Dr. Mark Costes with the Tax Whisperer Craig S Cody CPA, Part I

The dental pre-New podcast OK doctor it’s time to put down that handpiece.

You’re listening to the show dedicated to helping dentists get their lives back. It’s time to decrease your stress increase your profitability and regain your passion. Now introducing your host Dr. Mark costis. Hello everyone and welcome to another episode of our podcast.

Host Dr. Mark Costes today we have a CPA and a certified tax code. I think this is something that all of us are going to get a whole lot of value out of. So if you guys have the opportunity pull over get your pens out get your get your scratchpad out and get ready to take some notes because there’s going to be some tactical nuggets that we’re going to cover today. Mr. Cody is a certified public accountant business owner and former New York City police officer with 17 years experience on the force. In addition to being a certified public accountant for the last 17 years he’s also a certified tax coach as a 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 coauthored an Amazon best selling book called The Secrets of a tax free life and recently authored the 10 biggest tax mistakes that cost business owners thousands. Welcome to the podcast Craig. Tell us about how you got into this and how you went from police officer to CPA Oh wow.

I was always wanted to work on Wall Street. Somehow I wound up following in my dad’s footsteps and becoming a police officer. And you know it’s a 20 year retirement deal so you kind of at some point you have to kind of thought OK what am I going to do when I grow up and how how young were you when you started being a police officer. I

was 21. OK so you are a young man when you reached to retire.

I was in college and I decided OK you know what I’m going to do this and I left college after three years kind of against my parents best wishes and I joined the police department. And you know I had a lot of goals there but about I guess about 10 years into it you know things changed a little bit. You know you have to wait to get promoted you have to wait for a test to be offered. And I got a little rambunctious I guess you could say and I decided I wanted to do something different. And I went back to school for my accounting degree. And I wound up getting promoted to lieutenant and after about 17 years I was able to retire a little early and go out and join the accounting profession and eventually get my CPA.

So just out of curiosity Ted did getting your degree helped to advance you up to lieutenant in the ranks of the police department.

You need to have so many credits to go through different ranks. But like for Lieutenant they only needed 96 credits say so if I wanted to go to the next the next level you needed a degree. But at that point it’s kind of a different it’s a it’s very different once you become a captain because it’s kind of like you know there’s a lot of juggling that goes on. And at that point I decided you know what. You know I wanted to do something else and I wanted to go out there and eventually own my own business.

Very nice. So this is interesting that the within the realm of accountancy you get your CPA and then you went on to become a certified tax coach. I find that very interesting because I know a lot of CPA is and many of them are. They specialize in you know putting tax returns together and a lot of them aren’t that gifted as far as strategizing on how to decrease you know the tax liability for the typical client. They

want to make sure that they stay as safe as possible and whether or not they’re there their clients are really taking full advantage of all the nuances of the tax code. That’s a little bit beyond what they think is their responsibility so how did you get interested in becoming a certified test coach.

So what happened was years ago I was very interested in doing estate planning.

And then I guess it was about maybe 10 years ago they changed the rules and you know basically you know a married couple needed to have at least 10 million maybe really 15 million to do some real tax planning. So I looked at the plans we had done and we looked at we realized quite well these people are saving a lot of income tax also. So I found the group and I got involved with a group and I went to the first part was a three day training and I learned more about you know tax planning which was actually what I was doing anyway. And I joined the group and continued we go a couple times a year for different trainings and learned to be much more proactive than a typical accountant who is very good at putting the right numbers in the right boxes but they’re kind of looking in the rearview mirror.

They’re not looking far ahead to see OK what can we do a little bit differently to really optimize the tax code and keep more of what we make. So I got involved with this group and that was about six years ago they’re nice.

And that’s been the basis for for for my.

So you specialize in tax planning now rather than doing tax returns are you doing both.

Right well we obviously we work with business owners so first thing we do is every client comes in and we do a tax plan for them and from after we do the tax plan and they see the value that we offer a lot of times client will say can we work with you going forward. And we work with our clients throughout the year.

We don’t work with clients just they don’t come to us in March or April and say we want to do a tax return and we’ll see you next year. We work with all our clients throughout the year. I like to sell this. This is the that’s the only way to be proactive because you need to know what your clients are doing you need to communicate with them throughout the year because there’s a lot of different things that are involved in the tax code that you know depending on what each individual business owners doing can affect them in different ways.

Totally totally. So what do you agree that. I don’t know owning your own business which the vast majority of the people listening to this podcast are dental practice owners. Would you agree that owning your own business is probably one of the main vehicles to decrease your tax liability.

Most definitely if you do it the right way and stay within the tax code. You know there’s abundance of deductions out there that you can take advantage of.

So in your book Secrets of a tax free life do you think that if dentists got that book specifically there would be tactics and strategies that they could apply to a dental practice.

Oh yes there’s definitely a whole bunch of tactics in there that you can apply to dental practice. Of course let’s face it a dental practice while it’s dealing with you know people’s mouths and you know the medical profession you’re running a business just like every other business out there and you need to take the time and figure out what’s the right way to take advantage of the tax code. So you know when I hear people say I’m a specialist in restaurants I’m a specialist in this. It all comes down to the same thing. Being proactive and looking for ways to help your clients.

Yeah I like that.

So you were speaking a little bit in the chat and you were saying that a significant portion of your practice relates to dentists so much so that you’re actually writing a book that’s that is directed towards dentists and how dentists specifically can save money on their taxes. So with that being said I’m sure that you’ve spoken to lots of dentists and you’ve done some research into the profession what would you say then are some of the big mistakes that dentists are making when it comes to taxes or some of the things they’re missing.

The biggest mistake we see is failing to plan. OK. Just people are not taking the time to either do the research or have somebody do the research for them to take advantage of what’s out there that allows them to deduct more of their actual expenses. So that’s the that’s the biggest thing we see. Then the next biggest thing we see is really the wrong entity choice. How how were you set up. Are you a corporation or a partnership or you’re a sole proprietor and we see all of the above and all the above could be the right way to go about it depending on what your situation is. But that’s probably the second biggest mistakes because typically the entity is chosen by the attorney without any consultation with the CPA.

So why do you suppose that is why do you suppose that so many entity attorneys so many business attorneys and CPS don’t connect. I was in one of the mistakes I made I actually had early in my career I had an attorney a business attorney helped me with my entities and then my CPA and him never spoke. Never never actually consulted with one another. Why do you suppose that there’s such a disconnect in those two professions.

Well I think attorneys are looking at you know what is the best legal protection for you. And depending on your state and how they do it and I don’t think typically accountants are getting involved pre formation and there’s no communication back and forth and you know and then when they are involved there’s there’s little communication. So people aren’t saying this is let’s talk about this. Why should we use this entity type or what can we do it this way. It’s just lack of communication. Sure sure. Like not my job.

Yeah exactly. Not my job itis. Yeah we hear that a lot. So what would you say then as far as low hanging fruit Let’s get tactical just for a second here. What would you say then would be the I don’t know say top three tax write off mistakes or misses that dentists are guilty of.

I mean one of the biggest When we see and then we kind of shake our head is you know depreciation right.

Right. I’m

talking right side of the building or the equipment whether it’s the equipment whether it’s the building whether it’s leasehold improvements whether it’s the amortization of when a purchase a practice. You know those are all big ones sometimes we see them and you know kind of just shake my head and you know how was this missed. Why was nobody. Why did no one discuss this. Of course you can write certain things off a wall at one sometimes so you can take them over time.

And depending on where the practice is it makes sense to do them a certain way. So that’s that’s a big one.

Anthony selection is another big one you know because it really depends you see a lot of dentists when they’re starting out maybe they’re running the practice but they were also working someplace else and maybe they’re set up as a corporation when they maybe they’re better off being an LC or vice versa.

So you kind of have to take that whole picture and look at it.

Another thing we see that we miss with our more mature dental practices is you know and typically when a more mature or maybe they have a lot a lot of other things going on. And that’s setting up a management company and using this specific deductions that are allowed inside a management company to write off things that typically would not be able to write off a new partnership or U.S. corporation. Sure

 

So that’s some of the you know the the low hanging fruit so and so you’re saying not only is it important the type of entity that we select for our primary business but also sometimes you have to to create other entities management companies maybe and maybe entities that hold the real estate maybe entities that employ your actual employees. So those are those are the different types of entity mistakes that you’re seeing people make.

Oh yes definitely. And then you know when you get into people that are running dental schools and stuff like that you know there’s a couple of other entities running around and you want to really make sure you have them all set up correctly.

Yeah. So I we we just had a summit in San Diego and a couple of people are asking me questions about entities and by no means do I consider myself an expert but I just know from what I’ve learned from my attorneys and from my accounts that there are certain things that you want to make sure that you don’t do what would be the biggest risk of having an entity as a sole proprietorship as a dental practice.

Well there’s there’s a legal risk and some of it could be you know depending on your state some of it might not really be a risk of course if you’re in New York where a professional corporation you have a liability because you’re a professional so it doesn’t save you so much there. But then you have all the extra Medicare and Social Security tax that you may be paying. You might have the investment tax that you’re paying. All these things add up. So you have some liability risks and you have the additional payroll taxes that you may be paying. And you know depending on how much you’re making even if it’s just the amount over the Fika limit can be a lot of money.

Totally. So can we have some fun here for a second. I know that dentists and accountants usually aren’t the people that the professions that people look to to help a bunch of fun but let’s have some fun for. Let’s let’s talk about some real life tactics that that some of our listeners can employ that most people aren’t employing are. Most people don’t know about some some real life stuff.

OK I’ll give you a little bit out there one that you probably don’t hear too often. OK. There’s one rule depending on the type of entry you have that allows you to rent your primary residence for your business for up to 14 days a year and not have to pay tax on that income.

1. We kind of call that the Augusta rule it probably comes out of you know when the PGA Tour is someplace in a remote area there are no hotels and they wanted to kind of encourage people to rent their home to the you know the tour.

So if you do that for less than 14 days a year your business right off that the rent and you don’t have to pick it up is income.

Yeah I love that one. I have I worked with a planner one time that called that tax free rent that was then that was their own. They coined that title themselves. But I totally get that when I use that one every single year and I have a couple of different properties that we use at both of our different homes. So that’s very valuable got.

Got in here that we have. Yes. How about the home athletic facility. If you have a home office the code allows you to write off all home athletic facility that’s for the use of your employees and their families.

So let’s just say your athletic facility might be a pool and so you can actually depreciate your pool and write off the cost of maintaining that pool as a athletic facility. It’s in the code. I like it.

Can I ask more specific questions about some things that I’ve heard people using that or maybe consider a gray area. Can we talk about some yes. OK so people often and I don’t know the exact legalities of this but what would you say about people employing their children and employing their spouse.

Employing the spouse if she’s doing work in the business is fine. You just have to make sure she’s working in the business. Typically that would be done to maybe make that big formal contribution that$18000 or depending on you know somebody over 50$24000 in another as far as employing your kids. There’s actually case law that says you can hire your children from the age of seven. I’m a little bit conservative. I like to use you know 11 12 13. You have to document what you’re doing if your have the right entity set up. You may even not have to pay Social Security tax on those wages. OK. Another thing that people miss is that they think you know you say you know people are supporting their parents.

And people come to me what can I put them on a payroll. Right. So if you put your parents on the payroll and they’re not really working for you you’re kind of making up a story which isn’t a good bet. But what we can do with people in the medical practice is we can give them maybe a piece of machinery or equipment in our office that’s already been fully depreciated and then we could rent that back from them. So we get a deduction for the rent. They own the machinery they get the income. And instead of giving them two or three thousand dollars a year I’m paying taxes on that money ourselves. We get a deduction for it and they are probably in a much lower tax bracket and that’s cooled down. So

that’s that’s a is that tax free for them. I know that a lot of people don’t want to trigger you know any any increase in in tax liability for them.

Well no it’s not tax free for them. OK. But typically they’re they really don’t have any income. And when you compare your rate versus their rate there’s a net net is a pretty big savings. So if you’re in a you know the 33 percent rate and there may in the 15 percent rate maybe you’re right that you’re saving a ton of money. Sure. OK. And more often than not you know a big portion of that doesn’t become taxable anyway.

Got it. Got it. So I guess it sounds like you’ve been in this game long enough to have seen some some shady stuff happening. Have

you had to defend any bond or participate in an IRS audit in any form or fashion and what what were the the details of those cases.

Yes I’ve I’ve had to none of our clients have been audited as of you know as of now. OK. But even if they do get audited we make sure everything is documented. So you know they can get you. All right as long as you have things documented and we make sure we get it documented upfront. You know and you’re doing it according to the rules. You’re OK. But the more you as far as people that have come to us and we’ve defended them in all it’s you know knowing the tax code helps a lot. You know hopefully they did everything correctly and if they didn’t you know it really depends on how you are able to make your case.

But we’ve been successful.

And you have to have a case in order to be successful.

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