By Dave Horwedel, EA
Save Thousands of Tax Dollars
Can you save several thousand tax dollars by renting your home to your business?
Yes!! You must have a small business and a home and must be paying income tax!!
Tax savings could range from a few thousand to $13,000, or even more.
How It Works
Per Section 280(a) of the IRS Code, you can rent your home for 14 days or less per year and not report it to the IRS as income, thus not paying tax on it.
Suppose you are in the top tax bracket (37% Federal) and have or set up an S Corporation. The Corporation then rents your home to do specials events.
Suppose you want to have an appreciation event for your staff and key allies for your business and you are going to invite 15 of them for an event luncheon on the last Friday of each month.
Maybe everyone gets a little award or recognition. Pictures are taken for social media. This is not mandatory for the tax deduction, but obviously we want to have a real event with a real business purpose.
Happily, this also results in an amazing tax deduction.
So, you need an event space for 15, with an AV set-up, lunch, coffee and pastries for the whole day. This means you also must have a kitchen, bathrooms. a digital TV and so on.
My home is in Las Vegas and I checked around what this would cost in a nice hotel here.
Computing Your Deduction
$2900!!!!
This covered a meeting room, food, beverages, and AV support. The minimum for a group of 15 for a 9 am to 5 pm event was over $2900.
Set up your home so you can deliver a very nice event like this.
Do a rental agreement with your organization for whatever you feel comfortable with. Do it in writing.
Write a check to yourself from your corporation for event rental.
You can check a couple other hotels in your city if you want to confirm your pricing. Keep records of these proposals.
Event at Your Home
Let’s say you decide on $2500 as a fair price for your rental for a day.
Have your staff come over with a few top referral allies and have an event program and feed them lunch.
Do this Friday once a month. Have two other special events (small business day, Groundhog’s Day, Pearl Harbor day, whatever. Do 14 events in a year.
Take nice pictures of at least one event and post it on social media.
14 X $2500 =$35,000. This expense comes off your S Corporation 1120S income tax return reducing your net profit by $35,000. Your net profit flows from your S Corporation return 1120S to your personal return 1040.
THIS REDUCES YOUR TAXABLE INCOME BY $35,000!!
We already supposed you are in the 37% tax bracket.
How Much You Can Save
You save: .37 x $35,000 =$12,950 in tax.
This is a totally legitimate tax deduction and savings.
Also, properly done, such events should increase your income.
It also gives you a reason to spruce up your house!
The number of attendees can be more or less than 15. The cost would be based on what a comparable event would cost at a nice hotel meeting room for that number of attendees. Your home should be comparable to a nice hotel space.
If you have a BIG house and can take care of 50 attendees, then the comparable price for a hotel would be much higher. Maybe an apartment would only have room for six event attendees. It is still a worthwhile tax savings.
So, book a monthly event in your home on say the last Friday of the month. Add on other special events to get it up to the maximum of 14 days. DO NOT rent your home for any other days. (This would blow the whole deduction.)
This whole deduction is based on the fact you can rent out your home for LESS than 15 days and you are not required to report the income.
This is a nice tax savings that you can easily qualify for. Moreover, events are great marketing tools. Don’t be dissuaded from doing events like this by the high cost of hotel meeting rooms. You can do better from your own home.
These events should be well-planned to result in positive recognition and income.
However, positive income from the event is not required to take the deduction.
Take advantage of this deduction to save tax dollars and build your business.
