Legal Tax Loopholes
High net-worth individuals and businesses typically pay the most in taxes but there are some lessor known legal tax loopholes that can be utilized to help reduce your tax burden.
Augusta Rule
The IRS allows a business owner to rent either their primary residence or a vacation home to their business for up to 14 days each year. The residence can be located anywhere in the United States and the income is excluded from taxable income for the residence owner/business owner.
This strategy was originally created to protect residences who lived in Augusta, Georgia. Those homeowners rent out their residences to attendees of the annual Masters Golf Tournament. This is also sometimes referred to as the Masters Rule.
There are a few things to keep in mind when considering this strategy. First, you must rent out a home that is not considered a full-time rental property. Secondly, you must stay within the 14 rental days. If you rent the home for more than 14 days, you will have to report the income and will not receive the tax benefit.
The rental is established with a lease agreement between the business and residence owner, with pricing supported by researching and documenting comparable space for a similar event.
Rental prices vary greatly across the country, and it is important to document the local pricing. We generally recommend that you contact about three local establishments where businesses would normally have meetings. This may include country clubs or hotel meeting salons. Documenting this process is an important step in this strategy.
You can use your home for a variety of business purposes, including annual or quarterly meetings, planning sessions and even company parties. You should schedule your meetings in your calendar system, and support the meeting or events with meeting minutes, notes and the like.
You can qualify for this strategy if you are attending this meeting with just your spouse, or even just by yourself.
Qualified plan for employee achievement award program (QEAAP)
In general, awards given by employers to employees are deductible to the employer, whether paid in cash or property. In most cases, the value of the award will also be taxable income to the employee.
However, if an award of tangible personal property is given to an employee for length of service or safety achievement pursuant to a written plan or program that does not favor highly compensated employees, it may qualify for exclusion from the employee’s income.
Individual awards valued at up to $400 may qualify for the exclusion. In the case of employees who receive multiple awards, the total value that can be excluded in a year is $1,600.
Owner-employees of S corporations WILL NOT qualify for the exclusion.
Employees can still qualify for the exclusion if they choose their award. Awards of cash, gift cards, vacations, meals, lodging, or tickets to events will not qualify for the exclusion.
Legal Tax Loopholes
Take the initiative and contact LNK Tax Group for tax consulting and tax planning services to start managing and reducing your tax burden today. We will take the time to understand the situation and apply our expertise to help you make the best business and individual decisions. If you are in Santa Clarita or Downtown Los Angeles (DTLA) and wish to learn more about our services, please call 661-491-7222 or 213-588-1120 or you can book a free consultation online. We provide tax consulting and tax planning services to individuals and businesses in Downtown Los Angeles and Santa Clarita including, Valencia, Stevenson Ranch, Newhall, Castaic, Canyon Country, Agua Dulce, Saugus, Rancho Santa Clarita, Sylmar, Mint Canyon, Val Verde, Mission Hills, Castaic Junction, Granada Hills, Porter Ranch, San Fernando Valley, and Los Angeles County.