Augusta Rule – Episode 639

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’re gonna be talking about some of the tax items or tax news out there a lot of people are discussing right now, which is called the Augusta Rule. And then we’re gonna be going over a few other things that call it self-employed prosperity thinking people use. No tax loopholes. This is called reading the tax code and thinking prosperously. You’re smiling and nodding, Kim. Set the stage for us on this. This is cool. Well, this is so fun. So I was very good friends with Diane Kennedy when she wrote the book Tax Loopholes of the Rich that was part of Robert Kisaki’s original group of advisors that had books out with Dolph Jaruse and Blair Singer and Sharon Lecter

[00:57] whoever else can’t think of the lawyer’s name right now. And I KNOW because of Tom Wheelwright who took over Diane Kennedy’s practice that there is no such thing as a tax loophole. I mean, there might be myriad, but you know they get closed up if they’re actually loopholes. Instead it’s so much more impactful to rely on the actual tax code and let it be a rule book for the work that we do. It guides us on how to legally, effectively keep our taxes as low as we possibly can. All we have to do is follow the rule book and it should be publicly stated. I’m not a CPA. I refer people to Wealthability all the time. That’s Tom Wheelwright’s company. There’s a variety of other CPAs out there in the marketplace that I’m aware of.

[01:53] And interestingly enough, I was just at a conference where two different CPAs got on stage and both of them shared information about the Augusta rule. So we’ll see how well I can share that further but I have some additional ideas that I cannot wait to share. Also, again, with the caveat please go check these out with your tax professionals so that you know how to implement them properly for your own situation. Ooh, I wanna hear the other two because I don’t know what those are. So I’ll hit the highlights from my notes for the Augusta rule. One is it’s renting your home for up to 14 days tax free. So one, the limit is 14 days. There are a couple little nuances to it. If you want to maybe hit some of those high level,

[02:41] I can hit them, fill it in. What’s easier for you, Kim? You go for it. Okay, cool. So here’s what it looks like. One, it has to be legit. Like you’re not just saying, hey, let’s rent out the house for 14 days and just throw a big party for two weeks. Like there has to be something to it. By something to it, it means commonly used for board meetings, company retreats, business events. Now at a corporate retreat or business events, are there fun activities? You betcha. Are there other things that happen? You betcha. So what it means is you need to document what you’re doing. Has to be correct. Also, it has to be, as far as documenting, you also have to be in compliance with what normal average

[03:30] or typical rates could be. Now, what does that mean? I have a friend that owns an exotic hotel. And in the same city, hotel rooms go for, or Airbnbs go for $100 a night, we’ll say. His small rooms go for almost $1,000 a night. Well, that $1,000 a night is typical. So again, Augusta rule, you make the decision there. The next that we have is that it works for corporations. So if it’s just a sole proprietor, again, you use the caveat, talk with your professional, but it’s for people that are having a corporation, keeping track of the minutes, keeping track of the things there. So you’re nodding your head. Are there any other little holes you wanna fill with the Augusta rule? Absolutely. So I would say LLCs also,

[04:26] sometimes when we use the corporation’s word, people think only S-corps and C-corps, but technically LLCs also. You just need to have a separate taxable entity. And then I would also say that many people that work out of their homes, which so many people do these days, have a home office deduction. And it’s my understanding, again, please check this, that you can do one or the other. And so you do have to do the analysis. Am I more efficient having a home office deduction, which is literally every day and with different set of rules versus the 14-day Augusta rule space? And I wanna elaborate on your event space idea, which is I’m guessing what’s happening with that Airbnb that you brought up

[05:13] is it could be a wedding venue or something like that, whereby it’s not a hundred bucks a night, it’s a thousand bucks a night because that’s what wedding venues, and I’m just using that as an example, bring. And so it’s important to look at that highest and best use of homes in your area and see if you can up-level that a little bit more than just your typical Airbnb environment. Beyond that, I think you did a great job covering it. And again, please go see your professional because if you’re not doing a home office deduction, that can be extremely valuable as well. And you have to do that per square footage and et cetera, et cetera. And there’s a whole nuance of rules that go with that, both of which, whether you’re doing Augusta or home office,

[05:59] absolutely positively require that documentation, that specificity, that normal and customary, I think are the words that they use so that you are clean with the IRS so that if they ever come in and look, you have got it down. There are two other little pieces that I think about that are related to this. One, your accountant may not be aware of this. And if they’re not, then that’s okay. Educate them, read into it, understand it. If they’re not aware of it, then they’re probably not aware of other things that are penalizing you. This is something just to say. The second, I remember on a podcast episode we did, this is probably 100 episodes ago, when we talked about Tom Willwright. And if I recall, he constructed a casita in his backyard

[06:52] so that he had another tax write-off for the office space that he had. So don’t just limit to yourself to Augusta rule. There are a lot of things that you can do. That’s why we’re doing this podcast and you have two more things you’re gonna share with us. I do, and it’s one of my favorites because I did this when my children were young. And that is, and again, you have to have a business of some sort, LLC, S Corp, C Corp, with legitimate business activity. Even if small, you can hire your children as models. Now, in order to do that, you need to have a modeling agreement. You need to have pictures. You need to utilize those pictures in your marketing. It all needs to be documented. There’s very specific things in that arena,

[07:38] yet a child model can earn between $100 and $500 an hour, depending on the situation, and it’s a completely legitimate business. You, Spencer, have created KidLedger that would enable a business owner to properly document and pay for children to do all kinds of things, not just the modeling idea, but there are literally an almost limitless list that are age-appropriate things that, when properly documented and supported appropriately, can be used with children that are hired by the business owner to get the results that child is doing, again, age-appropriate. So it’s just a really fun space, I think, because then that child who is at a lower tax bracket, and you can do up to $15,000 per child

[08:40] if you’re doing it properly, they can use those lesser-taxed dollars that are after-taxed to purchase life insurance on their lives. Now, you as an adult are gonna be the owner because a child that’s under 18 cannot own a contract. Nevertheless, the dollars can come from that lower tax bracket and be very efficient in implementing the perpetual wealth ideas that we wrote about in our Perpetual Wealth book. And I have a lot of people reach out to me and say, I love your book, how do I implement it? And there’s really just two or three things that need to happen. One is, if appropriate, the hiring of a child or grandchild, could even be a niece or a nephew. So I do need to make it clear that you cannot buy

[09:32] life insurance on a niece or a nephew. So that’s something to sort through. Again, get a human to help you. And two, put in front of your family legal documents, a letter, a permissive, if you will, I like to call them prosperity permissives, a constitution, a document, a word of advice, call it whatever you want, but put in front of your legal documents some type of written out statement that shares why you’re doing what you’re doing, shares your visions, shares maybe some of the learnings that you’ve had in your life, which some people could call failures, but I prefer to call them learnings, shares what is behind the effort of this perpetual wealth space. And then let’s be clear that legacy is not only

[10:34] what we leave to our children and grandchildren, great-grandchildren, it’s what we leave in them. So if you’re a wealthy family and you’re leaving money to them, great. Let’s have a document that explains why and what your hopes are for it. If you’re not a wealthy family, let’s just have a letter, a single piece of paper that shares with them your values, the things that you hold dear, what you think of them as a person. That is what you leave because that leaves something in them. And then of course there’s everybody else in the middle. And inside our prosperity pledge, for example, we have an AI-driven space to help you get that letter written. And then of course you’re going to do what you’re doing with your insurance

[11:23] and your other wills and trusts to continue to move assets from generation to generation, which is what we do in the perpetual wealth space. That is so well said because you’re talking about the things, not just passing assets. And I mean, it takes work, it takes coordination and thought and a lot of intention to do that. And then it also takes work to get your fingers on a keyboard or your hand on a piece of paper with a pen and write out all of those thoughts. And both are incredibly important things to do. So as we’ve talked about the Augusta, we’ve talked about paying the kids, we’ve talked about the loopholes, we’re explaining these things because we’re helping people become more prosperous.

[12:19] Obviously it all starts with thinking. That’s what we just talked about in another episode and almost episode we do that every episode. There are other things that people can do. But now we’re not gonna go on for an hour episode. So for you listeners, if you were looking for something that will help you and your family, send an email to hello at prosperitythinkers.com and you can put just the subject line podcast because that email is specific for podcast listeners. You’ll get jumped to the front of the line, personal answers in there. We look forward to helping you out. Again, email to hello at prosperitythinkers.com. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you,

[13:13] visit prosperitythinkers.com.