Are you traveling on business this summer and to a city where your parents (or relatives or friends) live?
If yes, then this article will show you how one of our clients turned mom and dad’s “bed and breakfast” into a tax deduction for her business and tax free income to her parents.
One of our clients is originally from the Boston area. While she lives in Los Angeles now, her parents still live back east. As a part owner of a medical clinic in the Boston area, our client needs to occasionally travel back east on business.
So does our client stay at the Four Seasons Boston when she travels back home?
Of course not, because chez mom and dad is more tax advantageous and offers home cooking to boot.
Whether you stay at the Four Seasons or your parent’s house, you still get the same tax deduction.
But when you pay “rent” to stay at the folks while traveling on business, then your parents get to receive the income tax free provided they rented their home for less than 15 days during the tax year.
So, in our client’s case, she spends 11 days at her parents’ house while she’s in Boston on business. Doing some research of hotels in the Boston area near our client’s parent’s home, the going rate for a room averages about $300/night. That’s $3,300 of tax free income our client’s parents earn and that’s also fully deductible by our clients business for lodging. Home cooking never tasted so good!
Before you pick up the phone to tell the parents you’re coming home for a visit, know that there is some tax compliance you will need to follow to ensure the IRS allows the transaction.
Moreover, your parents will need to provide your business with a receipt for the rent paid. This receipt can be informal. In fact, a handwritten receipt will suffice.
At Gedeon Law & CPA, we regularly work with closely held business owners to devise strategies that maximize their tax deductions and help keep more money in their – or their families – pockets.