Welcome to “The Cash Flow Guys” podcast. It’s that time again. It’s Friday. We are here to learn to earn, ladies and gentlemen, that’s just now listening to this right after we record it. Others you’re going to be listened to and maybe years from now. It is February 2017, tax season is around the corner. The CPAs are getting excited. It’s time to fill their bank accounts. Of course, most of the CPAs I know own real estate, so their bank accounts stay full all year long. Today, you know– and I get a lot of people that constantly asking me tax questions and I am not smart enough to answer tax questions. It’s not something I’m good at. So what I do, ladies and gentlemen, those of you that are just in the show is I find out. I find people that are smarter than me that are experts in their craft.
I go out and reach out to them. I bring them on the show to ask them the questions that number one I want to know, and the questions that you’ve reached out and asked me all along. Now, if for some reason–I don’t know why people are reserved about going to talk to a CPA and do some tax planning and get themselves squared away, but instead you come to me and ask me tax questions and then I wind up telling you to go see your tax professional. So hopefully today we’re going to unwind a lot of that and give you some of those answers that you seek with us today. On the show is Craig Cody. He is a CPA. He’s also the owner of Craig Cody and Company out of Manhasset New York, and did I get that right Craig?
Yes you did, thank you for having me.
I am retired, yes.
Outstanding, see I’m a former law enforcement too. I didn’t retire. I got out a little sooner than that. My story goes real short as you know. When I went to the academy, Craig, I don’t recall them saying anything about how people shoot at you. And then that happened one day and I decided that being a father of an infant, that probably wasn’t a good idea for me. So I made a career change.
So welcome to the show. I’m glad you’re here. Like I was saying during the intro here is that my audience, we investors for some reason are resistant. Some of them, a lot of them, actually, the majority of them that I run into are resistant to seeking out good solid tax advice. And that’s a problem because as you well know, taxes can be number one challenging. And number two, have you ignore them. They’re not going to go away. We live in an age where the IRS will–people send them records from all over the country that have your name on them. For example, you go to close on a piece of real estate. The title company or attorney who does the closing will report that information to the IRS. You got to play by the rules when it comes to doing your taxes or anything else you’re doing in business. And that’s one of the reasons I have you here today, but I noticed it when I was doing a little bit of research part of the show that you’re a certified tax coach. Can you help the listeners understand what that’s all about? Certified Tax Coach?
Yes. That’s, that’s a group of individuals like myself, CPAs, enrolled agents that go for some extensive and ongoing training, where we learn how to look for missed opportunities, missed deductions for individuals and businesses where they can actually save money and keep more of what they make.
Now, I read in “Tax Free Wealth”, written by Tom Wheelwright, one of the first books I read in the Rich Dad series, and in that book it talked about, the IRS code, the majority of it is written to explain how not to pay tax and that most people think that that big pile of code is all about different ways they can hit you with tax. But in reality, the IRS, if you take the time to understand the code or in your case hire somebody that does the IRS can be rather forgiving. They give you a lot of the information. Is that correct?
Oh yes. There’s a lot of opportunities in the tax code for people to save money. But it all comes down to planning and most people fail to plan,
In my opinion, and this is fact, I’ve seen this–maybe my opinion, I believe it’s fact. Correct me if I’m wrong, you know, it’s pay me now or pay me later. You can, if you’re failing to plan, you’re–that pretty much tells me you’re planning to fail.
That’s very true. You know, I– that’s a mistake that I made early on in my investing there. I was flipping houses a lot back in the day and I didn’t even think it –didn’t occur to me at the time. I wasn’t too smart when I was in my twenties that I needed to declare all that. Well, what I found out was that the IRS receives those hot ones and then I got a very large bill from the IRSs that I had to deal with and of course the interest and penalties that go along with that. So I learned fortunately early on not to play games with the IRS of those are battles that aren’t often won. But does–speaking of battles–you transitioned over from an NYPD over to tax. How does that play out?
Well, I’ve always had an interest in a Wall Street and economics. And as I proceeded in my career, I kind of drew more towards tax and started to learn more about tax. And honestly, you know, now that I’ve been doing this for almost 17 years, it’s actually more exciting to show somebody, “Hey, you know what? We’re going to save you $20,000 in taxes this year,” than chasing some perp down the streets in New York City.
I can imagine. I honestly don’t miss those days. I remember chasing those perps, but it wasn’t done. The streets of New York City, that’s for sure. I can’t imagine doing what you did. That’s for sure. You know, there’s so many opinions out there when it comes to taxation and I hear–guess what troubles me is I hear a lot of bad advice. What I know to be terrible advice given out by unqualified people. Other words, everybody thinks they’re an expert, but nobody ever bothers to ask the CPA. What are your thoughts on that? As far as you guys don’t really. I don’t ask for what you do. I don’t even see it being that expensive.
It’s not expensive. And when you look at and you know what the typical client of ours is saving, when we do a tax plan, typically the return on investment is four or 500 percent. So what we do that’s different than a lot of other accountants out there is most accountants are really good at what they do, but they don’t communicate with their clients and they put the right numbers in the right boxes, but it ends there. What we do is, we communicate because that’s really the most important part of it, and then we look for those missed opportunities for our clients to save some money.
So missed opportunities and I cringe every time I talk to somebody new –new to investing. I say, well whose your tax professional? The answer usually as turbo tax, and I’m thinking, oh no, you’re missing the boat. Not so much that you’re gonna get in trouble. That’s not it. It’s just what you said is that they’re leaving money on the table. The government is making–is putting rules and regulations out there to inspire us to invest in what they want us to invest in. That if we choose to do that, if we play by what they suggest in their tax code, that we will receive a favorable tax treatment.
Yes, that’s very true. And it just comes down as, you know, taking care of those opportunities and while you cringe, when you see the person that’s doing it on a turbo tax, I smile because I know I can save them so much money.
Yeah, exactly. I can imagine. And on average, I mean stop right there with the four to 500 percent. I never even thought about that. It’s like, that is huge. If you think about it, that’s absolutely huge.
Oh yeah. I mean if your broker came to you and said I can make four times on your money, you’d give them everything you could.
And then some, it’s nobody can ever do 400- 500% ROI on a real estate deal. So if this is really, this is what this is saying, ladies and gentlemen, if you think about it this way, maybe this will help you get your head around hiring a tax professional and be giving Craig a call and giving them a run is there is no better return on an investment than hiring a professional at 4-500%. There is no up. Nothing else you could invest your money in that’s going to yield a return that high, nothing else on the planet.
Yeah, and then you take that money and you’re buying another property.
Exactly, because I imagined that you would have probably made sure that people have gotten some tax refund checks or some tax savings at least that may even allow people to pay cash for a property if they were dumb enough to do that.
Yes, we stopped counting when we reached a million dollars in client savings.
That’s crazy. Million dollars in savings alone. It’s absolutely crazy. I get a lot of people that come out of–they come to me, they find my show, unfortunately a little too late. They’ve already been into some boot camp that’s promised them the $10,000 weekend they got up, sold to the 10 day super-duper course and there are now a $150,000 in credit card debt and they’ve got five LLCs and all these things, but they don’t have any assets. What is your advice as far as a new investor, and let’s just take it step by step, Let’s start out as a wholesaler, the wholesaler is obviously all ordinary income. It’s earned income. They’re own an asset. They’re just–they get the property under contract. They’d never actually closed on the property. They go ahead and resell their rights in the contract then they receive a check at the closing table so they don’t get to take advantage of depreciation or any of the other good things that real estate can do for us. What does that look like? Does it make sense to have more than one LLC in a scenario like that? I’m very vanilla scenario
If that’s all you’re doing. No. Now I guess the person that maybe has a couple of properties at the same time, if he’s actually taking a title the property, maybe it makes sense, but you know, the LLCs are really for liability protection and if you really aren’t owning anything, there’s no real need for liability protection so multiple entities is probably just throwing money down the drain.
So from a tax perspective, what is the why? Why are so many people in such a rush to run out and get an LLC? I mean these real estate gurus who are not tax people are preaching this, “Oh, you’ve got to go out and get an LLC, means you don’t have to pay any taxes ever.” I’ve heard that before and I know that’s not true.
Yeah, well that’s definitely not true. And people that are wholesaling are basically buying and selling in what we call the ordinary course of business. So it’s just like having a shoe store, right? You have inventory, you sell it, you have your gains, you have your expenses associated with running that business and you have ordinary gains or ordinary losses. So having an LLC doesn’t absolve you of those liabilities. The liabilities are still there. I’m, I’m a proponent of having an entity, but if that’s what you’re doing, I don’t know if it makes sense to have multiple entities. Okay.
And obviously ladies and gentlemen, it’s a case by case. If you want to dig deeper into your individual situation, this is the one thing I tell people, Craig, and again, correct me if I’m wrong, you’re the expert here, is that there is no such thing as vanilla blanket tax advice that applies to everybody except for maybe the case of you must file your taxes. But outside of that–this is why it’s so important to reach out to somebody like you to say, “Here is my exact situation. I’ve got one Condo, I’ve got a farm with horses and I’ve got a tree farm and I’ve got a gas station and two rental properties. What do I do?” And because what that advice that you’re going to give me, Craig, I imagine it’s going to be very different from the advice you would give somebody else. It’s like, well, I’ve got 30 apartment buildings and about 3,500 units and about a $175,000 a month in passive income. That’s going to be a different conversation, I would imagine. Correct.
It’s going to be a totally different conversation and that’s why we always tell people you need to communicate with your professionals, whether it’s your CPA, your attorney, whomever you a coach, you need to communicate.
You know, I just want to kind of demystify some myths and I’ve heard people say, well, if you call a CPA, they’re going to charge you $5,000 right up front. Now let’s say I pick up the phone and I called Craig Cody and Company tomorrow and I want to talk to somebody for an hour. I want some tax advice. I’m getting ready to go do a deal and I want to make sure what my tax obligations are going to be. Generally speaking, and I know this is, this is very general, but what should someone expect to pay? It’s not a $5,000 bill for an hour conversation as it?
Every accountant out there, bills differently. We typically are not going to give that kind of detailed information unless we’re doing a plan for somebody just because if we do a plan, we have all the information, right? I don’t want to have a conversation and you neglect, not on purpose, but to give me something and then I’ll give you an answer and it turns out there was a little piece that I was missing. It would have affected your to do a lot of money. So we typically start with a tax plan for all our clients and you’re talking about a return of 4-500% typically, sometimes more than that. And that’s how we typically operate.
So I’m with your company. Now, I’m a customer and you’ve been doing my taxes for last two, three years. You’ve identified this tax plan for me. We’ve sat down, we figured it out together. We–you’ve educated me on–you’ve asked me lots of questions. You’ve taken my answers to you for helping me formulate this plan who helps bullet proof my business to earn that 4-500% ROI. Now it’s two, three years down the road. I have a simple question. I can pick up the phone. You understand my situation because we’ve had this relationship. Now you don’t have to re-plan the plan every time there’s a question. Now, granted, obviously you must probably change the plan as it sees fit because people grow and expand and whatnot, but my point is, once you have this relationship built right, and you understand my finances, it becomes easier and easier and easier for you to give me the answers and guide me in my business as time progresses.
Is that factor? Is that actually accurate?
Our clients work with us on a regular basis and we don’t have clients that come to us just in March or April because you know, the doctor doesn’t call you up to see if you’re feeling good, right? You need to communicate with the doctor just like our clients need to communicate with us so we know what’s going on and we can give them the best advice.
You know, I could tell you, I switched tax professionals. I’ve made a big mistake a couple years ago and it wasn’t a big mistake because I went from one tax professional to another that was good or bad or indifferent. They were both very good. The difference is that I price shopped and I went with somebody who was a lot less money. That really wasn’t the problem either. It was the fact that I had to start over again and I did not ask the right questions before I left the first person.
The first company, nothing wrong with the first company. They were great. It just seemed to me that every time I had a question it wound up being a several thousand dollar answer, but at the time I realized that I had only let them do my taxes for one year. So they hadn’t had the time to really build up enough of a history with me where they could help me. We didn’t really even get finished on a tax plan, so to speak, because we had just gotten started in the relationship. So a lot of what I talk about in my show, Craig, so you know, as I tell people, is that, you know, when you’re building your team, the two most important elements is your tax and legal professionals. Because if I can call you up, Craig and set up this plan and say, Hey, I’m a. I’m a real estate investor, I focused on multifamily apartment buildings, 100% revenue. We used his private capital. We pay our investors. They are usually part owners. We’ve got several different LLCs. I pay out a healthy return to them every so often. Every couple of years we refinance, refinance these buildings, pay off our investors. I could give you my whole layout of how we make our money. You can come up with a plan and if I stick with you, then we can continue to work this plan and it becomes your services to me become free. Even though I may get a bill their free to me because why?
Exactly. Because basically when it’s all said and done, you know I’m making you money. You become like one of my apartment buildings is that you generate an income for me essentially income that I didn’t know I even had coming.
Unfortunately, most people look at it as an expense. When we tried to explain to them, no, we really are a profit center for you. And I have this very same talk with the people on my team as an assistant and other people on my team. It’s like if you become an expense, that means you’re not bringing value to the table. If you’re bringing value to the table, you should be a stream of income. So if I pay somebody 30, 40, 50 bucks an hour as an assistant or whatever to help me with my marketing or whatnot, that person generally should be producing twice that much revenue and your services and, and I’m sure it’s not exclusive to you, it would be to any good solid tax professionals should be providing a huge return, as compared to trying to do it yourself or shopping by price.
That’s absolutely scary. Now, new investors, you know, I see this again, bad advice. I hear them talking about, well, I’m going to get an S Corp and then if I get an S Corp and I can put all my properties in an S Corp and then I don’t have to pay tax. And there’s all these different myths and things. What’s the best way to develop a relationship with a company like yours? It mean, do we get on the phone? Is there some sort of initial training there? A consultation, what is the planning stage look like?
How’s this play? So with us, it’s a consultation. It’s first, it starts with the tax analysis. We review prior year tax returns, we have a conversation, what are you doing? Especially on a new investor, what are you doing right? How are you doing? Then after we do the analysis, we come up with a plan, we explain to them, okay, this is what the plan’s going to cost you. This is what we expect you to return on investment is, are you ready to go forward? If they’re ready to go forward, we typically do like a Webex or a skype, right? And we start to implement the plan with the client. Perfect. And then you–they’ve actually paid for access to my brain. And I hate to sound like I’m being cocky there, but it’s–they’ve paid for that access.
Well, as they rightfully should because what I found out this year is that you can’t continue to provide a ton of value to the general public at absolutely no cost to yourself, there is a cost to that and unfortunately no matter how good you want to do to help people out there, you have to. You’re entitled to make a charge, a fee for that and to earn a revenue and if you compare that to the cost of bad advice, I can tell you I was having lunch with an investor today and he got some really bad tax advice and he got hit with the IRS and penalties in the high rise from that advice that exceeded $50,000. Now I would be willing to bet, Craig that if I had wrote you a check for $50,000, you could probably hand me a large portion of that money back or handled my taxes for many, many years unless I was some fortune 500 company.
Yeah, it’s unfortunate that it happens, but something like that happens. That’s when you go and you get a second opinion because sometimes penalties can be abated.
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