for these venues and keep them with any other documents pertaining to the meeting.

You must also be able to prove that the meeting actually occurred.  For smaller meetings, keep minutes or other records of business discussions.  If you’re hosting a business event, make a ledger of everyone who attended and their business relationship to you.

After business has concluded, write a check from your company’s account to your personal account and deduct it on your business taxes as “rent”.  In addition to technically paying yourself and saving company money, the way the Augusta Rule is written means you won’t have to report this as income on your personal taxes.

 

What does the Augusta Rule apply to?

The short answer is nearly any sort of business-related meeting that can be held at your home counts under the Augusta rule.  Whether it’s a one-on-one client session, a monthly meeting with your Board of Directors, or an employee appreciation event, if it’ll fit in your home and is based on your business.

You may have noticed that last example as more entertainment than work-related.  While you are free to host an employee barbecue or party at your home and deduct the rent as a business expense, this only applies when others involved in your business are in attendance.  Should you decide to bring a client over for dinner one evening, you won’t be able to rent your home out for that, regardless of the reason.

If you’re hoping to save your company some money, the Augusta rule is an oft-overlooked but powerful way to do it.  Keep records and use it correctly. You could put hundreds, even thousands of dollars back into your pocket.

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Madison Randolph

Madison Randolph

Madison Randolph is a CPA who works with individuals and small businesses to help them save money. Madison believes that your hard earned money should be in your pocket, not Uncle Sam’s. This passion has empowered him to help his clients save tens of thousands of tax dollars by employing his tax strategies he has learned in the 30 years he’s been practicing. Madison is a certified public accountant, certified tax master, and is involved in ongoing training to best serve his clients. Madison holds a degree from University of Tennessee in Accounting. He is the owner of Madison Randolph, CPA based in Knoxville. His practice has been serving the people of Knoxville for over 10 years.

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