Rachel: Two weeks in a row that I’m going to start the episode with a dirty word. This time it’s taxes. And I’m going to bring to you guys five top tips to help you save money on your taxes because we all love to keep our money. Hi guys, it’s Rachael Brenke and I’m joined by Craig Cody who is a certified tax coach, certified public accountant, business owner and former New York City police officer with 17 years of experience on the force. In addition to him being a CPA, he’s also a tax coach that belongs to a select group of tax practitioners throughout the country who have gone under some crazy extensive training and continuing education on various tax planning techniques and strategies in order to help you guys save some money. We’ll dig into the top five tips will help you guys save more money on your taxes with Craig Cody. All right, Craig, let’s go ahead and dig in and talk about taxes, which of course is probably nobody’s favorite topic next to legal stuff, which I completely commiserate with you on. But welcome to the show.
Craig: Oh, thank you very much for having me.
Rachel: Yeah, I’m excited. I know enough about taxes to be dangerous, but not enough to really give a solid discussion to everyone, so that’s why I’m really wanting to bring you on with all your experience. But, I’m intrigued to know what made you change careers after 17 years in law enforcement to doing, being a CPA and doing tax stuff.
Craig: Well, at least in New York City, typically it’s a 20 year retirement typically. I was gearing up for what I was going to do when I retired because it wasn’t like I was going to be able to retire, retire. I could just move on to something else. I always was intrigued with numbers. I liked taxes. I thought I was going to go into financial services and I figured, let me get my CPA so I could set myself apart. I really fell in love with taxes, a lot more than I thought I would.
Rachel: It’s so funny because as a lawyer, I can understand what you mean by fell in love with something while everyone else is going, “Really? You fell in love with that subject matter?” So I completely understand for sure. How did you get here though? You fell in love with it, but how did you make the transition from being a New York City Police Officer to being a certified tax coach? What did that look like for you?
Craig: Well, it was an easy transition. Doing something you really like is very easy. I had a great run with the police department. I worked with some really wonderful people, did some very interesting things. But it was time to move on. I moved on and I went to work for an international firm and got my experience and started to do planning and do estate planning and the rules changed. That kind of led us eventually into tax planning and really helping business owners keep more of what they make.
Rachel: Of course. I would absolutely love to keep more instead of having to pay those tax checks every month. So if you could go back in time to your very first year in business, what would you do differently? Maybe you could also follow that up with what do you see that businesses, other businesses, the listeners, what they may be doing that they should change.
Craig: Really marketing, getting out from behind the desk. Just getting out there, meeting people. The more people you meet, the more people that know what you’re doing, the more people that will come to you or will refer people to you. So I think, I used to tell my wife, “I don’t make money sitting behind my desk. I have to be out there meeting people.”
Rachel: Mm-hmm (affirmative). Which is so funny because we feel like I think entrepreneurs fall into this busy feeling. So even when they’re sitting behind a computer and plugging away at social media, this and that, they forget there’s a big world out there. In person networking is so huge and way more hard hitting in order for you to even make the money that you’re going to get taxed on. What have you seen to be like the hardest tax lesson that many entrepreneurs fall into?
Craig: Oh, the hardest tax lesson is not taking any time to plan. They’re going to buy a car or truck or equipment, they do this research. Nobody, or very few people, are doing any kind of real planning for taxes. And when you talk to people and they say, “Yeah, I’ve done some planning,” it’s yeah, they’ve sat down with their accountant in December and he said, “Okay. You need to cut a check for x amount of dollars to pay for your taxes.” So that’s not planning; that’s just being reactionary.
Rachel: Mm-hmm (affirmative). You know, I love that you said that because on this podcast, that’s something that I preach all the time is prevention as opposed to clean up on aisle four later on. And taxes is definitely one of those that I don’t want to mess with messing up on. So what are the five most expensive tax mistakes that business owners are making that are costing them potentially thousands of dollars?
Craig: Well failing to plan is one of them. Operating out of the wrong entity, whether it’s an LLC, a partnership or a corporation or s corporation, really no planning going into that. Typically, they call their attorney. In their state, maybe an LLC is the way to go, or an s corporation is the way to go from a legal perspective. And having no conversation with the attorney and the CPA to say, “Okay. What works for you? What works for me? Can we get both? Can we get the both of best worlds? Have our cake and eat it?”
I think that’s a big problem.
Rachel: It’s almost like I paid you to say that, because as an attorney, I see the inverse. I see people go into CPAs, getting into a structure and then coming to me when they have a problem and they hadn’t really gone through the liability steps. It is totally a joint effort between the two professions, accounting and law.
Craig: Exactly. That’s why I preach communication.
Rachel: Yes. Well, that’s the thing. Entrepreneurs love to communicate out on social media, but when it comes to talking to professionals like us, often we’re one of the last ones that are trying to help clean it up. Can you peel back the layers a bit on what you mean by choosing the wrong entity? Just to give our audience a little bit more context between LLC and corporation and all of that.
Craig: So when I talk about choosing the wrong entity, it’s like no thought goes into it. So me and you can be in the same business, but my circumstances may be different than your circumstances. Maybe for me, being a single member LLC is probably the best way to go tax wise. But, your circumstances are different and maybe it’s an s corporation that works best for you tax wise. So really figuring out what’s the best way to go, what’s going to save you the most amount of money and it can be significant dollars that you save if you do it correctly.
It comes into, now with the new tax law changes and this thing called qualified business income, section 199, it really is important to have the right entity set up so you get the biggest deduction that the government is going to give you.
Rachel: What is the entity that you feel suits the majority of entrepreneurs? I know that it’s going to be specific, but are you seeing more LLC’s or more corporations?
Craig: It can be … it varies. It really does vary. There’s not one that I can’t say an LLC is better or an s corporation or a corporation is better. It really comes down to really what your situation is. Typically, it’s not a c corporation and typically it’s not a sole proprietorship. For the most part, there are LLC’s, partnerships and s corporations.
Rachel: Good answer. It’s almost like I paid him guys, but I didn’t. This is just straight from the tax horse’s mouth. Good. So we’ve gone through the failure to plan and picking the wrong entity. What would be another tax mistake that we-
Craig: How about failing to hire your kids or your spouse?
Rachel: Hmm. Explain that to me.
Craig: The way it works now is, now they have to be paid reasonable compensation and they have to be paid the right way, but without getting into state taxes, you can now earn up to $12,000 a year and pay no federal tax on that. If Little Johnny is doing some work with you, and the tax courts ruled you can hire your kid as young as seven. I typically like to wait until they’re around 11. But that child can make up to $12,000 and pay no federal tax. Now depending on the state you are in, there could be some state taxes.
And depending on how you structure it, there could be social security and medicare. But, if you are able to do some planning, you can possibly not even have to pay the social security and medicare. So that’s something. Another big thing that people miss is the home athletic facility. So do you have a home office? Do you have a space in your home that you use regularly for maybe 15 hours a week or more? If you have that home office and it typically doesn’t generate a huge deduction, but then that opens travel from one office to the other. It opens up the home athletic facility, which could be your home gym, it could be your pool.
So those things turn into much bigger deductions.
Rachel: Interesting. You just hit on two major things that my CPA has not really been advising me on. That’s really good to know. How is hiring your spouse or your children saving you money?
Craig: Well, if you hire your spouse, and we are going on the assumption that she’s actually doing work in your business and you have extra income, you can pay her $21,000 a year and she can put away about $18,500 into a 401K. So you get that extra savings and that extra deduction. By hiring your kids, you can actually take money that you may be paying tax in the 30% somewhere, and they may be paying no tax. So my first book which was an Amazon best seller, Secrets of a Tax Free Life, I wrote a chapter on how to make your child’s cleats deductible.
Whether people use that money and they put it into a Roth 401k, some of it, you can use that money to pay for tuition, you can use it to pay for camp or athletics and stuff like that and you could actually wind up making that expense tax deductible.
Rachel: I love it, I absolutely love it because I have a 13 year old who’s been doing photography and video for my businesses. Well now I can save money.
Craig: Correct, correct. Exactly.
Rachel: I love it. Good deal. I’m noting that down to call my CPA or call you as soon as we’re done with this.
Craig: It’s really all about keeping more of what you make and doing it legally. Documenting everything and that’s what we do.
Rachel: I love it. So on that note, what would be some of your recommendations for organization to make sure that you’re keeping all the right documentation to be able to save the money?
Craig: I think you need to, it really starts with communicating on a regular basis with your CPA. Because when we work with clients, we’re communicating with them, we typically do at least a monthly call. Part of the reasoning behind that is we’re making sure they do what we tell them to do so they get those deductions. We’ve all had people where we’ve told them to do things, they didn’t do it and it cost them money. We’re kind of holding their hand to make sure they do it so they save all that money.
Rachel: Love it, love it. If there’s one thing, maybe we have someone who’s listening, who’s just new into business and we’ve just given them tons of things to think about, but what is one thing they could close this episode and go do today? What would it be to help their taxes?
Craig: Plan. Call your CPA and say, “Listen, I want to be proactive. What can we do differently that’s going to save me money?”
Rachel: Let’s flush out that planning a little bit. Do you mean like the first year or maybe when I make a certain amount? Are we looking long term, 10 year plan?
Craig: Whatever is going on this year. It starts with this year. So what can I do differently this year that I didn’t do last year or maybe this is my first year in business. What should I be doing that’s going to lower my tax bill?
Rachel: Mm-hmm (affirmative).
Craig: There are some very simple strategies that we’ve talked about that you can do that can lower your tax bill. We also have something called the medical benefits or medical expense reimbursement plan which allows you to write off, let’s just say the braces on your kids. Or maybe if you’re a little older, people are getting implants, dental implants, stuff like that.
Rachel: Good clarification there.
Craig: Dental implants and stuff like that where they are deductible, but most people done get the benefit of it because the threshold is too high whereas if you set up a medical expense reimbursement plan, then you get to deduct dollar for dollar.
Rachel: Oh my goodness. These are things I wish I had found you years ago because I’m like jotting notes down furiously over here of what I need to address to fix and that last one is a really good one too because I have five kids and all of them are going to need braces.
Craig: That’s right. Braces are $6,000, $7,000 a pop. Do the math.
Rachel: Right, right. Well that’s awesome. So I know that you have the Amazon best seller book Secrets of a Tax Free Life. Where else can the audience find you because I know they’re probably listening going, “Oh snap. All this information. I need more help.” And I would love to send them to you. Where can they find you?
Craig: Sure. We are going to … our book is the 10 Most Expensive Tax Mistakes that Cost Business Owners Thousands. We will have a link up on your show notes. They can go to craigcodyandcompany.com/businessbites. That will take them right to an opt in where they can request a paper copy and we’ll mail them out a copy of the book.
Rachel: Awesome. So this is going to be episode 69. So it’s going to be rachelbrakey.com/epi69. I will have all of Craig’s stuff on there, all the links to all his books, ways that you can get integrated with him for him to help you. I strongly recommend and I know that I probably sound like a broken record, but when it comes to tax and legal stuff, I strongly recommend that you guys stop, relisten to this episode. Because while Craig was straight and to the point and this is a quick episode, there was so much information that will save you guys a lot of money. Think about it, all the money that you’re saving, you can put right into marketing and other things in your business to really get your train of your business moving forward down the tracks.
So Craig, thank you so much for being with me today. Guys, go check out the show notes and get to saving some money.
Craig Cody is a Certified Tax Coach, Certified Public Accountant, Business Owner and Former New York City Police Officer with 17 years experience on the Force. In addition to being a Certified Public Accountant for the past 15 years, he is also a Certified Tax Coach. As a Certified Tax Coach, Craig belongs to a select group of tax practitioners throughout the country who undergo extensive training and continued education on various tax planning techniques and strategies to become, as well as remain, certified. With this organization, Craig has co- authored an Amazon bestseller book, Secrets of a Tax-Free Life.
Rachel Brenke is a lawyer, author and business consultant. She is currently helping professionals all over the world initiate, strategize and implement strategic business and marketing plans through various mediums of consulting resources and legal direction.