Filing Tax Returns using the Augusta Rule

Of course, it’s an advantage if your tax professional is an Augusta Rule expert. But if they’re not (and most aren’t), that’s usually not a problem. What matters most is that they’re given the right inputs at filing time.

When it comes to filing, there are two separate tax returns involved:

The business tax return
The personal tax return

Your CPA may prepare both, or you may use different professionals. Either way, the reporting is straightforward when handled correctly.

And yes, we know what you’re thinking: “The last thing I need is more paperwork for my CPA.”

We agree.

If you join the Free Money Plan, all you need to do is connect your tax accountant with us. We handle the paperwork for you.

If you prefer to DIY it, the rest of this article walks through what actually matters at filing time.

What your CPA needs to file your business and personal tax returns

This is where most confusion comes from, so let’s simplify it.

Most Augusta Rule documentation is not filed with the IRS and is not required to prepare the tax returns. That material is kept for your records in case of an audit.

At filing time, your CPA typically needs only a few clean inputs.

For the business tax return

From the business perspective, this is a standard rent deduction.

Your business paid rent for the use of your personal residence, and that rent is deducted as a business expense.

To support that deduction, your business should issue a 1099 to you showing the total rent paid during the calendar year.

Whoever prepares the business return uses the 1099 and the bookkeeping records to:

Confirm the rent expense
Deduct it properly on the business return

Our recommendation: Issue the 1099.

While some businesses skip this step without immediate consequences, issuing the 1099 is the more audit resistant approach and helps keep everything aligned.

For the personal tax return

The rent your business paid to you is reported on Schedule E of your Form 1040 as rental income. This amount should match the rent shown on the 1099.

Then, in the “Other Deductions” section of Schedule E, the same amount is deducted.

The result is simple:

Rental income reported
Equal exclusion applied
Net taxable income of $0

Receiving a 1099 does not make the income taxable. It simply documents the transaction so the IRS sees consistent reporting across both returns.

What if my tax accountant won’t file returns that include the Augusta Rule?

This does happen occasionally.

Most tax professionals are perfectly comfortable preparing the returns once the legal structure and reporting flow are explained. In those cases, there’s no friction at all.

Every so often, though, we encounter CPAs or EAs who simply don’t want to work with the Augusta Rule, even when it’s implemented properly.

If that’s the case, you have two options:

Continue working with your current tax professional and continue paying more tax than necessary
Work with a tax professional who is comfortable filing returns that include the Augusta Rule

If you’re working with us, we’re happy to coordinate directly with your tax professional or refer you to one who understands the reporting.

A quick note on documentation

Most of the paperwork related to the Augusta Rule is not submitted with either tax return.

Your CPA generally does not need:

Meeting agendas
Rental agreements
Comparable rental valuations
Attendance records
Invoices showing rent paid

Those materials are kept by you in case of an audit.

Reminder: Our Free Money Plan prepares and organizes all of this supporting documentation for you, so at year end it’s ready to archive and keep on file.

Common mistakes to avoid