How a Child Care Center Owner Earned $12,000 Tax-Free — By Renting Her Own Home to Her Business

Meet the Client

Michelle is the owner of a licensed child care center operating as an S-Corporation. She runs a tight, well-managed program — quarterly planning meetings with her leadership team, an annual staff training day, and a year-end strategy session every December. For years, she had been booking a hotel conference room or a co-working space for these meetings, writing the checks, and moving on.

What she didn’t realize was that a little-known provision in the tax code — one that’s been around for decades — allowed her to host those same meetings at her own home, pay herself the rental fee tax-free, and let the business deduct every dollar of it.

The Challenge

As an S-Corp owner, Michelle paid herself a reasonable salary and kept a close eye on her business expenses. But like many small business owners, she was paying for meeting space out of pocket — and missing a completely legal opportunity to shift that money to herself, tax-free.

The bigger issue: at her income level, every dollar of additional taxable income hit her at the 37% federal marginal rate. She needed smart, proactive strategies that reduced her tax bill without requiring her to change anything about how she actually ran her business.

“I had been paying for hotel conference rooms for years. When Honest Buck told me I could use my own home, get paid for it, and not owe a dollar of tax on that income — I honestly thought they were joking.”

Our Approach

Honest Buck identified Michelle as an ideal candidate for the Augusta Rule — formally known as IRC Section 280A(g). This IRS provision allows a homeowner to rent their personal residence to their business for up to 14 days per year. The rental income the homeowner receives is completely excluded from federal income tax. At the same time, the business deducts the rental payment as an ordinary and necessary business expense.

We helped Michelle identify her legitimate business meeting days throughout the year: four quarterly leadership planning meetings, one annual staff training day, one mid-year curriculum review session, and her year-end strategy session — 12 days total, well within the 14-day limit.

Next, we established a defensible fair market rental rate by researching comparable local meeting venues — nearby hotel conference rooms, co-working day offices, and event spaces. Comparable venues in her area ran $800–$1,200 per day. We set Michelle’s rate at $1,000 per day — reasonable, well-documented, and audit-proof.

Her business signed a formal rental agreement, cut a check to Michelle for each meeting day, and deducted the full cost as a business expense. Michelle deposited $12,000 into her personal account — and reported exactly $0 of it as income on her personal tax return.

Here’s how the numbers worked:

The Results

By implementing the Augusta Rule, Michelle now receives $12,000 per year in completely tax-free income — money that goes directly into her pocket with no federal income tax liability attached. Her business takes a full $12,000 deduction, saving an additional $4,440 in federal taxes. The total annual benefit: $16,440 — generated from business meetings she was already hosting, using a home she already owned.

And because this strategy repeats every year, the long-term value compounds significantly. Over five years, Michelle is on track to realize over $82,000 in combined tax-free income and deduction savings — all properly documented, fully legal, and completely defensible under IRS guidelines.

“This is the kind of strategy I wish I’d known about five years ago. It didn’t require me to change anything about my business — Honest Buck just showed me I was leaving money on the table, and then helped me pick it up.”

What Makes It Work

The Augusta Rule is powerful, but it must be implemented carefully. The IRS requires that the business have a legitimate purpose for each rental day, that the rate reflect true fair market value (supported by comparable venue research), and that the rental be properly documented with a signed agreement, invoices, meeting agendas, and a clear payment trail. Honest Buck handles all of this for clients who use this strategy — so the deduction is airtight if the IRS ever asks.

Note: The Augusta Rule is available to S-Corps, partnerships, and multi-member LLCs. It is not available to sole proprietorships or single-member LLCs taxed as disregarded entities.