Hiring Your Kids, the Augusta Rule, and Accountable Plans: Owner Tax Moves That Survive an Audit

Most business owners know these strategies exist. The ones who get hurt usually knew just enough to execute them wrong.

Hiring your kids, renting your home for business meetings, and reimbursing personal expenses through the company are all legitimate. The IRS does not object to the strategies. It objects to the paperwork, or the absence of it.

Hiring Your Children: The Strategy and the Line

A child who performs real, documented work for your business can be paid a reasonable wage and deducted as a business expense. In a sole proprietorship or a partnership where both partners are the child's parents, wages paid to a child under 18 are also exempt from FICA taxes.

The planning opportunity goes further. A child with earned income can fund a Roth IRA up to what they earn, capped at the 2026 limit of $7,000. A 14-year-old with $7,000 in a Roth has roughly 50 years of tax-free compounding ahead.

The IRS watches two things: whether the wage is reasonable for the actual work, and whether the work was actually done. Time logs, a written job description, and a wage consistent with an outside hire are what make this stand up.

The Augusta Rule: 14 Days, Documented

Under IRC Section 280A(g), a homeowner can rent their primary residence for up to 14 days per year and exclude that rental income from gross income entirely. For an S-corp or C-corp owner, the company pays a fair-market rate to use the home for legitimate business meetings and deducts it. The owner receives the money tax-free.

What survives scrutiny is a written rental agreement, a market-rate comparison from a third-party source, and an agenda or attendance record for each meeting. Fourteen days is the ceiling. No flexibility there.

Accountable Plans: The One Most Owners Skip

An accountable plan is a formal policy that lets your business reimburse you for legitimate expenses tax-free. Without one, reimbursements can be treated as taxable compensation. With one, they are deductible to the company and non-taxable to you.

The IRS requires a business connection for every expense, substantiation within a reasonable time, and return of any excess. Sporadic reimbursements with no policy and no receipts are exactly what draws scrutiny.

The Takeaway

All three strategies are legal. None are aggressive. What separates a clean deduction from a problem is whether you can hand an auditor a folder that tells the story without your help. The documentation is not bureaucracy; it is the strategy.

What I find with owners is that the strategies are in place but the records are not. That gap is the risk. If you are using any of these and your documentation would not survive a second look, that is worth a conversation before the return goes in, not after.

If you want to think through how these pieces fit into the broader tax architecture of your business, that is a conversation about fit. You can start it here.

The information provided is for educational purposes only and does not constitute investment, legal, or tax advice. Consult with qualified professionals for guidance specific to your situation.