THE QUICK HIT
As a business owner, it is a good idea to have regular meetings with managers and business advisors where you discuss important decisions for the business and your strategic goals. If you are organized as a corporation, you are required to have board meetings. These types of meetings can be held anywhere, but let’s say you hold it at a local hotel conference room. The cost incurred for renting the conference room and any food purchased would be considered an ordinary and necessary business expense and fully deductible from your taxable income. However, instead of renting a room at a hotel, you have the option to rent a room…at your house. Yes, your business can rent a part of your house to have a business meeting.
There are some amazing benefits of renting your home to your practice for a business meeting.
- The expense reduces the taxable income on the books of your business
- Instead of paying your local Marriott, the money is going to you
- The money you receive individually for renting your home may be excluded from all taxes
- This creates a good excuse to start having regular meetings that you should already be having in the first place
With the recent emergence of sites like Airbnb and HomeAway, taxpayers have taken advantage of renting out their homes to help with the burden of housing costs. This extra income is great, but can create a little bit of a tax nightmare! You must now prepare a special schedule to report the rental income (called a Schedule E) and report all your income and deductions to the IRS. What most taxpayers don’t know is that there is a way that they can rent their homes and not have to claim any income!
The IRS has a special section in the tax code for someone who owns a home residence and rents the home for less than 15 days. In this section iT says, “If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and…You are not required to report the rental income and rental expenses from this activity.” The code specifically says that you don’t have to report the income from renting your home for less than 15 days.
We recently saw a return come through our office where the taxpayer rented their home for 15 days! Doh! If they would have rented it one less day the income would have been completely excluded and not reportable on the tax return.
Like we talked about earlier, if you own a corporation (like many of our clients), you are required to have board meetings. Every state is different on how often these board meetings should be, but as a rule of thumb, these meetings need to occur regularly. If you decide to have these meetings at your home, be sure to use the fair market rental rate for hosting such meetings. You can call a local hotel and get a quote to see how much it would cost to rent a conference room for 1 day. That quote can serve as a guide on how much you should pay yourself in rent.
If you own a practice but are not organized as a corporation (LLC or sole proprietor), you may still benefit from this deduction. Instead of board meetings, you can have office meetings at your house. Again, call a local hotel to get a quote on much you should charge yourself for rent.
Regardless of your legal entity, be sure to record notes about what transpired during the meeting. Store these notes in a safe place with the rest of your accounting records. If you are ever questioned by the IRS on the validity of the meeting, your notes will serve as proof that it was a legitimate meeting.
In addition to business meetings, many doctors also host the annual Christmas Party and other office events at their home. These would also qualify a rental activities. If you prepare the food, you can also charge the market rate for what it would cost to purchase similar food from a local restaurant.
Remember to use reason in using this deduction and contact your CPA before taking this deduction. Contact us for a detailed checklist that walks you through the requirements needed to take this deduction.