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Make an additional 10k - 40k per year TAX FREE!!!

Discussion in 'Business & Tax Advice' started by Moneyman94, Dec 25, 2012.

  1. Moneyman94

    Moneyman94 Junior Member

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    There is a little known tax deduction where you can rent out your home for up to 14 days a year, and keep the money tax free. If your business is renting your home from you for business meetings, they will get a deduction of the full amount spent. So if you rent your home for only $1,000 a day (If you think that is high its not, go to a hotel and find out how much to rent a meeting room, have lunch served, coffee, internet access, computers, overhead projector and screens. $1000 is actually very cheap) that is 14k tax free for the year. I have attached the IRS code for you and your accountants to review (funny how most accountants dont take advantage of this rule).

    Topic 415 - Renting Residential and Vacation Property (formerly Renting Vacation Property and Renting to Relatives)

    If you receive rental income from renting a dwelling unit, such as a house or an apartment, you may deduct certain expenses. These expenses, which may include mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance, and depreciation, will reduce the amount of rental income that is taxed. You will generally report such income and expenses on Form 1040 (PDF) and Form 1040, Schedule E (PDF). If you are renting to make a profit and do not use the dwelling unit as a personal residence, then your deductible rental expenses may be more than your gross rental income. Your rental losses, however, generally will be limited by the "at-risk" rules and/or the passive activity loss rules. For information on these limits, refer to Publication 925, Passive Activities and At-Risk Rules.

    If you rent a dwelling unit to others that you also use as a personal residence, then your deductible rental expenses may be limited. You are considered to use a dwelling unit as a personal residence if you use it for personal purposes during the tax year for more than the greater of: 14 days or 10% of the total days it is rented to others at a fair rental price. It is possible that you will use more than one dwelling unit as a personal residence during the year. For example, if you live in your main home for 11 months, your home is a dwelling unit used as a personal residence. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a personal residence unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.

    A day of personal use of a dwelling unit is any day that it is used by:
    ?You or any other person who has an interest in it, unless you rent your interest to another owner as his or her main home under a shared equity financing agreement
    ?A member of your family or of a family of any other person who has an interest in it, unless the family member uses it as his or her main home and pays a fair rental price
    ?Anyone under an agreement that lets you use some other dwelling unit
    ?Anyone at less than fair rental price


    If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. However, you will not be able to deduct your rental expense in excess of the gross rental income limitation (your gross rental income less the rental portion of mortgage interest, real estate taxes, and casualty losses, and rental expenses like realtors' fees and advertising costs). However, you may be able to carry forward some of these rental expenses to the next year, subject to the gross rental income limitation for that year. If you itemize your deductions on Form 1040, Schedule A (PDF), you may still be able to deduct your personal portion of mortgage interest, property taxes, and casualty losses on that schedule.

    There is a special rule if you use a dwelling unit as a personal residence and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

    Another special rule applies if you rent part of your home to your employer and provide services for your employer in that rented space. In this case, report the rental income, but do not deduct any expenses as rental expenses.

    For more information on offering residential property for rent, refer to Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
     
  2. Reyone

    Reyone Elite Member

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    The time you are doing all that you can be working hard and making extra money.
    Pay tax from that and im sure you'll make more money if you spend your time working than trying to avoid taxes with your method.
     
  3. cracklings10

    cracklings10 Newbie

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    thanks for sharing
     
  4. Moneyman94

    Moneyman94 Junior Member

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    Keep in mind this isnt a tax avoidance method, it is a legal method to take tax deductions, something most businesses need more of.

    By law you must have 1 shareholder and one board of director meeting a year. We have 12 BOD meetings and 2 Shareholders. We are having the meetings anyway so we arent adding any extra time. By law I must write up minutes from the meeting, I have a word doc that takes me 10 minutes to complete.

    So if you think about it I spend, lets call it 1 1/2 hours for the meeting and the paperwork. If you only charge $1,000 (I charge more) then you can take $1,000 out of your income and you will never pay SS, State of Fed taxes on it. You transfer it to yourself tax free, no payroll taxes.

    If you add it up for 21 hours a year you save (at 25% tax bracket) $3,500 plus you get the $14,000 out of the business with no tax on it as it transfers to you.

    If you are getting 2k per meeting (very reasonable) thats 24k with no tax and $7,000 saved in taxes. If you are making $333.33 an hour or 13, 333.20 a week or $693,326.40 a year than you would be wasting your time having these meetings.

    Merry Christmas and thanks for bring up a great point on making sure it is worth your time to do something!
     
    • Thanks Thanks x 3
  5. trshosta

    trshosta Newbie

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    Is this also valid in Canada?
     
  6. Moneyman94

    Moneyman94 Junior Member

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    This is a USA tax code. It wont work for you in Canada. There are ways you can use US corporations and LLC's no matter what country you live in but this deduction wont help you.
     
  7. unclemike

    unclemike BANNED BANNED

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    Excellent loophole and information you gave us OP :D

    Putting my rent sign up lol
     
  8. Monetizesocial

    Monetizesocial Newbie

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    Interesting loop... Thanks for sharing, I learned something new today
     
  9. Moneyman94

    Moneyman94 Junior Member

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    One thing you can do to keep it legit is to go to 3 local hotels (the most expensive in your area) Get a quote for room, pc, projector, screen, coffee, lunch, etc. You take the average of the 3 quotes and use that for your rent or charge to the company. We actually rent overhead projectors for our live seminars and we pay between $200 - $400 per day for these old boat anchors. Things add ud quickly. 2k is not a stretch per meeting 28k a year.
     
  10. Moneyman94

    Moneyman94 Junior Member

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    I was just talking to a client about this method and he had a great question that I thought I would share with you. What if he doenst make enough in his business this year to take full advantage of the deduction. If you have a "C" corporation and you can carry the deductoin over until you do have the income to cover it. So if you rent your home for $1k a month ($14k a year) and you make no money in the business that year you would carry over 14k of losses for ever.