Everybody likes to save money – and identifying where one can save on taxes is a part of what we do at Knight Family Wealth.
Here are a few simple tax-reducing ideas you can take to your CPA and implement to start saving on your next return.
THE AUGUSTA RULE
What is it?
As the nom de guerre implies, the Augusta Rule gets its name from the city of Augusta, GA – home of the Master’s Tournament. As you can imagine, many folks own vacation homes in the city of Savannah. As such, a lobbying effort secured a change in the law that allowed for the residents of Augusta GA to rent out their homes without needing to report the rental income on their individual tax return.
Today, the rule which is known to the IRS as Section 280A, now applies to any taxpayer who owns a home in the United States so long as that home is not your primary place of business.
What is the effect?
You can rent a property out for up to 14 days without having to report that rental income on your individual tax return. The rental rate must be reasonable and in line with the rental market.
Rent your property out to your business for annual retreats, meetings, parties, etc., and earn tax-free income while the business can write off a deductible business expense.
Deductions are typically the low hanging fruit when it comes to tax-savings. However, please note that in order to be deductible, the IRS requires a business expense to be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
Here are a few deduction ideas that you can implement right away to start saving on your tax return:
100% deductible. You can include airfare, rental cars, taxis, trains, tolls, hotels, etc. Consider any travel you had over the past year for a meeting with a client, a company retreat, conferences, etc.
Hire your kids
By hiring your children to do legitimate work for your business and paying them a salary, you effectively shift income out of your higher tax bracket into the lower tax bracket of the child whilst still keeping the income within the family.
The IRS defines business rent as any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. However, please note that if you have or will receive equity in or title to the property, the rent is no longer a deductible expense.
COVID-19 Related Employment Tax Credits.
The Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020, provides certain employers with tax credits that reimburse them for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, provides eligible employers with an employee retention tax credit if they keep employees on their payroll, despite experiencing economic hardship related to COVID-19.
Finally, it is important to ensure that you meet with your team of tax and legal professionals during the year prior to tax season to discuss whether there are tax saving strategies or deductions you can take advantage of based on your situation. Simply being proactive can ensure that you are likely on track to take advantage of all the tax savings available to you. If not, you may not even know what you are missing out on!
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to acting on the information set forth herein.