Nov 23 min read

Year End Series 6: How Business Owners Can Use the Augusta Rule to Save on Taxes

The Augusta Rule provides an option for business owners to rent their homes to their businesses for up to 14 days per year without reporting the rental income as taxable. This arrangement, often used for meetings or training events, allows for rental income to remain untaxed, provided that specific IRS documentation requirements are met. Our app is designed to help simplify compliance with these requirements, offering a clear pathway to handle the necessary documentation, fair market valuation, and record-keeping.

Here’s an example of how the tax savings might look for a compliant rental arrangement and an overview of the key compliance elements.

Potential Tax Savings: An Example

Assume a business owner rents their home to their business for $1,500 per day, the fair market value for comparable short-term rentals in the area. For 14 days, this results in $21,000 in rental payments. If the owner is in a 37% federal tax bracket and a 5% state tax bracket, the following illustrates how tax savings might look based on these assumptions:

Item	Amount
Rental Income (14 days)	$21,000
Federal Tax Savings (37%)	$7,770
State Tax Savings (5%)	$1,050
Total Tax Savings	$8,820

Compliance Requirements under the Augusta Rule

To comply with the IRS requirements for this arrangement, business owners must have clear documentation and accurate records. The key elements include:

Lease Agreement: A formal rental agreement specifying terms, rental rate, and purpose.
Fair Market Value (FMV) Justification: A report to support the rental rate with comparable rental data.
Corporate Minutes: Documentation in corporate records that the rental use was approved and valid.
Record of Payment Transfers: Documentation showing that payments were made from the business to the homeowner.

How Our App Supports Compliance with the Augusta Rule

Our app is designed to simplify each step, helping you create, manage, and organize the necessary documentation to align with IRS standards.

1. Lease Agreement Setup

Our app provides a customizable lease agreement template that allows business owners to establish a formal agreement between themselves and their business. The agreement outlines the rental terms and purpose, creating a clear paper trail.

Feature	How It Helps with Compliance
Lease Agreement	Provides a customizable template to formalize the rental arrangement, meeting documentation needs.

2. Fair Market Value (FMV) Justification with Comp Report

Setting a fair market rental rate is crucial, as the IRS requires that rental rates reflect FMV. Our app’s Comparable Rent Report (Comp Report) feature helps you document the rental rate based on similar properties, supporting the required FMV justification.

Feature	How It Helps with Compliance
Fair Market Value Comp Report	Generates a report on comparable rentals to support FMV, aligning with IRS guidelines on valuation.

3. Corporate Minutes Documentation

Business owners need to document each rental in their corporate minutes to validate the rental’s purpose. The app’s corporate minutes feature enables users to log each instance as a business decision, keeping an accessible record for compliance.

Feature	How It Helps with Compliance
Corporate Minutes	Simplifies documentation of each rental as a business decision, supporting corporate records for IRS purposes.

4. Payment Transfer Reminders

Rental payments must be documented, with funds transferred from the business account to the personal account of the homeowner. Our app includes reminders for these transfers, ensuring timely payment records are kept, which can aid in maintaining financial separation between business and personal accounts.

Feature	How It Helps with Compliance
Payment Transfer Reminders	Sets up reminders for timely payment transfers, assisting in maintaining a documented financial separation.

Summary of App Features and Their Compliance Benefits

App Feature	Compliance Requirement	Compliance Support
Lease Agreement	Formal rental agreement	Customizable template for a documented rental arrangement, stored in one place for easy access.
Fair Market Value Comp Report	FMV justification for rental rates	Generates a comparable rent report to support FMV, aligning with IRS requirements on rental rate documentation.
Corporate Minutes	Documentation of business intent	Logs each rental in corporate minutes, supporting documentation of the rental decision as a valid business purpose.
Payment Transfer Reminders	Documented payment records	Automates reminders for timely transfers, reinforcing the separation between business and personal finances.

How Our App Can Help You Stay Compliant with the Augusta Rule

Our app simplifies compliance with the Augusta Rule by providing tools for every documentation requirement, from creating a lease agreement to generating fair market value reports and automating payment reminders. With these features, business owners can keep clear records and meet IRS guidelines more easily.

Learn More About Our Compliance Features

If you’re interested in using the Augusta Rule and want an easier way to stay compliant, our app offers a comprehensive solution. Schedule a demo today to see how it can simplify documentation and streamline compliance with IRS standards.

Contact us to learn more and get started!