How To Stay Afloat In A Sea Of Taxes

Hey, it's Mark Podolski, the Land geek with your favorite niche real estate website, www.thelandgeek.com. and I'm really excited for these guests because we don't always have somebody that helps us with a major pain point and arguably probably the most important part of a business that people don't think about, which is lowering your taxes right, could be your biggest expense if you're doing things right. But before we talk to our guest, I'd be remiss if I didn't properly introduce my co host. You know him, you love him. Six Sigma Scott Todd from Scott todd.net landmodo.com and most importantly, if you're not automating your Craigslist and your Facebook postings, posting Domination.com TheLandgeek Scott Todd, are you ready for this?

I'm ready, Mark.

All right, just a quick reminder, listeners, today's podcast is sponsored by Geek Pay IO. Just go to thelandgeek.com GeekPay get set up today. Get your first note free the only Set it and Forget it financial CRM. It is unbelievable. Thelandgeek.com GeekPay or check out GeekPay IO. Alright, today's guest is Craig Cody. Craig Cody is a certified tax coach cpa. He belongs to a select group of practitioners throughout the country who undergo extensive training and continued education on various tax planning techniques and strategies in order to become as well as remain certified with this organization. He has co authored an Amazon bestseller, Secrets of a Tax Free Life. In addition to his tax planning, his practice offers traditional tax services as well as off site CFO services. With his dedicated and passionate team, they're able to buy daily guidance and advice to business clients. Their efficiency is embedded in a team concept. So, Craig Cody, how are you?

I'm doing great. Thank you very much for having me.

All right, well, thanks for being here. So let's rewind the tape a bit, Craig, and kind of tell us how you got started in tax planning and what you love about it.

Oh, saving people money. Okay. You know when you sit down and you save somebody 20, 30, $40,000, that's a real thrill. And so we got started on tax planning years ago when the estate tax was a lot lower. We used to do estate tax planning and we realized that we do plans for people and they'd actually save income tax too during the year. So after the changes were made, we started doing some research and about six years ago, we incorporated actual tax planning for business owners and real estate investors into our repertoire.

All right. Fantastic. What are some of the worst advice you see or hear given in the tax planning world?

Probably the worst advice I see is when people owe money, well, go out and buy a car. Go out and buy a truck. Okay. Go out and buy something. Not real estate, you know, something that you could write off now if you need that. That's a great idea. But I had somebody yesterday. Yeah, My CPA just told me I need to go out and buy a truck. I'm like, do you need a truck? He's like, no. Okay, so it's like spending money to get a tax deduction isn't really a good thing.

So what are some things we can do to reduce or eliminate our taxes?

Well, you know, I wrote that book, the 10 most expensive tax Mistakes that Cost Business Owners Thousands. It actually applies to real estate investors also. But the first thing we need to do is plan. People fail to plan, all right? They're going to buy a car. They spend some time researching a car. Okay? People don't plan for the real estate, their taxes, period. Okay? And like you said before, taxes could be your biggest expense out there, you know, going up to, you know, 39% plus, you know, the state and or city, depending on where you are. So it's important to plan. I'd say the next biggest mistake out there we see is choosing the wrong business entity to operate out of. Are they an llc? Are they corporation? Are they an S corporation? Are they sole proprietor? You know, those can cause a lot of different tax effects. So failing to plan wrong business entity are two big ones.

So for real estate investors, what would you recommend as a entity?

Typically. Okay, typically you want to have your real estate inside of an llc. But then there are those that are, you know, they're actually operating, you know, they're doing flips and stuff like that. So they're really in the business of maybe that's not the right way to be. Okay, Inside of an llc, because you're in the business of not. Not necessarily. You're not, as far as the IRS is concerned, not like holding, buying and holding real estate.

So dealer versus investor.

Correct.

Scott, Todd, what are your thoughts?

So if I'm in the wrong, you know, if I'm in the wrong, I've got set up as an llc, right? You know, and I'm doing it and I'm going to my taxes and I'm like, ow, this is going to hurt. Can I still change it before I file my taxes? Can I, can I switch over to S Corp or, you know, some other structure that just makes more sense financially.

Yes. You could actually make an election to be taxed as a corporation or an S corporation if you actually operate as an llc. Okay. And you can actually make that election retroactively if you need to. So that's a tool that we use, you know, somewhat often.

Wow. Okay, that's.

I mean, that's. I mean, that's kind of like a ninja tip. You know, if your taxes are too high this way, let's go over here. Potentially, it might be better. Right?

You know, but you can't switch back and forth every year. Yeah, yeah.

I mean, but like, if all of a sudden you have this big momentum, you had this monster year, and it makes sense, or you see a pattern that just makes sense, or something in your life has changed. You know, like, for me, one of the things that changed was that I was an employee. I was an employee of another company, and then I left that company. And now I do this full time. I do real estate investing full time. So maybe my tax situation has changed because my life has changed, but I still have this llc. So maybe I need to go and talk to someone like yourself to say, hey, my life has changed. What about the structure of my business? Would it make more sense if I'm over here?

That's 100% correct. Things change. And that's why the same technique works for one person, may not work for another, because they have different lifestyles and different things going on. You know, they're coming out of a business, coming out of a W2 job. Did they come out of that job this year? Was it last year? So all those things come into play.

Okay, so Scott and I have children. Scott's got two kids. Teenagers. I've got three kids. Pretty much all three teenagers. And I don't know about you, Scott, but mine are not working for Frontier Properties or Land Geek or Geek Pay. Are your. Are your kids working for any of your entities?

Yeah, they do.

They don't do a ton of work, but they do. They do do some work.

So, Craig, it seems like Scott is doing things right by hiring his children, and I'm doing things wrong by not hiring the kids. Can you kind of elaborate on that? Sure.

Yes. Tax court has actually ruled that you can actually hire your children as young as seven years of age. I typically like to wait till they're around 11. But you can hire your child. You could pay them a reasonable wage. You need to document it. The money needs to go into their bank account. And like, when my kids were younger, my youngest is now getting a master's, so I'm kind of past this. But they went to private schools, and they used to work for me. The money went into their bank account, then the school drafted their bank account every month, and that's how the tuition was paid. So I effectively got a tax deduction for their tuition.

Oh, man. Mark. Mark.

Wait.

Mark, what are you doing, man?

I'm doing this podcast, and I'm getting ready to pay the kids.

I think we need to, like, stop this podcast right now and go, like, change our lives.

I know, I know. So. Well, now, what about college, though? Like, Scott's got his college already paid for because he's in Florida and did something like, really savvy in a prepaid college. But, like, for me, can I deduct the college education expenses?

Normally, no. Okay.

There are some rules.

There are some rules if the kid's over 21, but it has to be a benefit available to other people. So let's just say no. But you can still pay them.

Okay, so I'm paying them, and then they can set up retirement plans. They can do a Roth.

Right. So typically the magic number is around 6,000, 6,500, where it's not taxable for that. So they get about $6,500 worth of income. They don't pay any tax on it.

All right, okay. So 500 bucks a month to each kid. Right.

Okay. Now they have to do. You have to make sure you document what they're doing. So if the IRS comes in knocking. All right, and if you set it up right, and if you set it up under this, the correct entity, you may not even have to pay Social Security tax on that money.

So what entity do I need to do?

Typically, you want to be a sole proprietor or a single member llc. That's the way that's going to work. Okay.

I'm a single member llc.

Okay. But you may get benefits from being a single member llc, but there may be other benefits that you get for not being a single member LLC that far outweigh the FICA tax that you may save on the child.

Right? Okay.

Yeah.

So it's. So it's not just black and white.

It's not black and white. And it also depends on how many entities you have.

Okay, so I've got the GAR office, which is 500 square feet, working out of my garage. Scott has. How many square feet is your little.

About 350.

That's not so little, Scott.

I know.

It's got a big house.

Okay.

10% of the house.

Right.

But 10% of the house.

So here's the way I, you know, the home office deduction, you know, years ago, everybody was scared of taking a home office deduction. But if you do it right, it's okay. Does it generate a huge savings? No, but it opens the door to other things, such as the home athletic facility, which could be your home gym or your pool. Okay. Now you get to deduct that.

Okay.

It also opens the door to travel. Now, when you're going to. Depending on what businesses you're checking on, okay? Instead of just, let's just say you're a dentist and you were working out of your dental office. If you don't have a home office, your travel time is not deductible. But all of a sudden, if you have a home office because you do a lot of work at a home, all your travel is deductible. The same way with somebody that's dealing real estate.

Ooh, I love it. You know, what are the benefits of writing a book on your business? And what does that mean, writing a book on your business?

I mean, the benefit of writing a book on your business is it gives you credibility. That's I believe, the biggest thing out there is now, you know, because how many accountants do you know that have written books? How many real estate investors do you know that have written books? You know, stuff like that. So it gives you credibility. I've written two, and I'm actually going to offer a free copy to your listeners. But it's credibility. It's a big business card. You could look at it any way you want. It's a worthwhile endeavor.

So, yeah, I mean, I've written a book. It just hasn't gotten out there yet. I'll get it out there, Craig. Don't worry. Yeah, I do agree with that. Depreciation in taxes.

What do we need to know about that depreciation? We find so many mistakes with depreciation. You know, people not depreciating things correctly, forgetting to put assets on the books, you know, having residential real estate, and they're depreciating it by 39 years instead of 27 and a half years. Not optimizing depreciation, not looking at cost segregation. If you need me to explain any of these things, just let me know to the audience. But, you know, a lot of people can take advantage of cost segregation, and they don't. And it's a great planning tool because let's just say we have a couple of buildings and all of a sudden we're Selling one. And maybe we have a. We're going to have a big gain. Maybe we need to do a cost segregation study. And we pick up all that missed depreciation in that year, which will offset that big gain. So it's a planning tool.

I love it. I love it. What does it mean to not fall prey to tax paranoia?

Like I call that what it paranoia, you know, I'm not going to do it because I'm going to get audited. Well, nobody wants to get audited, but you know, what? If they audit you and you have everything documented, if the code says you can do it, you can do it. And everything is documented, that's fine. So don't do not doing things because you're worried that you're going to get audited. Do it. Do it right and document everything.

Craig, do I need to, like, you know, if I'm putting like everything on my. My credit card? I have a credit card that's dedicated to, like my business, whatever, you know, do I need to keep all these stupid receipts or is the fact that it's, you know, business, you know, related, you know, hotel, you know, do I need to keep these receipts or do I just can.

Is it.

Is my credit card good enough?

Everything is electronic these days. You know, I tell people I keep a big brown envelope and any receipts I get, I stick them in there. Right. But we operate off of a business credit card, so everything we need is there. And 99% of the time, if you need to get something, you could get it from either the credit card company or the business. That being said, if it's a big expense, I always say, yeah, hold on to that receipt. You know, the $50 lunch, throw it in the envelope. But the $10,000, whatever it is that you just bought, coaching program, you know, hold on to that.

So I just bought. Sorry, Scott. I just bought two E bikes at Costco and I put them on my business credit card as exercise. Is that kosher?

Well, it's kosher if you have a home athletic facility.

I do. I make a office.

Okay, So I got trx. If you have a home athletic facility, then it's kosher. But if you didn't have that, then it's really just the distribution of the profits of the company. It's non deductible.

Oh, Scott. Todd. Gotta get yourself an E bike.

What I need, Mark, is first I need a home athletic center. Like a pool. I gotta put in a pool. So is my pool deductible?

Actually, it is.

Okay, so my pool is that. So I've been paying personally for my pool maintenance, so now I can deduct it, Right.

You just have to document it. Yes.

This is phenomenal.

Mark, listen, this is a great podcast. Maybe. Maybe it should never go out. Maybe we're getting such a ninja tips like. Like, I don't want to get audited, but if I do, it's all unrecorded, right?

Yeah.

Yeah.

I mean, why shouldn't everybody benefit from this?

Yeah, exactly. And the code allows you to do it. The code allows you to do it.

So, you know, what. What about, you know, like, you talked about planning, right? And one of the things that.

That.

I'm looking at is I'm looking at kind of, you know, buying something for my business, an asset for my business that would allow me to travel faster, to see my land. Cause I, you know, I buy land all across the country. And, you know, one of the. I'm talking to about a plane.

Right.

You know, Scott's being very modest. He's getting his pilot license.

Yeah. And so, you know, I'm just thinking, like. I'm thinking, like, if I had a company plane. Well, a lot of the land that I buy is, in fact, rural. There's not, like, commercial service to there. I would have to fly, you know, I don't know, maybe hours away, three hours away, versus, hey, I can get to there, and. And it'd be a smarter thing. You know, I see kind of. I see kind of people that are saying, well, you know, it's kind of like, you know, it's. It's. It's not deductible or whatever. But I'm thinking like, man, here's. Here's an opportunity for me to go see my land. Here's an opportunity for me to go see, you know, visit these rural locations to even decide if I want to invest, do so. But one of the things I kept reading is you should have a plan. Like, write out the plan as to what you anticipate the benefits would be, and then go back and encounter those so that if, in fact, you were audited, you could say, look, here was the original plan. Here's how I was going to use it. Here's how I'm using it. Here's why it all makes sense.

Is that.

Is that the right approach?

That's a good approach. So what we. What we do is when a client comes to us, and let's just say that was one of the issues that they wanted to talk about. Okay. We would do all the research to make sure. Okay. Now, this is how, as part of your plan, you need to do A, B, C and D. These are the rules, all right? And this allows it to be deductible or this allows it to be 80% deductible. And follow these rules and you'll be okay. And, you know, I'm sure that plane you're going to land on those remote airstrips on your property, right?

Right.

Well, no, not on my property. Nearby. Nearby my property. Yeah, yeah, within, you know, within a short drive of the property versus, you know, hours, three, four, five hours away. Because there's no commercial service that gets me there.

Correct. So that would be something that we would incorporate into a plan when we did a plan for somebody.

Got it.

All right, Craig, don't. Don't get mad at me, okay? But I'm asking a very touchy sort of question, and the reason I'm asking you this, I have. I have personal experience with this. So I had a big group and had a guy on my podcast and kind of similar to you, and I went through some tax planning, and they went through my numbers. I said, we can do tax planning for you, but it's going to be an upfront investment of about $40,000, and then after that, it's going to be, you know, a little bit higher to just prepare your taxes every year. But it's going to be really comprehensive in all this. So I'm kind of thinking to myself, well, you know, that seemed outrageous to me. So my question to you is, what is a reasonable sort of expectation for tax planning services to have this regular, you know, have this guy, or have this firm sort of communicating with you, planning for you, and then preparing your returns every year, because the ranges can be crazy. Right, right, right.

So when. When we do a tax plan, number one, our fee is 100% refundable. Okay. And nobody's ever asked for their money back. Our typical client is their first year ROI is around 4 to 500%. So while I've been involved in tax plans larger than yours, that's definitely not the norm. Okay. There was actually an outfit out of. I think they were out of somewhere in the Midwest a number of years ago, and they were doing plans like that. And I think they got into trouble with the Attorney General because they weren't. They weren't kosher, as you said before. So that's a big number, you know. Now, if they were providing you with a benefit of 4 or $500,000, I would say that's probably a pretty good number. But so we always look at first year ROI and our plans are also, you know, 100% refundable. And for us that, that involves ongoing communication. And about a third of the people we do plans with actually they continue to work with us throughout the year. So our fees are based on the work that we're doing, but the planning fee is a one shot deal.

Alright.

And our clients we work with on a regular basis, you know, throughout the year. So we just don't talk to them come April, March, you know, because it's really all about communication. You know, the doctor doesn't call you up and say, are you sick? Okay. You go to the doctor. So we want to communicate with our clients.

Okay, that's, that's good to know. That's really good to know. How many people go to you just for the planning and then have somebody else prepare the return?

I would say probably about two thirds of the plans that we do wind up going back to their accountant that they've been using with the documentation and make sure it's getting done. And sometimes, you know, they have relationships, you know, sometimes, you know, they're drinking buddies, you know what I'm saying?

Right, right, right.

And that's okay because you could take my plan, okay, and you can implement it with them because our plan has tax code that says what you can do. And we laid out and you know, we always communicate with the client, you know, if they call us up. My theory is, you know what, you call me up in six months, I'm going to answer your questions because if you're happy, guess what? You're going to refer me to other people.

Right?

Right.

So Scott, do you ever have this sort of. You don't have it because you've got, you know, accounting background. But like I have this fear about garbage in, garbage out. Right. With the bookkeeping. So I can have the greatest CPA in the world. But if the numbers going in and the number and the deductions and everything sort of being categorized aren't correct, and I'm relying on a bookkeeper who doesn't know, oh, hey Mark, you can deduct the pool and you can deduct the E bikes, right. And they're just putting it as distribution. Distribution. It doesn't matter. So Craig, how. Where do we find the good bookkeeper or do we do it ourselves with like QuickBooks Online?

Well, I hopefully QuickBooks Online is not a sponsor. I'm not a bad. A big fan of QuickBooks Online only because it's not as robust as the desktop Version. But with our clients, we actually do their bookkeeping. Okay. We have two bookkeepers on staff. And they. It's because if somebody else does it, I'm going to go back and I'm going to wind up having to fix it, so it's just easier for everybody. And we typically do monthly calls with our clients. So we go over things, and there's always stuff that you don't know what it is. And you could remember it in 30 or 60 days, you'll remember it. But six months or a year, you may not remember what that E bike was.

Yeah, that's absolutely true, Scott. Todd, you've been very quiet.

No, I think that you kind of hit on it. Like, one of the things. When I was going through my taxes last time I'm looking at my financial statements, I'm like, man, there's no way that my cost of land recovery was like, that low. It seemed like it would be higher. So then I had to go in, I had to sample it, because there's so many transactions, you can't possibly go in and audit every single one of them. So I had to go in there and say, okay, like, it. Does this. Does this number look right to me? You know, And I went back and sampled it. It was good. But then. Then you look at that bottom line, like, I made that much. You got to be kidding me, right? Like, that's how much taxes we're going to pay. It's ridiculous. So, you know, it's. It's. I think you're right. If you get garbage data, it's. It's all going to be garbage.

And.

And honestly, that's really what I cover in that accounting class that I taught was, you know, how to get the. The good data from the first day.

Yeah. That's really important. And if you miss one of those land purchases, and that's a distribution instead of an asset purchase, it could make a big difference, especially on the sale.

Yeah.

All right, Craig, I'm sold. We're gonna talk after this podcast. I'm in. Scott, are you in?

I'd like to know more.

Yeah, I'd like to know more. I wanna get the land Geek discount, though.

We'll beat you up.

Of course.

It's two for one, I think, Mark, It's a twofer.

It's a twofer. Because what's interesting is our tax returns were so complicated that we drove our current CPA out of the business. I'm not joking.

No joke, man. Like, no joke. He's gone.

He's gone. So we're both like. Like, I've got someone local right now doing it, but it's not ideal. Well, he's not bad. I don't know. You know, you know the thing, the funny thing about CPAs is, like, dentists, like, you don't know a good dentist unless another dentist looks in your mouth and says, oh, that's. That's some good work. How do you know if you have a good CPA, Craig?

Well, here's his. First of all, most CPAs are really good at putting the right numbers in the right boxes. Okay? So compliance work. You know, they're going to be doing the right thing. Okay, but how do you know whether you have a good one versus a bad one? I always say, when was the last time your CPA came to you with an idea to save money? Okay.

Ooh, that's a drop the mic question.

I normally get that glazed overlook and it's. No, he never came to us with an idea to save money. So that's one way to tell whether you're working with somebody that's being proactive or somebody that's just being reactive and putting the right numbers in the right boxes.

Mine's reactive. Scott, reactive or proactive?

That's the wrong answer, Mark, because I went with your next guy.

What?

Look, we've got an answer here. That's why we have. The podcast is to meet the Craig Cody's of the world and get our. Our pain points solved. Right?

And, you know, I mean, we have clients. I'm in New York. We have clients as far away as Oregon. So the Internet's a wonderful thing, right?

It really is. I mean, it really shrinks everything. All right, Craig, we're now at that point in the podcast. Your mentorship has been amazing, invaluable. I think you just got two more clients, so it was worth your time just to come. And since I'm really kind of like, you know, the host and Scott's co.

Host, so you get the discount. He doesn't.

Well, I'd like to get his discount. Sure. And look, Scott's overwhelmed with money as it is, so.

Oh, no, Margaret, no, no, no, no.

I mean, look, this guy's thinking about buying a plane. I'm not.

No, I'm. I'm like, you know, I'm looking for tax. Tax, you know, advantages.

Right.

Like, same as you, Mark. You're looking at an E bike for people. You got the pool. I don't even know you have the corporate workout center. I don't.

All right, all right, fine. I Just like to hate Scott. Okay, so what is your tip of the week? A website, a resource, a book, something actionable where the art of passive income listeners can go right now, improve their businesses, improve their lives. What have you got?

You know, the first thing that comes to mind is, I'm reading a book or listening to a book right now on Audible. Extreme ownership.

Oh, Jocko.

Yeah.

That's a great book, man. And there's just so many nuggets in that book of, you know, communicating with people and stuff like that. And, you know, it's. I think on Audible, it might be like seven hours or something like that. But it's a great book. It's a lot of good information in there.

What's your biggest takeaway from that book? Oh, God.

How? You know, first of all, you realize how messed up you know war. I mean, if you didn't know war is messed up, you really will realize, wow, it's bad. And then you realize how, you know, these guys, they've learned so much, and they can adapt that and take it to, you know, those of us in the private sector. So my biggest tip is, you know what? They always figure out a way to do it. We can always figure out a way to do it.

I love it, Scott. Todd, what's your tip of the week? Oh, Scott, you're on mute.

Sorry about that. Check this app out. It's. I just put it in the chat to you too, but it's called Undisturbed. It's a Mac app. And I know you'd like to tell Siri on your MacBook, hey, do not disturb. And she shuts off everything. But you know what? She doesn't shut off any of the notifications that are on the bottom on the dock and everything. So check out this. This app, because it makes Mac OS really distraction free. It's like the ultimate do not disturb. Goes up in your launch bar, up, up at the top. It's pretty cool. Now, the negative is that it's not in the Mac store, which I know you love, but it is free.

Well, free. Free's nice. All right. I just did it. Look at it.

Check it out.

Yeah, this is great. So I'm opening it now. Undisturbed. Can't be open because the identity developer cannot be confirmed. Okay. So I got to go into setting. Yeah, so settings and do it. Okay, Awesome. I love that tip. Well, my tip of the week is learn more about Craig Cody and getting a 3 to 500% ROI on your tax planning. And@craigcodiandcompany.com. did I say that right, Craig? Craigcodiandcompany.com we will have a link to that website. And Craig, what's your generous offer?

Okay, if they go to craigcody and company.com thelandgeek okay. They can request a free copy of our latest book, the 10 most expensive tax Mistakes that Cost Business Owners Thousands. So we will actually send you a paper copy. Oh, autographed. Autographed.

Wow. Phenomenal. Autographed too.

Autographed.

All right. Wow. I'm going to do that right now. Is it ready yet? Oh, yeah, it's all ready.

I don't know if it's. No, it might not be up there right now.

Okay. All right, no worries. That's fantastic. Craig, you're this been a really great podcast. I want to just thank you. I want to thank the listeners and just remind them the only way we get the quality of guests like a Craig Cody@craigcodingcompany.com is if you do us three little favors. You just got to subscribe, just got to rate and review the podcast. And there's a screenshot of your review to support@thelandgeek.com we're going to send you for free our $97 passive income launch kit for free. So please do that. Also just remind everybody today's podcast is sponsored by GeekPay IO. You can just go tolandgeek.com geekpay and get signed up for free. On your first note, Scott, Todd, are we good?

We're great, Mark.

I'm really excited. I think our all our problems have been solved.

Hey, don't let the IRS get your money, man. That way you can really let freedom ring.

We gotta let freedom ring.

See, I did that.

That was good.

It was good. Craig, Cody, thank you so much. Are we good? Yeah.

Thank you very much for having me, guys. I appreciate it.

Alright, well, let Freedom Ring listeners and we'll see everybody next time.