A Conversation with Dr. Jarod Carter

Hello, hello and welcome to episode 70 of the podcast. Thank you so much for joining me. This episode is really cool, it’s something that I’ve actually anted to do for a long time and it’s not with a PT practice owner, it’s not a monologue episode, it’s an episode with a CPA and tax planner and so, the reason I’ve wanted to do this for a long time is because there are certain components of being a business owner that you can’t avoid, you either have to learn how to do them yourself or you need to find someone to do them for you and taxes are of course, one of those things. And so, especially with this recent change in the tax code, there’s just a lot of confusion about what and if and how those changes will affect us as practice owners and professionals and in fact, they will. There’s still a few things we’re waiting to hear back from from the IRS, you’ll hear in this episode. But in this episode, interview Craig Cody, who is just phenomenal at working with business owners to optimize their tax planning, minimize the amount of taxes that they’re paying and really just kind of help guide through this really murky area that none of us really like to deal with.

So more specifically, we talk about the new tax law and what we can expect from that as practice owners or future practice owners, we talk about some important things with retirement planning, tax retirement planning, some of the common tax mistakes that he sees practice owners make. Also some of the clever owners that he sees practice owners or guides practice owners to legally minimize what you’re paying in taxes as well as optimize your write offs. And then he also at the end gives us a way to get his most recent book for free and that book is titled, The Ten Biggest Tax Mistakes That Cost Business Owner’s Thousands so, a whole lot in this episode, it’s obviously not the most exciting topic but it is a vital topic that we all really have at least a basic understanding of and know what to ask our own CPAs or who to reach out to to make sure that we’re not leaving money on the table, we’re not giving the government any more than we legally have to. I think that’s very important.

Welcome Craig, thank you so much for taking the time in joining me today, I’m really excited about this episode. It’s something I’ve wanted to do ever since, really for years but especially ever since the new tax law has kind of come down and I think added more confusion to what was already there. Why don’t we start out by having you introduce yourself to the audience, who you are and how you’ve gotten to this point in your career.

Sure, my name is Craig Cody. I’m a Certified Public Accountant, CPA, I’m a certified tax coach, business owner. I’m actually a former New York City Police Lieutenant. I spent about 16 and a half years in the police department before I became an accountant. As a certified tax coach, I undergo extensive training and focus on tax planning for our clients and basically what that is about is helping our clients keep more of what they make. So using the tax code the same way, you know, Bill Gates, Donald Trump and Warren Buffett do.

Great. And so, I have to ask before we dive into all the tax stuff, why the shift after so many years in one career to a seemingly very unrelated career?

Well in the police department, you know, it comes time it’s time to retire so it was time to move on. I was an economics major before I became a police officer so I always had a thing for numbers and I love this. I love sitting down with people and saving them some cash.

Great, great. I love that as well. As they say … and I’m sure many of the audience have heard this but I’m sure plenty haven’t and they need to. It’s not what you make but what you keep and as we have people who are both in private practice or want to get into private practice and specific to the cash pay model or cash base model, I for one have really in the last year or two as I tried to scale things up came to the harsh realization of how much overhead will impact and have an affect on that and now I’d like to dive in more and increase my own knowledge as well on where taxes come into play and how I can save in those areas.

What I’d like to do is start by asking … just getting a general lay of the land and I’ll preemptively apologize but I think this will actually be good for most of the audience members, they’re probably in the same boat as I am that I’m really kind of clueless to a lot of the details when it comes to taxes and especially with this new tax law so, if you could give us kind of the lay of the land of the main changes that we are going to see as this all becomes … or as it get implemented as law. I know there are some things that we’re waiting to hear from the IRS on, I believe at this point still but give us kind of a where we were before and the major shifts that are going to occur moving forward.

Well you know, I called for accounts as the full employment act because there are so many changes and they made it so much more complicated in trying to make it simple so you know, the big thing that’s gonna affect your listeners is really what they call section 199 and this is a change basically that is going to allow pass through entities to get a 20% deduction for their net income. So, the big thing in the news was corporate income tax rates being slashed to 21%. The thing is, most small businesses are not C-Corporations. So they’re pass through entities and they pay tax at the personal level and what this Section 199 did was basically it’s going to give those business owners a deduction for up to 20% of whatever their pass through income is. Now, there’s limitations on income and for professionals, doctors, consultants, there’s a phase out between 315 and $415,000 of taxable income, we’re still waiting on some guidance from the IRS, the revenue procedures as far as who is actually going to be affected by this and how is it all going to work but the bottom line is it presents a huge planning opportunity for people to make sure that they can take full affect or use it to their fullest advantage.

Okay. A few things you had asked about, I just wanted to kind of get some definitions on. So when you say pass through entity, can you define that for us?

So pass through entity can be a sole proprietorship, it can be a single member LLC, a multi-member LLC, partnership or a S-Corporation. So meaning the entity itself doesn’t pay tax, the owner or shareholder pays the tax.

Okay.

So that’s most of your small businesses are taxed that way.

Okay.

They’re typically not set up as what we call C-Corporations where a C-Corporation is actually it’s own entity and it pays it’s own tax.

Okay.

The old double taxation.

So you’re saying that with any of this pass through entities, there’s now going to be a new opportunity to get this deduction or are only the C-Corp’s is getting that.

The pass through are going to get this new opportunity.

The pass through, okay. I had had a patient who I think had it backwards and he thought that he was looking at changing to a C-Corp because he had heard that that type of entity was going be getting this huge potential deduction or being taxed at a lower rate so it’s actually the opposite.

Well, there are a lot of people that are looking to go to a C-Corp from an S-Corp. You know, all the analysis of we’ve done, it really does not make a lot of sense. Now the C-Corp can be used as a planning tool if you’re in that $315,000 taxable income range so I wouldn’t knock it out.

Mm-hmm (affirmative).

But when you are a C-Corporation, the corporation pays income tax on it’s income and then in order to get that income out to the owner, you have to dividend it out so now you’re out about, you know, 35, 36% on a dividend or more.

So for those in the audience that might be making $315,000 or even beyond $415,000 which I think you said was the range, would that be then for those they might want to look at, okay well maybe I should do some more research on the C-Corp side of things for planning but if they’re not on that level, probably sticking with their LLC or in my case, PLLC is gonna be a good way to go.

Correct. Well that $315,000 number is a joint income number. So it’s 315, it’s like 167 if you’re single. Either way, you should definitely be communicating with your CPA now to start planning for next year or for the end of this year. So have that conversation and see what you should be doing and where you look to stand.

Okay so up to $167,000 if you’re not filing jointly with a spouse.

Correct.

Okay.

In that ballpark.

Okay so let’s assume, well I don’t want to assume where my audience members are in terms of earning but as we move forward, maybe we can kind of differentiate out or just say we’re talking with the assumption that people are not in a C-Corp situation and we can then differentiate, okay well if you’re making less than 167 versus making more and how that … you know, how what you’re talking about and saying changes as you go up in earnings.

Okay. Yeah but most people if they’re going to be over that $167,000, you want to do some planning and whether that includes a C-Corporation or not.

Okay.

But the key is that they should really communicate with their CPA.

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