Our client Edward was paying over $250,000 a year in taxes.
His plan used 4 strategies: the short-term rental rule, an accountable plan, the Augusta Rule and paying his kids.
Now the only tax he pays is some state tax. Results depend on your income and your structure.
None of these strategies is a secret, and none of them works on its own as a magic fix. What made the difference for Edward was putting the right ones together, setting them up correctly and documenting every step. Here's how each one works.
1. The short-term rental rule
Normally, rental real estate losses are "passive," which means they can only offset other passive income. They can't touch your W-2 wages or business profits.
Short-term rentals can be different. When the average guest stay is 7 days or less, the property generally isn't treated as a rental activity under the passive loss rules. If you also materially participate (for example, spending at least 100 hours on it and more than anyone else), the losses can offset your other income.
Those losses often come from depreciation. A cost segregation study breaks the property into parts, like furniture, appliances and landscaping, that can be depreciated faster. Combined with 100% bonus depreciation, that can create a large first-year deduction even when the property makes money in cash.
Key point: Keep a detailed log of your hours. Material participation is the part the IRS looks at most closely.
2. An accountable plan
Many business owners pay for business costs out of their own pocket: a home office, a cell phone, internet, mileage in a personal vehicle. If you own an S corporation or C corporation, you're an employee of your company, and those costs often go undeducted.
An accountable plan fixes that. It's a written policy that lets your company reimburse you for legitimate business expenses. The business deducts the reimbursement, and the money you receive is tax-free to you. It doesn't show up on your W-2.
Common reimbursements include:
- The business-use share of your home, like rent or mortgage interest, utilities and insurance for a home office
- Cell phone and internet used for business
- Business mileage at the IRS standard mileage rate
- Business travel and supplies you paid for personally
To qualify, the plan has to follow three rules:
- Business connection. The expense has to be a real business cost.
- Substantiation. You submit receipts or logs within a reasonable time, generally within 60 days.
- Return any excess. If you're advanced more than you spent, you pay it back, generally within 120 days.
Key point: Put the plan in writing, adopt it through the company, and reimburse on a regular schedule, like monthly or quarterly. Without that, reimbursements can be treated as taxable wages.
3. The Augusta Rule
Named after homeowners who rent their houses out during the Masters golf tournament, Section 280A(g) says you can rent your home for up to 14 days a year without reporting that rent as income.
For business owners, that means your business can rent your home for legitimate business meetings, like board meetings, planning sessions or team events. The business deducts the rent and you receive it tax-free.
To do it right:
- Charge a fair market rate, backed by comparable local venue prices
- Hold real business meetings with an agenda and notes
- Have the business pay you by check or transfer, with an invoice or rental agreement
- Use it with an S corporation, C corporation or partnership. It doesn't work for a sole proprietor renting to themselves.
4. Paying his kids
If your kids do real work for your business, you can pay them a reasonable wage and the business deducts it.
- No federal income tax for them, up to a point. In 2026, a child can earn up to the $16,100 standard deduction without owing federal income tax.
- Possibly no payroll tax. If the business is a sole proprietorship, or a partnership owned only by the parents, wages paid to children under 18 aren't subject to Social Security and Medicare tax. Wages paid through an S corporation are.
- A head start on savings. Earned income lets your child contribute to a Roth IRA.
The work has to be real and the pay has to fit the job. Think filing, cleaning, social media or helping at events, with timesheets and payroll records to back it up.
Why it worked for Edward
Edward had high income, the right entity setup, a family that could actually help in the business and an interest in real estate. Each strategy fit his situation, and together they added up to a big reduction in federal tax. California doesn't follow all of the same federal rules, which is why he still pays some state tax.
Is this right for you?
Maybe, and maybe not. Results depend on your income and your structure. Some of these strategies only make sense at certain income levels. Some require owning real estate. Others, like an accountable plan or the Augusta Rule, depend on your entity type.
The right question isn't "How do I get to zero?" It's "Which of these fits my business, my family and my goals, and can I support it with good records?"
What could your plan look like?
We'll review your income, structure and goals and show you which strategies actually fit, and which ones don't.
Schedule a CallOr call us at 760-230-9779
This example reflects one client's specific facts and is not a guarantee of results. Outcomes depend on your income, entity structure and compliance with all applicable rules. Strategies like these carry requirements and risks and should be implemented with professional guidance. This article is for general information only and is not tax or legal advice for your specific situation.