The Strategy
Andy walked through three planning moves Mike wasn’t fully utilizing.
HSA contributions routed through the S Corp. If Mike’s family health insurance plan is high-deductible and HSA-eligible, he can contribute up to $8,750 for 2026 and run it through the S Corp as part of officer compensation. That adds to his reasonable officer compensation number without triggering FICA taxes on those dollars. A special payroll run is needed before year-end to capture it correctly.
The Augusta Rule. Under IRC Section 280A, a business owner can rent their personal home to their own company for up to 14 days per year, take a business deduction for the rent paid, and pay zero income tax on that rental income personally. Mike’s wife is involved in the business, which makes this even more straightforward. The key requirements: a legitimate business purpose, documented meeting minutes, and a fair market value rental rate comparable to other local conference room rentals.
The STR loophole paired with cost segregation. Andy walked Mike through the short-term rental tax loophole since Mike is considering an additional property purchase. The mechanics: average rental stays of seven days or less, combined with material participation (100+ hours between spouses, more than anyone else). Meeting those two requirements converts the rental from a passive activity to an active one, meaning losses can offset W-2 and S Corp income. On a $1.2M property with $1M in building basis, a cost segregation study typically accelerates 18 to 20 percent of that basis into the first year, creating roughly $200K in depreciation and potentially $50,000 in tax savings at the 24 percent bracket.
