Taxes fund everything, but when you run a practice, understanding how to minimize them legally and effectively is crucial. Two often-overlooked strategies—the Augusta Rule and the Home Office Deduction—offer unique opportunities to reduce your tax burden while leveraging your existing assets.
The Augusta Rule: Turn Your Home Into a Business Asset
The Augusta Rule (Section 280A(g) of the tax code) allows you to rent your home for up to 14 days per year, tax-free. For practice owners, this is an excellent way to reduce your taxable income while keeping more for yourself.
For example, you could rent your home to your practice for management or board meetings at a reasonable market rate. If you charge $1,000 per meeting and host 14 meetings a year, that’s $14,000 in tax-free income for you while providing a tax deduction for your practice. Documentation is essential: keep invoices, ensure the rate matches local meeting space costs, and record the purpose of each meeting.
The Home Office Deduction: Deduct a Portion of Your Home Expenses
If you use a dedicated space in your home exclusively for business purposes, you may qualify for the home office deduction (Section 280A(c)). This allows you to deduct a portion of your home expenses, including utilities, internet, property taxes, and more, proportional to your office size.
Additionally, a home office turns your commute into a business expense. Instead of non-deductible personal mileage, trips between your home office and practice become tax-deductible. With proper documentation of your office space and expenses, this strategy can save you thousands each year.
Maximize Savings by Combining These Strategies
By using the Augusta Rule and the home office deduction together, you can maximize your savings. For example, host quarterly meetings at your home while using a designated office space for administrative tasks. Together, these strategies can significantly reduce your tax bill.
Conclusion
These strategies exemplify how proactive tax planning can create meaningful savings for your practice. Talk to your CPA about how you can implement these tools to benefit your bottom line. Next up, we’ll explore how employing family members and leveraging additional tax credits can offer even more opportunities for savings. Stay tuned!
