Rent Your Home: S-Corp
Let’s say that instead of renting a conference room at the Four Seasons, you decide to host the meetings in your own home, and you didn’t have to claim that money as income on your tax return? Seems too good to be true, right? Fortunately, the IRS lets you do exactly that, and it's as easy as 1, 2, 3.
So how is it possible to be paid by your company for renting your home and not claim it as income on your taxes? Because of a little known rule that allows you to rent out your personal residence for less than 15 days per year and claim none of the income on your taxes.
But as with any great strategy, there are clear rules that must be followed to take advantage:
1. Your Home has to be Rented for Less Than 15 Days
This one is pretty straight forward. Rent it for one day over 14 and you lose the tax break. But what the 14 days allowed means is that if you have a board meeting every month, you can host all 12 in your home and still get the deduction!
2. You Must Rent Your Home at a Fair Rate
The IRS does not allow you to just make up an arbitrary number to charge your company when renting your home. It must be in line with what you would pay to rent another location.
The best advice here is to call around and get actual quotes for other places and then charge the average of those prices for your home. Keep the quotes they give you as proof.
3. Record Minutes
If you are hosting a board meeting, you are used to keeping the minutes. But regardless of the event you are renting your home for, make sure someone is recording everything that is discussed and goes on.
If the IRS questions the validity of the meetings, you want proof of the business that was discussed
Rent your home to your business:
Setup a corporation
Setup the corporation EIN number
Set the corporation checking account
Make sure you register your corporation with your local business licensing and zoning department and pay any related fees.
Monthly: Contact two local hotels, golf courses, or meeting facilities and request a quote for the use of a four to eight person conference room for the day
Monthly: Choose the amount that best values your home as the best option <<Extra safe - choose instead to rent the home of a relative, or better yet, another self employed friend who is not related >>
Monthly: Have the rental facility create an invoice.
Monthly: Write the check from your corporation's business checking account to you personally and deposit to your personal bank account (not the corporations) or the person you are renting the facility from.
Monthly: Have the meeting, use our handy monthly business strategy meeting template, meeting agenda, and meeting minutes. Have all directors, shareholders, and important attendees sign and witness the documents.
Monthly: Take a picture with all attendees with the documents in the facility. Use a time date stamp on the photo.
Monthly: Upload all documents to drop box or your secure server to ensure that your documents are date stamped and timely.
Yearly: the corporation must issue Form 1099-MISC if the rent is $600 or more for the year
Yearly: On the 1040, report the 1099-MISC for rent on line 21 and then create an offset line item labeled "14 day home rental income tax free "
IRC Sec. 280A(g).
(g)Special rule for certain rental useNotwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then—
(1) no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
(2) the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.
(ii)Determination of fair rental
In the case of a rental pursuant to a shared equity financing agreement, fair rental shall be determined as of the time the agreement is entered into...
(4)Rental of principal residence
(A)In general: For purposes of applying subsection (c)(5) to deductions allocable to a qualified rental period, a taxpayer shall not be considered to have used a dwelling unit for personal purposes for any day during the taxable year which occurs before or after a qualified rental period described in subparagraph (B)(i), or before a qualified rental period described in subparagraph (B)(ii), if with respect to such day such unit constitutes the principal residence (within the meaning of section 121) of the taxpayer.
(B)Qualified rental periodFor purposes of subparagraph (A), the term “qualified rental period” means a consecutive period of—(i)
12 or more months which begins or ends in such taxable year, or
(ii) less than 12 months which begins in such taxable year and at the end of which such dwelling unit is sold or exchanged, and
for which such unit is rented, or is held for rental, at a fair rental.