Vera Fischer: I’m assuming there’s a step by step process that you take each of these tax returns through and then based on those results of those steps, gets you to that final result.
Craig Cody: Yes it does.
Vera Fischer: Is the rest of your team trained on this?
Craig Cody: No, the rest of my team isn’t. One other person is trained on it. I have three other CPAs in my office that do more of the compliance type of work. I’m actually in the process of training a CPA on doing exactly what I do, but I have a lot of experience in it and it’s not something that you pick up overnight. That training in itself is a process.
Vera Fischer: So a little bit more on the training. I’m assuming this isn’t like a standard operating procedure binder that you can just hand over to someone because everyone’s business and real estate, etc. is so unique to them, it’s not a one process fits all if you will.
Craig Cody: Correct because everybody’s situation is a little bit different and sometimes things in the tax code, they have to be done exactly a certain way for a certain type of position and if you don’t meet that certain perspective, then you can’t do that. It’s definitely not you can’t take the binder and doing it. If that was it, it would just be you could pop it into software. It would produce everything and you wouldn’t need me.
Vera Fischer: Oh, that’s a very good point. See technology can’t do everything.
Craig Cody: Exactly, exactly. The value comes in what I’m able to do. The system is great for printing out the reports, but the value comes from my knowledge and the perspective that we look at things.
Vera Fischer: Craig, did you, did it take a long time for you to come up with this process?
Craig Cody: Yeah, it developed over time. The more you did it I guess the more ingrained the process became and then you realized how you can save some time if you had specific processes in place. It definitely wasn’t an overnight operation. It took some time.
Vera Fischer: Were any parts of it where you had to go back and start over just because a particular instance didn’t work to your satisfaction?
Craig Cody: Yes, the process is never perfect because everybody’s situation is a little bit different so that’s why you have to really take the blinders off and look at things from a big perspective versus a really narrow perspective.
Vera Fischer: That is really interesting. Okay, so let’s go back to the tax free life, the book that you wrote. Can you give our listeners just one or two examples of things that they could watch out for while they’re looking at their taxes?
Craig Cody: Sure. One thing is a seldom used; it’s called a medical expense reimbursement plan. Most people they have medical expenses. Thankfully most people don’t have enough to meet the criteria to take the deduction on their tax return which is typically 10% of your gross income. You could have a lot of out-of-pocket healthcare expenses whether they’re eyeglasses, whether they’re braces, whether they’re special tutoring that would normally not be deducted, but if you have a certain type of business and you set up a medical expense reimbursement plan, then you do get to deduct those expenses dollar for dollar without meeting a certain threshold.
That’s a big one, then the chapter in the book that I wrote because I co-authored it with nine other people, was “How to Make Your Child’s Cleats Tax Deductible”. Basically what it comes down to is how can you hire children and make the, let’s just say it’s their hockey school, deductible.
What you do here is you hire your child. You document it. He comes in on Saturdays and depending on what business you’re in, you pay him a reasonable salary for what he’s doing. You make sure everything is documented. The money goes into his account and then when the hockey bill comes, they pay the hockey bill out of his account. You can do this for private schools.
The tax court has actually allowed this for children as young as seven years old. I typically would not recommend it for anyone that has a child less than 12 or younger than 12. I don’t like to push the envelope. It’s perfectly legal, but I think sometimes you can…sometimes things get messy.
Vera Fischer: Right, I’m with you on that.
Craig Cody: That’s another one. A big mistake that people make is choosing the wrong entity. Typically people choose an entity because they go to their attorney and he says okay you’re starting a business; form an LLC, or you’re starting a business, form a corporation. They don’t look into what’s the tax ramifications of what they’re doing.
What we tend to like people to do is talk to us. Let us speak with your attorney. Let’s figure out what works best on the legal side and what works best on the tax and accounting side. That’s probably the biggest mistake that we see people make, wrong entity type selection.
Vera Fischer: You can change that at the end of the year, the entity type or is that not allowed?
Craig Cody: Well if you’re an S corporation you have to jump through a few hoops, but more typically it’s somebody that’s an LLC. They can change to a corporation in making their election. We’ve had a lot of success with making late elections so typically if somebody comes to me now, there’s not a whole lot I can do for them retroactive to 2016, but the code does allow certain late elections to be made and sometimes we can make a late election and save somebody significant dollars.
Vera Fischer: Craig coming back to the tax planning aspect of it, you’re clearly in New York. Can our listeners go to their tax accountant and get the same type of counsel or do we have to look for someone who is a certified tax coach?
Craig Cody: Well I like to ask people when was the last time your accountant came to you with an idea to save taxes? If it’s never then you need to look elsewhere. If it’s often, then you need to sit down with him and you need to take his advice and figure something out. More often than not, the answer is never because accountants are typically focused on the compliance work, putting the right numbers in the right boxes.
Vera Fischer: Craig whenever someone is in a different part of the United States and wanted to get your expertise, is their location a problem?
Craig Cody: No, we deal with people as far away as Oregon. The internet is a wonderful thing.
Vera Fischer: Oh interesting. Also, one more question. How long does it take? How long does this process take?
Craig Cody: The typical turnaround time is about ten days from the time we get the tax returns. Depending on the time of year, sometimes it could less, shorter periods of time, but I typically like to tell someone the turnaround time is about ten days.
YOU SHOULD REVIEW THE THE NEW TAX LAW CHANGES WITH YOUR CPA BEFORE IMPLEMENTING ANY TAX PLANNING STRATEGIES.
Get your copy of my book the 10 Biggest Tax Mistakes That Cost Business Owners Thousands HERE!
Listen to the full podcast episode here.