In this article, we will be going over two specific tax deductions and tricks of the trade that we have seen benefit others. Those being the Augusta rule and the Sale/Gift-Leaseback tax deductions. With one of our specialties here at Interactive Accountants being healthcare accounting, we feel uniquely qualified to go over some ideas in this article and hopefully hear from you, our readers, on the phone soon after.
A good start would be to define a sale/gift leaseback. A sale/gift leaseback is a transaction where one person or party sells, or gifts, a piece of property to another who will immediately lease the property back to the original owner. The attractiveness of this type of transaction is that it can be mutually beneficial to both parties engaged. The example we like to use here at Interactive Accountants involves a random dentist. Say you are a dentist and you have some equipment that is paid off and still in use, but maybe not the latest and greatest. You have the option to sell or gift that equipment to someone else you know and then enter a type of business relationship with that person to lease it back from them. You have now sold (or given) your friend the piece of equipment and what they will do is they will then lease it back to you so you can continue to use it. This creates the opportunity for the dentist's friend to collect rent on the medical equipment as the dentist is using it. What the dentist gets out of this is that they get a tax write-off of medical equipment rental expenses, while the dentist’s friend now has an income stream. It essentially gives the friend in need some extra spending money and allows the dentist, who may already be giving this friend some money, a way to structure a tax write off for something they may have already been doing.
A few golden rules to go over when doing a gift and/or sale-leaseback involve being very careful with the lease terms, sales tax requirements and documentation. When doing a leaseback transaction, the IRS will keep a very close eye on the transaction to ensure that it has been negotiated in good faith. The best way to deal with this is to have all lease terms written down and make sure that both parties sign a copy. This should come as a bit of a no-brainer to have your paperwork in order, but with these types of dealings, you want to ensure there is no room for error. That takes us to the other point we would like to make when it comes to these types of transactions: they need to be structured and documented very carefully so that they do not attract the attention of the IRS. The IRS has a history of keeping close eyes on sales/gift leasebacks as, at times, these actions can be disguised as false sales. This means that if you don't do this right, the IRS can catch these quickly. Our best advice to avoid any mistakes when doing these money-saving actions is to do it with the help of an accounting firm and attorney, as they can ensure that everything is done above board and properly to save everyone involved time and frustration. If you are in the medical field and think this is something you may want to consider doing, do not hesitate to reach out!
The other big topic we want to talk to healthcare professionals about in this article is the Augusta rule, also known as section 280a of the internal revenue code. The Augusta rule allows homeowners to rent out their home up to 14 days per year, where you do not have to pay any tax on the rental income you get in that time so long as it is properly recorded. One thing to keep in mind is that you will not receive any deductions for the time your home is rented. What you can do as a business owner and a homeowner is you can theoretically host a business meeting at your home once a month with two days in change, adding up to 14 days. You can then have the business pay you, the individual, a fee for renting the space, and all of the income collected from this is not taxable. This is a unique situation that business owners can do; however, collaboration with employees, especially among small businesses, is encouraged when the situation is right. Once again, we want to emphasize the importance of keeping track of all of this even when it is protected under government law because nobody likes having the IRS look into their stuff. Make sure that while you are taking advantage of all the tools at your disposal to save money whenever you can, you are doing it within the appropriate guidelines.
We have many more ideas and services to help you and your business thrive. Here at Interactive Accountants, assisting businesses to grow and succeed financially and compliantly is our number one goal. We are here to help! If you're still not convinced yet to give us a call, feel free to look at our other blogs regarding the help we offer medical services and businesses.
If you are a professional in any of the healthcare fields, you will need a CPA firm that understands what your business does and what it needs. So give us a call or schedule a free consultation here with our owner Matthew Shiebler, CPA. He's been practicing accounting for over 25 years now and is a business owner, just like you!