STRATEGY # 1: Home Office
Overview:
To qualify for a home office deduction, you must use part of your home in one or more of the following ways:
Exclusively and regularly as your principal place of business
Exclusively and regularly to meet with clients, patients or customers in the normal course of business
On a regular basis for certain storage use
As a daycare facility
STRATEGY #2: Hire Your Child
Overview:
If you’re a parent who owns your own business, you have an opportunity to begin the wealth-transfer process and leverage a tax deduction for hiring your children as employees. If your business is a sole proprietorship or a spousal partnership, the hiring children tax strategy offers a few benefits to take advantage of:
Payments to your children who are under 18 are not subject to social security and Medicare taxes.
Payments to your children who are under 21 are not subject to Federal Unemployment Tax Act (FUTA) taxes.
STRATEGY #3: Employee Achievement Award
Overview:
In general, awards given by employers to employees, whether paid in cash or property, are deductible to the employer. In most cases, the value of the award will be taxable income to the employee, but certain gifts of tangible personal property can be excluded from their income.
STRATEGY #4: Accountable Plan
Overview:
An accountable plan allows employees, including owner-employees, to be reimbursed for expenses paid out of pocket. The expenses become deductions to the business, and the employee or owner-employee can be reimbursed, creating non-taxable cash flow to them. Without an accountable plan, the payments to the employee or owner-employee could be considered additional wages by the IRS.
STRATEGY #5: 1031 Exchange
Overview:
The sale of real estate may lead to a significant tax bill, especially if the asset has appreciated greatly or if it has had significant depreciation taken against it.
A 1031 exchange allows you to avoid paying those capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.
STRATEGY #6: Home Gain Exclusion
Overview:
Taxpayers can exclude up to $500,000 of capital gains from any gains on the sale of their primary residence if they meet specific requirements.
To qualify the seller must have lived in the home as their primary residence for at least two of the past five years at the time of sale. If the seller is considered active duty military, the time is extended to two out of the previous ten years at the time of the sale.
The amount that can be excluded depends on the seller's filing status. Sellers filing as married filing jointly can exclude up to $500,000 of the gain.
STRATEGY #7: Agusta Strategy
Overview:
Business owners can rent out their primary residence or a vacation home to their business for up to 14 days each year. The home can be located anywhere in the United States, and the income from the rental is excluded from the owner’s taxable income.
This strategy was originally created to protect residents of Augusta, Georgia, who rent out their homes to attendees of the annual Masters Golf Tournament. This is also sometimes referred to as the Masters Rule.
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