Tax Planning with Dave Sullivan and the Roofer Show

Welcome to the roofers show with your host, Dave Sullivan. You found the podcast that helps roofing contractors grow their businesses, make more money, and have more free time each week. Dave interviews the industry’s top experts who will give you actionable tips and strategies for the real world of construction to help you take your roofing business to the next level. So let’s get down to business.

 

Hey everybody. Welcome to the or show the place to be if you want to grow a more profitable roofing business. I’m your host, Dave Sullivan, and I’ve been a successful roofing contractor for over 30 years and I’m here to share with you what I’ve learned. You can get more tips, strategies, and downloads by going to my website at the roofer show.

If you listen to the intro, the show is all about helping you grow your business, making more money, and having more free time. And today we’re gonna. Talk about making more money, not only making more money, but keeping more money and to help us do that. As our guest today, Craig Cody Have Craig Cody and company. Craig used to be a New York cop for 17 years before he retired and went into accounting and became a CPA. It’s gotta be a story there. Not only is craig CPA, but he’s also a certified tax coach and that requires a continued education on various tax planning techniques and strategies in order to become certified with this organization that he co authored a book that’s an Amazon best seller called the secrets of tax free life as the title of this show, as jest. It’s not how much money you make, but it’s how much money you keep and that’s what we’re going to talk to Craig about today. So let’s get into the interview with Craig. Cody. Greg, thanks for coming on the show today. I really appreciate it.

Oh, thank you very much for having me.

Now I went through your book, the secrets of a tax free life and you’ve got some great stuff in there, but I especially like this one chapter, the top 10 most expensive tax mistakes that business owners make and that’s what I wanted to talk to you about today because I know I have made a lot of them, but before we get into that, let’s talk a little about your background and I know you’re a CPA, but you’re also a certified tax coach. Can you tell us a little about what that is?

Sure. Um, I’m a CPA and a certified tax coach and certified tax coach is, is I belong to a select group. There’s about maybe 100 of us throughout the country and we focus on tax planning and we do about 10 days a year in continuing education that deals with tax planning. So we’re really focused on trying to, you know, help our clients keep more of what they make.

I liked that the tax cuts are always changing. They’re always coming up with new ways to screw us over and he got trump in there, see what happens. Um, stock market seems to think he’s going to make some changes, but we’ll wait and see if I like paying taxes means I’m making money and it beats the alternative, but I just don’t want to pay more than a half two. And that’s what being proactive and getting your tax planning down to. So important. Now. Generally two types of contractors. First of the hustler is always looking to work for cash and they’ll give a discount if you pay pay cash, not a check. That’s short term thinking the second or the ones always looking in the rear view mirror, you know, they bust their ass and get to the end of the year and pay more than they should always. Reactive doesn’t have a plan, they have nothing leftover. Neither one of these guys are going to be around very long and uh, one of them’s probably going to be breaking rocks. And there’s a difference between tax evasion and tax avoidance is when you go to jail for. Wouldn’t you agree, Greg?

Yes, I would need to. Plan is probably the biggest mistake people make out there. Somebody used the say to me, uh, you know, when I started out, I was, and don’t take offense to this, you know, I was just a schmuck water truck, he says, but now I have a business and I have things I have to protect, so I need to plan

one of the things that’s so great about owning a business, which is besides the long hours and sleepless nights, but are the tax advantages that we have over simply by being an employee and your book, you talk about the top 10 mistakes that contractors make when it comes to taxes. So I want to jump into these, but I’m not sure if we have enough time to get through all 10. So let’s be sure we hit the big ones. First off, this is where I make my disclaimer that I’m not a CPA, so don’t listen to any of my advice, but talk to craig if that’s OK. Let’s get into this. So let’s talk about. Start getting into those top 10 items. Greg, the first one in your book is failing to plan. Let’s go through these.

Yeah. So most people, when they go to buy a car or a truck or a piece of equipment, they do some research, write what kind of research that people do. When they started their business, they probably did know, they spoke with their attorney may be and he said, form an llc form an s corp, and they formed the entity and they moved on their merry way where if they did some planning, maybe they brought their attorney and a CPA in the same room, well, maybe on the same phone call and I figured out what’s the best way to protect you on the legal side and what’s the best way to protect you on the tax side. They put their heads together and they come up with a solution that might save you some money. So we see that as you know, the biggest issue, failing to plan, you know, they’re not communicating with their CPA. Most of accountants that do a very good job, they put the right numbers in the right boxes, but there’s no planning. Everybody’s looking in the rear view mirror and no one’s looking forward and we tell people you need to look forward, you need to communicate with us or your CPA so you could see how you can take advantage of the tax code. The same way Warren Buffett does it the same way Donald Trump does it. Why can’t you do it

so many times? Contractors generally a reactive and not proactive. It’s like when it comes to job costing, we wait until the job’s done before we find out what’s going on. And that’s what happens so often with taxes. Uh, you get to the end of the year and boom, there’s not much you can do about it because you didn’t plan

exactly, exactly. But where if you just took some time during the year and you did some planning and you communicated, you’d probably save yourself some money because you know what? There’s nothing here. That’s rocket science. That’s the wonderful thing about it.

Guys will take a three or four hours to go through and try to find a better, a better airline flight. Try to get a better deal on their car. But when it comes to the big money, which is saving on your taxes, they just don’t just don’t think about it.

Right? And, and you know, most people look at it as an expense item, you know, consulting with your CPA. And I always tell, tell people to an income item, the more time you spend with me, the more money I could save you.

Let’s talk about the wrong entity because that’s something when they, when these guys get started, start up a new business. So often the theory there are sole proprietorship or they’re setting up the wrong structure. What do you see in your practice?

We see the same thing. We see people come to us, their sole proprietors and they have no liability protection at all. Or we see them set up as now a C and they’re making, you know, a lot of money and maybe paying over over paying taxes. Um, we see s cooperation sometimes when maybe they shouldn’t be set up as an s corporation. It might be a better maybe in that case and also is better for them. Or we’ll see a c Corp, you know, which pays taxes on its own level and as always it’s, there was no planning done as far as why they chose that anti. It’s just they spoke with the attorney, he said do this, you know, he was looking purely from a liability perspective versus having any insight on the tax side. So you know, for me, and Elsie may make sense, but it may and we may be in the same business, but for you and s-corporation may make sense. And, and typically you know, a sole proprietorship is never really going to make sense because you have so much liability there.

Yeah. The roofing business, we don’t to have a corporate structure protection, otherwise we could lose everything. So when I’m playing a CPA, I suggest with contractors that I’m working with that as we said, never ever set up as a sole proprietor. One, you have no protections from lawsuits and if you’re in the roofing business you’re going to get sued. Second sole proprietors have, from what I hear, four times more likely to get audited because of all the sham hobby businesses that are set up that way and audits. They’re no fun. I’ve gone through two of them. The first one, there was no change because I had great documentation and I’ve always been pretty aggressive when it comes to my tax planning and then the second time the auditor was leaving his job and his boss told him to clear his files. That was, um, I was a good one to be lucky with.

Now we’ve got the two flow through entities, subchapter s and the LLC. I’m not a CPA and I’m not giving advice, but the operating company of your business should not be set up as an animal will see that should be a subchapter s as you’re starting off and it generally takes a few years before where you’re making money. You’re pulling out most everything for your living expenses. Now, as time goes on, you become more successful and now you’re reinvesting profits end the company to grow your business. That may be the time to switch over to a c Corp. Let’s get it from the expert at greg. Can you, uh, teLl us about the different types of entities if he could, let’s get into each one of those.

Yeah, sure. So I will see a single member llc or maybe there’s two of you. So you are taxed as a partnership instead of a single member llc. I’m at the end of the year. You take the profit to the company and based on your percentaGe, ok, well the agreement you pick up your percentage of income and it’s all subject to self employment tax. Whereas when you’re an s Corp, you still split it based on your ownership percentages, but it’s not all subject to self employment tax, just just salary which has to be reasonable is subject to self employment tax. That being said, it doesn’t always make sense to be a corporation versus nelsey depending on what’s going on, how much money you’re making, you know, maybe maybe starting out, you’re not expecting. It’s a side hustle. Maybe when you first thought out, not expecting to make that much money, um, you might start out now, but you need to know and your advise these know that you know what, I can make a late election and I could choose to have my llc taxed as a corporation or an s corp does save money going forward. So I have a legal liability protection of analyse what I mean tax like an s-corporation.

So it sounds like there’s a little more involved than just go to legal zoom and setting up a corporation.

yes. And, and, uh, and, and I always tell people when you’re in a type of business where you might be sued, you know, you should be dealing directly with an attorney because you know what, if they screw up, you could still, if you go to legal zoom and you do it yourself in your school, who are, you’re going to sell it.

Yeah. This was a pretty big deal when you’re setting up a company and you really got to have some professional help doing it.

Yes. We, you know, sometimes people trip over dollars to save pennies. Is that the same?

Exactly. What about the wrong retirement plan? Let’s talk about that. Because owning a small business, this is one of the big benefits that you can have is your retirement plan. Let’s talk a little about them,

right? So depending on how old you are, how many people you have as employees that the typical standard retirement plan out there is going to be a [inaudible] k, um, and there’s testing that has to be done because the government says we don’t want to make sure that the owner’s not getting all the benefit and none of his employees are putting money into it. So depending on the size of your company, a [inaudible] can be a home run, especially if you’re employing your wife. If she’s working in the business, um, you can put between 18 and $24,000 away and then you do have to match a percentage of what your employees are putting in. So there’s some expense there. But You know, when it’s a smaller company, the expense usually is overridden by the benefit that you’re going to get, but as your company grows and you have more and more employees, you may need to look at other structures as a way to save for retirement.

Now you mentioned the wiveS in your book. You talk about famIly employment. what’s the deal about that?

So, um, usually when we talk about family employment with talking about, you know, the wife or we’re talking about the kids, maybe your kids are doing work for you. and where the real benefit is, is it allows you to sometimes to take a non-deductible expense and make it a deductible expense. And I’ll explain like this, say little johnny is going to hockey camp, all right? And to really expensive one is of course in your $5,000 a year that might cost you $7,500 in gross to net $5,000. But instead of doing that, what if little johnny worked for you and he came in once or twice a week and he did something and you documented what he was doing and he got paid and that money was direct deposited into his bank account. And then when hockey camp came around, they just debit his account for the tuition.

So what you’ve done is you’ve made a non-deductible expense deductible. The same thing with your wife. If you have a [inaudible] plan and you want her to be, you know, algebra and she’s doing stuff in your business, maybe she’s answering phones, maybe she’s drawn up contract. You can be doing anything. Um, if you, if she’s on the payroll, she’s allowed to contribute to a [inaudible] and that could be another 18 to $24,000 per se. So when my kids were younger, they went to private high school, um, they will work for me. The money got direct deposit into their bank account and the school was on a monthly payment plan and they drafted their account every month. So I turned it into a deductible expense when in reality really was just the way it was structured,

the same thing set up with my kids and my and kids all worked in the company and when they were young they were sweeping up the floor. It’s a great way to save on taxes.

One important thing is that you document what they’re doing. They sign in, sign out. So you need all the documentation because you don’t want the irs to come knocking on your door and then you have to scramble, you know, these are legitimate deductions have done if done legitimately.

Yeah. And I think that’s the big point is that you’ve got to document all of this that we’re talking about here. Now, the home office, a lot of people are alwayS afraid to do that, deduct that because uh, so many of us have heard that that’s going to be an automatic audit. But in your book, you liked the home office deduction.

Yes. It’s legitimate. Ok. I know for myself, I spend about two hours every morning just answering emails. So I do that from my home office with my cup of coffee. Um, so what the code says is you have to have a place inside your home that’s used exclusively for your business activity and it has to be a significant business activity. But you know, if you’re a dentist, that doesn’t mean you’re pulling teeth and you’ll home office, maybe you’re doing all your administrative and all your emailing from your office. You have to spend at least 12 hours a week in that office doing that, doing that activity. Um, so now, once you have this home office, now, if, let’s just say your place of business where the other activities thought out, like you keep your trucks and stuff like that on [inaudible] miles away, now the distance from your home to your other office is deductible. It also opens up the opportunity to have a home athletic facility, which could be a pool or a gym that’s for the benefit of your employees. And it’s totally legitimate. But without a home office, you can’t do that.

I like it. So that’s something we’ve got to really get into with the. I think it’s uh, uh, once we start deducting the pool, I don’t know, that makes me a little nervous.

No, it’s, it’s, you know, it’s perfectly legitimate. It’s in the code. It actually in the publication says it. It’s a whole athletic facility for the use of your empLoyees and their famiLies.

Now something had Contractors are very fond of is we love our toys. We’ve got our trucks and our cars at ferrarI in the parking lot.

Yeah.

Inside I was all that work because I know there was car logs and that’s something that um, it gets a little scrutiny, doesn’t it?

Yes, it does. And the beauty of it, there’s so many apps out there right now that you could use to track your mileage. I mean, like I parked my car now and I get a little message that, you know, your car is parked, you are getting the car and says you are, you know, 12 minutes from your office or something like that. So there’s so many different apps out there. So carlos should not be a problem. A, everYthing is so electronic these days. But you, there has to be a business purpose, so ok, so the ferrari is probably a real big stretch, but the truck that you use and the equipment that you buy, those are legitimate deductions.

 

So a truck or a car. We’re driving back and forth, we’re going out to dinner with it. What can we take as far as a deduction on that and what’s, what’s the law on that?

Well, the lord is basically, you know, the business use, so maybe in business use is 70 or eighty percent. all right? If you have one vehicle in your family, you know, I think 70 or eighty percent might be a little tough to a document. but if you have two or three different vehicles, I think um, you could definitely, if you are using it 70 or eighty percent of the time it’s, it’s much simpler to document. And there are the cars available for use for personal ones. So documentation is key. And like I said, there’s just so many apps out there that allow you to have to track it automatically.

Exactly. Yeah. I use one of those myself. So now another thing is travel and entertainment, you know, contractors like the big, big rollers. What’s, what’s going on there.

Well, travel and entertainment, um, you know, entertainment and meals and entertainment, you know, a deductible, 50 percent. You need to really document, you know, who your dining out with or entertaining. Um, and then travel, yOu Know, w, we basically have a sheet that we use depending on how long you were away, what you’re doing, how many different types of business items you have going on during the trip, what portion of it is deductible. But it’s funny, the big question we always get is when I go to a conference, can I deduct that? And the answer is a resounding yes, of course you’re going to a conference to learn about your business, learn how to market your business or whatever it is, you know, and that is fully deductible. So the hotel is deductible. Ok? The meals are not deductible obviously, unless you’re taking somebody out. But, um, the travel lodging, the course is all deductible.

[inaudible] your wife along. I think that falls into hiring your family also because that’s a non-deductible expense, isn’t it? Unless she’s working with the company.

Exactly. Exactly. So you just want to make sure that you document what you’re doing. If she’s employed and she’s got it run when you’re traveling, that’s great.

No, none of the mistake you got is missing healthcare strategies.

Yes. So missing healthcare strategies would really be, um, depending on the type of entity you have, is it a medical expense reimbursement plan? Um, it depends on how many employees you have, if that makes sense. Then his home or home health savings accounts that could make sense or flexible savings accounts. There’s a number of different plans you can do depending on the type of entity you have to make expenses that are deductible, but you typically don’t have enough of them to have any type of impact on your taxes because the government says [inaudible] scheduling of your tax return and they have to exceed 10 percent of your adjusted gross income. So, you know, if you making a hundred grand, that means the first 10,000 is not deductible. And typically, you know, somebody that has that kind of expense is, you know, is not going to be an equity shape.

Ok. And you said there’s two reasons to own a small business and number one is to provide a good lifestyle for you and your family. And the second one is to provide a saleable asset to support you in retirement. And talking about retirement is something I did, which was, and I think it’s so important to plan for, is to purchase your own building. You can buy the office building, the company pays you rent, you have that separated outside of the company set up as a separate llc. That has been a huge benefit for myself. What, uh, what can you tell us about that?

Yeah, you’re right. Everything you said is a hundred percent correct. You purchased the building and rent it to your business. You set it up in a separate entity. Ok, now you get to depreciate that building. Um, you can also do something that’s called a cost segregation. So you take that building and let’s just say it’s a commercial property that’s a depreciated over 39 years. And we’ll see, you know, it was 100,000 dollar building, so basically you’re getting to the doctor almost $3,000 a year, but if you do cost segregation, it breaks that building up into different types of property, some of which are depreciated quicker than 39 years. So typically in the first five years you wind up with about 20 percent more depreciation than you would normally. So when you multiply that hundred thousand dollar building out by three, four, five, six, it turns into a big tax savings.

Yeah, that’s huge. We did that with our billing. The write offs are just so much faster.

Right, exactly. And you know, it, it’s all about helping you keep more of what you make.

Gets back to what we were talking about, which was good tax planning. Well before we wrap up, craig, is there anything else you can add to this?

You know, I, I think what I’d like to add is, you know, communicate with your professionals. That’s the biggest takeaway from here is communicate with your professionals. And if you’re not communicating with your professional, you know, when was the last time he came to came to me with an idea to save taxes and if, if you can’t answer that question, I think you need to start looking around for somebody that’s going to help you try and keep more of what you make.

Not all cpas are tax planners or tax experts. Are they? I

know I would say 99 percent of cpas are not tax planners. And if you, if you asked most one tax planning is, is they would say, well, oh, I meet with my client in december and we tell them how much of a tax the past that he needs to make by January 15th. That’d be said. Most cpas out there, very good at, you know, the compliance work and putting the right numbers in the right boxes. They’re just not looking for ways to save you additional taxes.

Correct. That’s my awesome information that our listeners can take to the bank. Certainly. So how can they get more information and get in touch with you?

Oh great. They can. We’re actually offering our listeners a copy of our, my recent book, which is the 10 most expensive tax mistakes that cost business owners thousands and they could go on the website, which is craigcodyandcompany.com/dentists forward slash roofer. And we will give you that link for your show notes. And, uh, they just fill out the form online and we will send them a copy of our book. They can also reach us via telephone at five, one, six, eight, six, nine [inaudible] or via email@craigatseecodycpa.com.

So craig, if we gave you a call, what can you do for us?

 

Typically our process is I’ll have a short call with a person, um, and I’ll find out a little bit about what’s going on. Then we’ll ask them to send us via secure email copies of the last two years tax returns and, uh, an accounting file. We’ll do an analysis and we’ll set up a webex and webex. We’ll go through it and we’ll tell them, you know, ok, we’ve uncovered, you know, 30,000, $40,000 of miss tax deductions that you can be taking that saving you x amount of dollars and uh, if you’d like us to do a tax plan, we can do a tax plan for you. We get paid up front for a tax plan and it’s fully refundable and nobody has ever asked for their money back because it’s instant gratification. So we’re not talking about an expense here where I would say average roy is the high 300 percent, 500 percent.

Well that’s great craig. I really appreciate you coming on and we’ll talk to you soon.

Thank you very much for having me and I’d love to be on again.

Great. Thanks Craig. Take care. That’s it for today’s show. If you want to get a copy of my new guide, seven steps to getting more qualified leads for your roofing business at The Roofer Show where you can grab it for free or click on the link in the show notes below. And as always, thank you for listening. I really, really appreciate it. We’ll see you next time on the roofer show.

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