Part II of My Conversation on HVAC Ladder

Today I’m interviewing Craig Cody, a Tax Coach and CPA who professionally helps businesses like yours and mine to develop proactive measures to save money on their taxes. You can find all his contact information on the show notes for today’s episode.

So, that would probably be the second biggest mistake, picking the wrong business entity.

So, my audience is mostly service businesses, so they’ve got service trucks, they’ve got tools. In some cases, the employees own much of the tools. Typically, the business owns the vehicles. Do most of those folks go LLC? Or do they do S Corp? Or-

It, honestly, it’s a little bit more in depth than that. So, you’d really have to see what the owner’s situation to see what makes- you know, how much money is he making? What other things does he have going on in his life? And then you make that decision. Because me and you could be in the same exact business … excuse me … and an LLC may work for me, but an S Corp might work for you, or maybe someone else, sole proprietor’s the way to go. So, you really have to figure that out.

And each of those entities also has different benefits that you’re allowed to deduct, so that plays into it also.

Right. Now, if you start … let’s say you start as an LLC and you’re working with your CPA and you eventually decide, hey, this we’re moving into this territory … maybe you start out small and it’s more advantageous later on to be a corporation or an S Corp. I’m assuming that can happen, right? You don’t have to …

Yes. You could make an election to be treated as an S Corp and normally that has to be made by March 15th to be retroactive to the first of the year, but there are certain situations where the government will allow you to make a late election.

Okay.

And that sometimes can be very advantageous depending on, once again, your facts and circumstances.

Yeah.

So, what are the most expensive tax mistakes that the businesses make?

Well, let’s talk about a simple one that may not sound so simple. The home office deduction. Do you have a place that you work out of, or do you work out of your home? Or do you have a main office that you work out of? Or maybe you spend another 12 or 14 hours a week working out of your home office? And that used to be taboo, you can’t write off a home office. That’s going to trigger a red flag on audit. That’s definitely not true, alright? The IRS actually came out with a safe harbor number there. So, that’s not true.

So, you should have a home office if you work 12 to 14 hours a week out of your home and it’s not so much the deduction that you get from writing off that portion of your home that’s used exclusively for your business. But it’s the things that that then opens up for you to write off. So, let’s just say you have that home office. Now, you could have a home athletic facility, okay? And it has to be for the use of your employees, their families. So, maybe that’s your pool, okay? Or maybe that’s your home gym. Now, you can write the- Yes, that’s a big one.

Nice.

Now you have your travel becomes deductible from your home office to your other office. So, what you may have considered in the past to commute is really not a commute because you’re going from one office to another.

Right.

Medical benefits, alright. Most of us out there have health insurance, but what are our out of pocket costs? And can we institute what we call a medical expense reimbursement plan where, you know what, the kids need braces. That’s going to cost us, somewhere between $4,000 and 8,000 dollars for a set of braces for a kid. Is there a way to write that off legally? Because, if we take it on Schedule A, we really don’t get the benefit of it. So, maybe we qualify for what we call a Medical Expense Reimbursement Plan.

So, those are a couple of small ones.

Yeah. And I’d always heard that, that the home office is, like, it’s an audit flag. And that’s probably, as a small business owner myself, probably about 10 years now, that is the last thing I want.

It was before I hit record, that I was talking about my CPA … is really conservative. He is not about to push the tax code and he leans on the side of not being audited. And I guess it makes sense for a consulting CPA if you’re just … you know, you’re doing someone’s business taxes and they pay you a flat fee each year to do that. It’s just nice if you never get any of your clients audited and that way you don’t have to get involved, and there’s no hard feelings. But it could also push you into losing a lot of money if you’re not using the tax code to your advantage.

Right. And if you’re doing it right, let them audit you. If you’re doing it wrong, you don’t want to be audited.

Yeah.

But, you know … so, we do it right. We document everything that we do. We document everything that the client’s doing. So, if the client was to get audited, that’s okay because we have the documentation to support what we’re doing.

Right. Now, if you do get audited, and I’m assuming you’ve been through this process, certainly that’s going to take time for the business owner away from their business. Now, let’s say you get audited. Is there any … is there a way for that business owner to be compensated for that interruption, kind of like a false audit.

Are you talking about the government compensating you?

Yes. Or … no.

No, that’s not going happen. And I mean, honestly, you know, if you’re being audited, you should have a professional representing you.

Right.

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