Welcome to the “Real Estate Investor Summit” podcast, coming to you straight from the smallest big town in Texas with your host, mentor and Owner Financing Master Mitch Aka Be the Bank, Stephen.
There’s a secret to making the money, but there’s a whole another side. You’ve got to try to keep that money. So we’re going to talk about the other side of that equation, about keeping the money right now we’re going to say hello to a couple of our sponsors and then we’ll be right back.
All right, welcome to the “Real Estate Investor Summit” podcast. I’ve got Craig Cody on the line. He is a certified tax coach, certified public accountant. He’s a business owner and former New York City police officer with 17 years of experience on the force, all about integrity in addition to being a certified public accountant for the last 15 years. He’s also a Certified Tax Coach and so as a certified tax coach, Craig belongs to a select group of tax practitioners throughout the country that undergo extensive training and continued education on various tax planning techniques and strategies to become, as well as remain, certified and on top of everything with this organization. Craig has co-authored an Amazon best seller book, Tax Free…say that again?
“Secrets of a Tax Free Life”. Craig, how you doing today?
I’m doing great. Thank you for having me.
I understand you’re from Long Island.
Yes. I’m about 20 miles outside of a Times Square.
All right, well activity going on there right now. So, let’s just get right into it. Like what is a proactive tax planning and how can it minimize your taxes? How can you help us minimize the tax? Okay.
Well, what are the differences between a proactive tax planner and your typical accountant out there is a typical accountant out there is very good at putting the right numbers in the right boxes. Looking in a rear view mirror and recording the history that’s happened. When you do proactive tax planning, you make history. You look for missed opportunities or new opportunities and tax strategies where you can save your client money, help them keep more of what they make.
Well, and I’m a big advocate and I wish I’d have been a bigger advocate sooner because I learned in the last couple years exactly how much money I was leaving on the table when I went from just the tax guy who did the CPA that did my tax returns to a strategist, which was exactly why you’re on the call today. I went the longest time running my business by the hair on the back of my neck never really having a balance sheet. Never really having a P&L and l and I didn’t realize how much that was costing me. And also the anxiety of that, you know, not ever knowing what your tax bill is going to be. Not even an idea of what it’s going to be at the end of the year, I’m embarrassed to say. But we’re always transparent on this show. We say the good and the bad, the ugly, and I’ll be transparent by telling you it took me 15 years to finally get in order and have my–I have like five or six companies that are all off shoots of the real estate business from hard money lending, to self storage. I’m the owner, finance strategies to even some buy and hold properties that I’m forced to hold because I don’t really like being a landlord, but in some cases I have to be for awhile at least. And I was amazed at some of the ways that I had been overlooking for years. Thanks to strategist like yourself. So that’s why I wanted to have you on the show. What is the biggest mistake you see small business owners making regarding taxes?
I would say choosing the wrong entity. I mean obviously you have the not planning. Their next biggest mistake would be choosing the wrong entity for their business. So people that have real estate in –you see that quite often and then you see him in C Corporations versus S Corporations or not putting them into an entity at all.
What about S Selection
Well that goes along with, the right type of entity, as far as a corporation goes and typically, we would not hold a real estate inside of an S Corporation. Okay. So we’d want to move it out and get it into an LLC. And the biggest part of that really has to do with, down the road, getting a step up in basis if the owner happens to die.
Yeah. Okay. So you do a lot of estate planning as well or are it…
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Yeah, we do. We do estate planning and we kind of got into tax planning via estate planning because you know, I guess it was about eight or nine years ago when they changed the tax code and they changed the exemption amount from a million to $5,000,000 per person effectively with discounts moving an estate to must be over around $15,000,000 before they start paying federal estate taxes. So it really cut back on the amount of planning we were able to do. But then we went back and we looked at what we saved these individuals that we did estate planning on in taxes, and we saw, wow, we’ve saved them actually on an annual basis. We’ve also saved them a lot of money. And that’s what brought us into the tax planning.
Yeah. I’m, amazed at–in my niche strategy of choice, to buy it with other people’s money and then owner finance it for around double to my end user. I’ve taken a down payment and collecting payments for 10, 15, 20, 25, 30 years. I’m amazed at how many people get themselves in pickles or bad positions because they didn’t– they didn’t make–there wasn’t a will you see that a lot?
Yeah, we see that after the fact, or people that are older when they come to us and they’ve assembled a decent amount of real estate and they don’t have a will, they don’t even have an attorney sometimes. They don’t even have a tax planner before they come to us. And you just wonder.
They could have saved, you know, really. You do a will, not so much for yourself but to help put at ease the people that you love because when you don’t do a will you leave your heirs or your family members with a huge burden and I’m sure you’ve seen it.
Tremendous burden, you know, tremendous n fighting, especially when there’s a lot of money. You know, I’m a big proponent of trusts to kind of minimize that aspect of the inciting. But a will is definitely better than nothing, but you’re right, there’s a tremendous amount of people out there that have no planning at all when it comes to their death.
Will you help people set up a will? Well, we work with attorneys for that. We don’t do any of the legal work, even it kind of comes back to, you know, for me the entity for, for whatever they are they’re doing is–there needs to be communication between the CPA and the Attorney and obviously the client because the attorney may want to do it for liability reasons and I may want it done a certain way for tax reasons and we need to have a meeting of the minds.
Absolutely. Absolutely. It’s a big world out there and a lot of law to read and to know and to understand. It’s amazing to me how much there is in these tax codes. It’s just like trying to–I don’t know, I’d rather hit my thumb with a hammer than read some of this code. So God bless you guys. You know, I get this question a lot. Maybe we can go into it just a little bit further. Explain to us more like what an entity should be like. Right now we have a series LLC in Texas. Do they, is that getting more prominent around the country or are you familiar with the series?
LLC Series is another, rather than I’m familiar with them but they’re not in New York so we haven’t seen a whole lot of them but you know, we’re dealing with now a lot of investors across the country and they’re bringing them up and some of them are, some of them are using them, some of them are feeling they’re not that cost efficient to use them but from what I know about them, it makes a lot of sense to use, at the very least to see results.
Yeah. Can you help people with the–because you’re a year–you’re a CPA, so my understanding is that, you to hand your CPA all your books and everything, but the step beforehand—books, is you have to have books. Can you help people get their businesses?
I have done many years of not having a real system and it took me a while to find a CPA that would help me back end my previous systems and straighten them out so that I was getting a P&L every month in a balance sheet and a– it was real easy to put my package together for my CPA at the end of the year because I was getting, the balance sheet and P&L every 30 days. And so then I just, so the 12 and put them together and hand them to my CPA and boy, does that make my life a lot easier. I also, I’m learned that I needed to check in before the end of the year. You know, you didn’t need to do like quarterly filing or at least semi-annual, right? What do you suggest there?
Oh yes. Well, we believe in constant communication so we have a couple of different– everything always starts with a tax plan for us. And then when we go into the typical tax and accounting, you know, we have clients that we do, if they’re working with us, we’re doing bookkeeping with them. And then we have a–which is actually probably our fastest growing services, our outsource CFO services and those are where the clients are getting the monthly or quarterly P&L they may have investors they’re dealing with. So instead of having the controller or a CFO in the office next to you, you’re hiring us and you’re getting a team, you’re getting a bookkeeper, you’re getting a CPA to for day to day activities and you’re getting me for the big picture stuff. Which, yeah, typically if we’re doing that, we’re also doing the tax work, but we’re not always doing the tax work and like you said, that’s giving the investor a lot of knowledge. It’s knowledge that he can implement.
Yeah. And so one of the, I mean, one of the things I had to learn was how to look at a P&L and how to look at a balance sheet and what was I looking for when I was sitting there staring at it. I mean, what are we looking for on the balance sheets and in the P&L statements to help improve our business?
Well, obviously you’re looking at your debt; you’re looking at the value of your assets. You’re looking at, any depreciation that’s been taken depending on the length of time you own these assets. Cash flow , cash flow statement is, is typically when it comes to real estate, a very important statement that you want to look at because that kind of tells the story, you know, somebody told me a long time ago, it’s all about the cash flow. All right?
Yep. I believe that, but it’s all one of my mentors who had run big big businesses, you know, I was saying, I have this feeling of this balance sheet. I mean–you know, my eyes go right to the bottom line, see what I’m making, but I say what do I look for in the body of all this? And he looks for your biggest expenses and that’s where–see if you can cut what am I spending the most on? Is there a way to do better here? Can we, is it time to outsource–outsourced this to get more of a professional or is it time to just shop it again? You know, because most of my–one of my biggest expenses was with insurance and I said, well, what do I do about this? That’s one of my biggest expenses. And he says, “Well, when was the last time you shopped it?” And I said, “Well, I can’t remember the last time I shopped.” They just have this guy and I just keep sending stuff to him. Every time I get a house or whatever he says we need to shop. You know, part of the problem with me is I’m really loyal, but the–the job or the responsibility of a business owner is to make that business as profitable as you can. And sometimes there’s some hard decisions and I went back and I said, “Okay, well I’ll just do this exercise. And I went out and started shopping, handing my policy to other competitors and ask them to tell you what they liked about my policies, what they didn’t like, if they could do better and can they save me any money?
And so I really got perked up about looking at my biggest expenses in always knowing what they were in, always rechecking in to see if there’s a way I can minimize those expenses. He’s on a little bit, just a little bit of savings can make a big difference over a lot of years.
Right, and it all goes to your bottom line, which is your pocket. And nobody really looks at the business like you are–can look at your own business like you, it helps to have the CFA right behind you or to help you but the point of the bookkeeper, right? It’s just, it’s just to organize and document your activity. Is that right? Or was there other?
You know, and obviously depending on the level of skill, the bookkeeper, that’s why you need to know your CPA to have more of an in depth look at what’s going on and you could see your insurance as a big expense. But then the question is, how do you delve into that to see, okay, what does that expense made up of? Okay. Where is that money actually spent and so communication, being able to ask questions and have access is very important. Okay. Of course every dollar of savings is going into your pocket.
Yes and so I, you know, I have a question for you. A lot of people that are just starting out, I tell him when you’re just starting out, start your bookkeeping, then it’s the simplest thing. It hasn’t been messed up. There’s not a lot to go back and try and get set up right from the very beginning. How, to me that seems drastically important. What’s your comment?
Oh, most, most definitely. Even if it’s just this –you’re starting out with your first property and you’re keeping it in excel, you know, at least you’re tracking what’s going on and at the end of the year, if you go to your professional at that point, he could make heads or tails of what going on. At a very minimum, you should be tracking in excel and QuickBooks is out there, or there’s so many outsourced accounting services out there that you can use to help track all that stuff for you.
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