How to Pay Yourself Tax-Free With the Augusta Rule
- KT Advisory Services
- May 13
- 3 min read
What if you could legally take money from your business without paying taxes on the income?
That’s exactly what the Augusta Rule makes possible. It’s one of the most overlooked tax strategies available to business owners who also own their homes.
It lets you turn your residence or vacation home into a legitimate business expense while keeping the income completely tax-free, as long as everything is documented properly and the rules are followed.
What Is the Augusta Rule?
The Augusta Rule comes from IRS Section 280A(g). It allows homeowners to rent out their residence for up to 14 days each year without having to report that rental income on their tax return.
This rule was originally created for people in Augusta, Georgia, who rented out their homes during big events like the Masters golf tournament. The IRS recognized that these short-term rentals weren’t really part of a full-time rental business, so they allowed the income to go untaxed.
Today, the same rule applies across the country. As long as your home is used as a personal residence and you rent it out for 14 days or fewer during the year, the income is tax-free.
How Business Owners Can Leverage the Augusta Rule
If you’re a business owner and a homeowner, there’s a simple way to take advantage of this rule. Your business can rent your home for real business purposes, such as annual planning sessions, leadership retreats, team trainings, or small client events.
Your company pays you a fair rental rate to use your home. That amount becomes a deductible expense for the business. And if the total rental use stays under 14 days for the year, you don’t report the income on your personal taxes.
This approach is especially useful for S Corporations or LLCs taxed as S Corps. Taking money out of the business often comes with extra tax obligations. The Augusta Rule gives you a way to move cash to your account without triggering payroll or income tax.
The key is that the business purpose must be legitimate, and the rate you charge needs to be reasonable. When it’s done right, this is a clean and highly effective strategy.
A Simple Example
Let’s say your business pays you $1,000 per day to host quarterly planning meetings at your home. That’s four days a year, which adds up to:
$4,000 deducted by your business
$4,000 received by you, tax-free
Now imagine doing this for the full 14-day allowance. That’s $14,000 a year in your pocket, with no personal tax liability, while your business has a $14,000 deductible expense.
Of course, you need to back up the rate you’re charging. That means doing a little research into what it would cost to rent a similar space in your area, like a hotel conference room or coworking venue. Keep a record of those comparisons in case you ever need to show how you arrived at your rate.
We Handle the Details
This strategy works, but only if it’s properly documented and structured. The IRS does allow it, though there are rules around setting a fair rental rate, defining a clear business purpose, and handling payments the right way.
At KT Advisory Services, we’ve made the process simple. Our clients don’t have to deal with the legwork or guess what the IRS expects. We take care of the details and make sure everything fits smoothly into your broader financial plan.
Let’s Put the Augusta Rule to Work for You
This is just one of the many tools we use to help business owners reduce tax liability and improve cash flow. Whether you’re trying to take money out of the business more efficiently or planning for long-term growth, the Augusta Rule may be a simple but powerful fit.
Curious whether this tax strategy works for your business?
KT Advisory Services: Outsourced CFO and tax planning services for businesses generating $1M+ in revenue.
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