Okay. Today’s topic, we are going to be talking about taxes. Everybody’s favorite subject. A lot of the people we serve, they say, “Jason, we don’t mind paying taxes. We live in the greatest country in the world. But we don’t want to pay more than our fair share of taxes.”
So, today, I have a guest with us to talk about tax planning. This is episode 164. Craig Cody is a Certified Tax Coach, a Certified Public Accountant, business owner, and former New York City police officer with 17 years of 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 bestselling book called Secrets of a Tax Free Life. Craig Cody, welcome to Sound Retirement Radio.
Craig: Thank you very much for having me. I’m psyched to be here.
Jason: Aw, man. I’m excited to have you here. This is a fun topic, especially with all these tax law changes that just went into effect for 2018. So, Craig, you may not know this, but Sound Retirement Planning, Sound Retirement Radio, we really focus on people who are just getting ready for retirement and people who are making that transition into and through retirement. What are some of the biggest things people need to be thinking about with respect to this new tax law change that just took effect?
Craig: They need to make sure that they’re communicating with their CPAs to figure out where they’re going to wind up for 2018. If they haven’t retired yet, what they need to do to make sure they can maximize everything, such as can they go into a defined benefit plan, can they put more money away in different areas, are they subject to limitations on the big tax deduction for business owners as part of this new overhaul, the Section 199? There are certain limits for different types of categories of business owners. So, you want to really have that conversation to make sure you can maximize this because the more you make, the more you keep, the more you can put away for retirement.
Jason: The more you make, the more you keep, huh? I think that’s what everybody wants. It’s not about how much you make. It’s about how much you get to keep at the end of the day. One of the things we’ve been doing because a lot of clients have been finishing up their 2017 tax returns, and for the most, as we take those 2017 numbers and project them forward just to see what kind of impact it’s going to have, I would say most people are looking at tax reductions next year, but not everybody.
Some of the people that we find are getting hit are people that had high itemized deductions that are losing the personal exemption and they’re also losing out on that ability to itemize some of those miscellaneous expenses, such as investment advisory fees. Have you run into this at all? Do you find that people are going to have to be paying more money in taxes?
Craig: I look at it as a huge planning opportunity. There are people that if they do nothing will pay more taxes. But if people do some planning, and there are a number of different strategies out there where people are discussing for those portfolio expenses, they may be able to salvage some of that stuff. So, I think it’s important that they really have that conversation and not just at the end of the year or when they finish up their taxes this year and they get a projection.
Based on the new rules, this is what you should make on quarterly payments. It should be something like, hey, what can we do a little bit differently to take advantage of the new tax code and to make up for where I might be getting dinged a bit on certain items, such as a cap on my real estate taxes or a cap on my state taxes or no longer being able to deduct any of my investment expenses?
Jason: Mm-hmm (affirmative). Do you have any ideas or tips you could share with our listeners that would help them start that planning process?
Craig: Yeah. Those that are still working, definitely have that conversation. See if you are actually able to take advantage of Section 199, which is a 20% pass through deduction. So, if you’re a business owner, if you’re strictly a W2 person, there’s not a whole lot of planning you can do. But if you’re, happen to be a business owner or maybe have a side hustle and you’re looking to put some money away, have that conversation, see what you can do. Can you maybe do a different type of retirement plan? Can you do some type of defined benefit plan?
I think sometimes cosmetically, people may think they’re going to be in a worse shape than they are because a lot of people with large itemized deductions, such as real estate taxes, state income taxes, and/or investment expenses, when they look at their tax return, they may think they’re getting a big deduction for something. But because of the way alternative minimum tax used to work, those things were added back in so it looked pretty. But it really did not give them the benefit that they thought they were getting.
Jason: I was just shocked and surprised. We had somebody who recently, after meeting with their CPA, brought us their projections for next year and we saw that they were actually going to pay more money in taxes under this new tax law because of the loss of the personal exemption and those miscellaneous itemized deductions. These are people that, they’ve been retired for a long time, they happened to have a lot of expenses, and they tend to be very charitable. But it was surprising to see that not everybody wins under this new tax law. Especially, people you would think, retirees, would.
So, I guess it really is dependent on one off kind of situation. I always try to teach people, Craig, there’s a difference between tax preparation and tax planning. The focus of our talk today is really about trying to look out into the future. As you’re doing tax planning with people, what are some of the things we need to be looking out into the future concerned with?
Craig: So, let’s just take that client you were just discussing where they’re very charitable, but it looks like they’re going to owe more money at the end of the year based on what their CPA had projected for them. So, if they are charitable, maybe they should look at setting something up like a charitable lead trust or a charitable remainder trust where they put some money away that they’re eventually going to be giving away to get a deduction up front.
There’s always a way to take advantage of the various things out there in the tax code, but if you’re just going to that CPA in March or April and you’re not communicating with him throughout the year, there’s not a whole lot he can do because he’s got his head down and he’s focused on putting the right numbers in the right boxes, whereas maybe at another point during the year, he’ll have a little bit more time to breathe. So, I would suggest go back, have that conversation. What can we do? The guy’s probably a pretty smart guy. What can we do?
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