The Home Service Expert Podcast - Saving Thousands of Dollars With Tax Planning

Episode Date: May 29, 2018

Craig is a certified tax coach and public accountant, a business owner, and a former New York City police officer with over 17 years of experience on the force. His mission is to help businesses keep more of what they make through tax planning strategies and techniques. He also co-authored Secrets of a Tax-Free Life and recently wrote The 10 Most Expensive Tax Mistakes that Cost Businesses Owners Thousands. In this episode, we talked about tax planning, accounting, succession planning...

This is the Home Service Expert podcast with Tommy Mello. Let's talk about bringing in some more money for your home service business. Welcome to the Home Service Expert, where each week, Tommy chats with world-class entrepreneurs and experts in various fields, like marketing, sales, hiring, and leadership, to find out what's really behind their success in business. Now, your host, the home service millionaire, Tommy Mello. Thank you for tuning in today to the Home Service Expert, and today is a subject I'm

really excited about. Some of you might get bored by it, but it's so important that you tune in because the subject is taxes. We all hate taxes, but most of us don't even realize that we're going to pay Uncle Sam more than 50% of everything we make. So I'm really glad you tuned in today. Listen, we're going to be interviewing Craig Cody. Craig Cody is a certified public accountant, certified tax coach, business owner, and former New York City police officer with over 17 years experience on the force. Bravo. In addition to being a certified public accountant for the past 17 years, he also is a certified tax coach. And 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 and well as remain certified. Craig also co-authored one of the best sellers on Amazon, Secrets of a Tax-Free Life, and recently authored the 10 Biggest Tax Mistakes That Cost Business Owners Thousands. Listen, folks, this is such a big subject because you're literally spending half of your money paying Uncle Sam. And most people don't have a clue. Literally, you need to set your business and life up for success. This is all about having a better life, better life for your family, and a better understanding of how you can avoid mistakes and not pay everything to the government.

I'm so excited to have Craig on today because he knows this stuff like the back of his hand. better understanding of how you can avoid mistakes and not pay everything to the government. I'm so excited to have Craig on today because he knows this stuff like the back of his hand and literally guarantees he could save pretty much anybody lots of money because there's a lot of people making mistakes out there. So let's go ahead and get started. Craig, it's great to have you on here. How's your day going? Day's going great. I'm glad to be here with you. Yeah, you know, a lot of people don't realize that they pay so much money to Uncle Sam and

there's so many things that someone like you can help with. I think this might be the most important thing that people don't even think about is getting set up to build a business to sell, not only to sell, but to, you know, EBITDA, to talk about what they're going to do, how they're going to tax plan, how they're going to save money because they pay Uncle Sam so much money. Why not put that money back in your pocket? So, you know, I'm really, really excited for this episode. You know, you were a police officer for 17 years and then you went into accounting. Tell me a little bit about that oh god i had a great run in new york city police department it's time to move on i really liked taxes and i actually

thought i was going to go into financial planning because and use really the cpa to set myself apart but the more i worked in the you know tax area the more i realized how much i like this and how exciting it could be and i know yeah you're talking to a guy with a pocket protector and he's talking about being excited. But when you sit there and you show somebody, hey, I could save you 20, 30, $40,000. That's exciting. Yeah, it is. It is. It's, it's, it's amazing how much money guys like you can save us business owners in the home service niche. What have you learned 17 years as a New York cop and now you're in accounting? Is there anything that you brought from that, those, those years in the, in the forest with you? Yeah, I think the, the ability to be able to communicate with people,

which, you know, as a cop, I worked where I was dealing with CEOs to, I was dealing with people on the lower end of the socioeconomic spectrum and you had to be able to communicate with them. So over time, you learn how to do that pretty good. And taking that and bringing it into the accounting field and being able to communicate, you know, something that for a lot of people can kind of create that glazed over effect has really been very helpful. Perfect. So I'm going to dive right into the main sections of what there's so many things that we need to talk about today. But what's the biggest mistake that you see small business owners make, you know, from the way they get set up when they go into business to just the normal mistakes we

make when we really just don't know enough about tax law and strategy? Well, the biggest mistake people make is failing to plan. You know, they're going to buy a truck. They're going to look into the truck and they're going to look at ratings and see how it works best for their business. But when it comes to taxes, people kind of look at it as an expense item and they don't want to do any planning. And they wind up costing themselves a lot of money. Just like when they set the business up, how did they decide whether they were going to be a sole proprietor or a corporation, an LLC? They probably just went to the attorney and he says, okay, let's make you an LLC or make you a corporation.

There was no real planning. Why are we doing it? What are the benefits? So you got a limited liability company. And I see most small businesses, especially in the home service niche, it's affordable. It ranges from $300 to I've seen thousands of dollars for that. Tell me a little bit about the differences. I'm pretty familiar with all those terms. But if it was my first day getting into business and I was sitting down with a lawyer and a CPA, let's talk about some of the advantages of an LLC or an S-Corp or filing as an LLC but doing your taxes as an S-Corp, which is something that I do. But let's go into each of those and explain or a C-Corp or a partnership. Let's just go through these.

Right. So you have your sole proprietor, which is basically you go down to the county clerk and you get a DBA and you're in business as Joe's Trucking Service. Yep. And you're ready to go. And basically you have your income, you have your expenses,

and then you have your net income and everything is subject to self-employment tax. Then we have the LLC, which is very common. And that was typically set up because in most states that gives you the best liability protection. So the attorney will say, let's do an LLC. An LLC works similar to a sole proprietor, whereas you have your income, you have your expenses, and all of your net income is subject to self-employment tax. So that could get a little expensive sometimes depending on your specific circumstances. Then we have the S corporation,

which is basically you take a salary and your salary is subject to self-employment tax and income tax, but everything in excess of your salary or the profit flows through on a K-1 and is just subject to regular income tax. So there are times when you could potentially save money as an S-corporation, provided you're taking reasonable compensation. And then we have the rarest of them all is the C-corporation, which is like a separate person. The C-corporation pays tax at its own level, and then typically the owner is paid in salary and or a dividend, but dividends are double tax. So it's not really the most efficient way to go as your primary vehicle to

hold your entity. So I've heard a CPA once tell me, he said, if I were you, Tommy, I'd have a shell. I'd have your payroll company as a C corp. I'd have you as an S corp, which is just you elect to do your LLC as an S-corp. And then you have your trucks all in another business. And then your apartment complex that you use, you'd have that in another entity for liability reasons. So does that make any sense or is that just a bunch of mumbo? No, no.

I mean, obviously, having your trucks in a separate entity is always a good thing. Okay. Unfortunately for probably a large portion of the small business owners out there, it doesn't make sense for them when you talk about record keeping and extra tax returns, et cetera. When they've actually gotten to the point where they've really made it, then it makes sense. Properties like such as apartment complexes i i'm a believer they should always be in separate entities right we work with c corporations a lot of times not necessarily the way the professional was talking about but that's a it's a planning technique we use working with c corporations because the owner is allowed to write off a lot of his benefits inside of a C

corporation that he would not be able to get on a S corporation. But there are also certain what we call controlled group rules that you have to be careful of that you don't want to go astray of when you're working with a C corporation and let's just say your S corporation. So it's definitely an advanced strategy and when done it needs to be done correctly. Yeah, you know, and I want to go back to one thing, you know, this for most of the people out there, taxes are not something that we discuss at the dinner table. They're not something that you discuss with friends and family very often. And they're something that maybe it's kind of like going to the doctor.

Maybe you just you go to the dentist, whatever it might be. But I can't stress enough. It's half of your income. It's like, for an example, if I had to correlate a quick analogy, I would say it's kind of like your bed. You're going to be sleeping half your life in this bed. Do you want a good bed? Well, you're going to be giving away half of your income if you make good money. And you've got to have a strategy and you've got to have a plan.

So when it comes to tax planning, you've got, I've heard of key man insurance. I've heard of a lot of different things and pay yourself first. And we talk about this word a lot as EBITDA. It's earnings before interest tax and appreciation and all that good stuff. Let's just go back to the core. Let's go to the fundamentals. Let's talk to businesses now that are either getting into it or really just a lot of the guys and gals listening to this, they might only have five employees. And I just how do you talk to them about tax planning?

Where do you start? Well, we have a process that we go through. If you want me to take you through that process. Yeah, let's go ahead. So when we have that business owner and he's in pain because he's paying, feels like he's paying more than his fair share of taxes, our process is we have a conversation and we learn about his business

and what's going on in his life. Then we review his prior year tax returns and whenever possible, his current year profit and loss and balance sheet. And then we do an analysis. And in the analysis, we look for missed opportunities and mistakes that are costing them taxes. We go through that. We come up with a number of missed opportunities as far as a dollar amount.

Then we convert that at their tax rate to what it's costing them. And we say, okay, we could save you or you're overpaying your taxes by $23,000 a year. We could do a tax plan for you. We get paid upfront. Our fee is a hundred percent refundable and no one has ever asked for a refund because it's a hundred percent instant gratification. Then when the client agrees that they want to go forward with a tax plan, we take a much deeper dive into everything, and we create a written plan that outlines the different strategies they want to use, and it includes the tax code that says you can do what you can do. And we put the plan together. We go through it with the client, and then we help them implement it okay so i just one year i went to h&r block and this had to be 60 16 years ago okay now i wasn't even i didn't have the business running like i do now i didn't

have as much tax liability but i went there and i owed three thousand dollars well a friend of mine talked to me and this is in my late teens, I think. He said, hey, did you write off your books? Did you do this? Did you do this? You get a credit for school, all this stuff. And I ended up getting $2,500 back. If I hadn't talked to him, that was a $5,500 shift. So I know a lot of listeners out there that CPAs and whether you're in general accounting or you know how to do ledgers or whatever,

it's not created equal. And the money that a good CPA can save you is pennies. I mean, their fee is pennies compared to what they save you. Am I right? Oh, yeah. You know, we like, you know, I like my client to have a first year ROI of at least around 400%. So it really is instant gratification. And people look at your accounting and your tax costs as an expense.

I like to tell them it's really an income item. If you do it correctly, you're going to save more money. Yeah, I wholeheartedly agree. I mean, I can't even tell you. And it goes into the hiring process. Do you get any veteran write-offs? Do you have anybody that happens to belong to a Native American tribe? There's so many little things. How big is the tax code book? It's like thousands of pages, isn't it? Yes, it's a million tips I'm sure you could give us. But just give us a couple things when it comes to the home service niche that maybe we don't think about. Well, okay, let's talk about, and, you know, these may not be pertinent with everybody.

Sure. But we have something called a medical expense reimbursement plan, okay, that allows you to write off the out-of-pocket expenses for different health-related expenses that you have that are not covered by insurance. So we recently had a client where his son had a disability and he needed special tutoring. So this plan allowed him to take that and write it off. So that's it. Then we have the home office, which may not sound like a wonderful thing, but the home office opens up a lot of different other deductions that you could take,

such as the home athletic facility, which could be your home gym or that home pool that you have. All right. Now to have a home office, there home pool that you have. All right. Now, to have a home office, there's certain rules you have to meet. The space has to be used exclusively for your office. You have to spend at least around 14 hours a week in that office. But I think most people that are working out of their home, or even if they have another office that they use, are spending easily 14 hours a week out of their home doing work.

You know, yeah. I mean, that way I can pay for my landscaping, my garbage bags. I'm just kidding. I don't know all the rules about that, but that's something that I think everybody can take advantage of, you know, that probably are listening to this, and that's amazing stuff. Well, let me ask you this. At the end of the year, I'm cash basis, but I want to dive into this in a minute, but I know I can't write off cost of goods sold. So typically there's a lot of things that I do at the end of the year. For example,

I prepay for all my advertising. So I prepay a lot of advertising and I make sure that checks cut by December 31st. And I do two things when I do this. Number one, I negotiate the crap out of my advertisers and say, I want 20% off for prepaying for next year. And a lot of them say no, especially the big companies like ValPak or MoneyMailer. But a lot of the smaller ones say, absolutely, if you're going to prepay me, then absolutely, go ahead and do it. So, and obviously that lowers my tax liability for the year. What are your thoughts on doing that kind of stuff? Yeah, as long as you follow the rules, that's fine and you have the cash. Obviously, having the cash and saving the taxes helps you do those kind of things.

So if I did a plan for somebody and they saved $20,000 that they didn't have to pay the government, then they could take that $20,000 and prepay their advertising and get a discount. So they just turned that $20,000 into $24,000. So that's the importance of planning. Talk to me a little bit about cash versus accrual because I just did a loan to grow the business, and they wanted to see a lot of accrual but for my business at least from according to my cpa it was it was more convenient to be going cash tell me a little bit about your thoughts on that well right well typically for a small business cash is the way

to go you know the irs has rules once you hit a certain amount you have to go accrual all right banks typically especially with service businesses when it comes to financing they want to see accrual because accrual really does give you a more accurate picture of your business right because it's matching income with expenses versus when your cash like you said you could prepay those expenses so your p and l may be lower than it actually would be whereas they want to see what the business really looks like. What is your income? What are your real expenses? You finish that job, what are your receivables like? What's your aging? So we work with a lot

of clients when they go for different financing or bonding and stuff like that. They need those accrual-based accounting numbers. Okay that's so so you guys got to be thinking about that is understanding the difference between cash and accrual and it basically is just how the cash is logged and expensed on the balance well well what exactly it effected what have we got the income statement of the balance sheet correct so if you're a cruel basis and you're a smaller guy, okay, you could have done a big job and it's December 20th. You finish the job and you're not going to get the check until January 15th. But if you're a cruel basis, you have to pick up all that income in December. Right.

Whereas if you were cash basis, you would not pick up the income until you actually got paid. So a smaller guy typically is going to want to be for tax purposes, going to want to be a cash basis taxpayer. It doesn't mean that they can't have books that are also accrual based for the bank and funding and financing and bonding. Right. So as you start growing the company, sometimes you get thrown into switching to accrual, which then you got to do CPA audits. And sometimes it's not considered an audit, it's actually a review. Explain to me the difference of when a bank wants a review versus an audit and what that looks like. Well, the bank is often going to ask for an audit or a review, which they're costly items to have done. And a lot of times we're able to talk to the bank and explain to them that this is a very burdensome expense for the client to have. And the banks, a lot of times they will back down and they'll take maybe a compilation, which is a small level and definitely a lot less costly than a review or an audit.

Or they'll just take tax returns. But they're always going to ask for the higher level service. Right. So that's just a little bit of negotiating. So I always tell people in the home service niche is if you got a few good years under your belt and you feel good, get a line of credit, not because you need it today. A line of credit doesn't cost you any money to use that line. And so many businesses, when they have the line of credit, they're able to pick up stuff that they normally wouldn't. Let's say a business is going out of business and you hear about it.

They've been around since 1942. And you talk to old man Shevitz and he's willing to get rid of the business for pennies on the dollar. He's just had it. He's done. He's moving to Bermuda. And he comes to you and you say, well, I don't have any money. Well, if you would have got that line of credit and it's sitting there and it's ready, you could pick up bargains for pennies on the dollar. That's why I think it's so important to get that money ready because believe it or not, and I'm sure you've been through this a million times, Craig, it takes a while, especially if you're dealing with the government on the SBA process, right? Oh, yes, yes. And it's always better to get that line of credit before you actually need it. I mean, that's what I've

learned. When you got it ready, it's there. Then you need to buy two trucks. You got the money to buy them. So let's say I'm a small business and this all sounds good and dandy, but I still don't know the first thing about finding a CPA. From your experience, what are you looking for to make sure you get the right person doing your taxes? I mean, because a lot of people right now are saying my mother-in-law does my taxes. She does them great, but I don't really think that's the case a lot of the time. No, no, no. It's definitely not the case. What you want is you want somebody that's going to communicate with you and is going to allow you to communicate with them, answer your questions, and also going to come to you with – I like to tell people, when was the last time your accountant came to you with an idea to save some taxes? So you want somebody that's going to give you proactive advice, not just putting the right numbers in the right boxes, but they're going to be proactive.

Absolutely. So what's three questions that a business owner should be asking the CPA on a regular basis? How often do you communicate with me? Do you provide me with proactive services? And I guess the third would be, I guess, do you have a team around you to support you when you're not in? Okay. Right. Because as you grow and as you, you know, you want somebody that's, you could call up and get an answer to. So while a guy that's a sole practitioner could do really, really good work, you know, he does get to go on vacation.

He does get sick. You want to make sure that you have a real team around you versus the bigger you get, you definitely need that team. Yeah, that's absolutely right. Those are when you talk about a COO, a CFO. You talk about having even a CTO, which you know more than I do probably how important technology plays. I mean, I'm sure you guys aren't doing things on a big, long notebook ledger. You're doing them now in a sophisticated software, am I right? Exactly. Yes.

So I have a CFO, pretty amazing guy. He knows his stuff. What are five non-obvious things you look for if you're a CFO that you would look for to make sure the company's doing great financially? I mean, it's so important because a lot of small business owners don't look at this stuff. So what would those be? Well, you want to look at your cash flow, cash in a bank. You want to look at your receivables and the aging of the receivables. You want to look at your payables. You know, are your payables building up over time? The same way with your receivables. You want to see how old the receivables are. Are you getting paid? You know,

it's great to bill, but if you're not getting paid what you bill, what's the sense? Right. You want to look at, you know, are you depreciating everything the right way? Are you taking advantage? Are you being proactive in your planning? So those are the main things you want to look at. So if I was to look at a company and I just walked in there and I sat down and I'm a CFO or maybe a CPA. I know there's some things, quick ratios and certain ratios. If I was really looking at either, let's say, selling my business or let's say potentially buying a business. Obviously, I care about cash flow. I care about the biggest thing when I buy a business.

I look at how big is their clientele. Do they have two really big clients? So if one of them drops off and stops using us, am I losing half of my income if I buy that business? The more insurance, the more clients you have. If you got it spread out among a thousand a month, it's a lot better than being spread out between five, because if you lose one of those five, you lose 20% of your income. So what are some of those things that I'm looking for if I walk in and I'm thinking about buying a business? Well, you want to look at how diverse is the business, how diverse is their clientele.

Is it just that one big one and a couple of smaller ones, or is that risk spread out because there's multiple clients of about the same size? You want to kind of – when you're selling something, it's a process that you should go through and plan for that. So your books are really clean. You're taking advantage of everything. And then you could also go back. And we had a client where they sold the business and we were able to go back. But then we had certain ad backs that we said, this guy's taking his salary. He doesn't need to take a salary so high.

So we actually raised that number. So when you use the multiple, the business was valued at a much higher rate. So you need to look at the financials. And really, it's not just all the numbers. It's the diversification. It's how people are paying. What's the cost to acquire a client?

What's the average life of a client. All those things should go into it. Yeah, and typically, you know, those people on here, a lot of the people might have 10 years of succession planning. You know, I went to a Clopay convention. It's a garage door company, and they had succession planning, and the room was packed. I'm talking packed to the brim. There was people standing in the back. It was the most well-attended class they had,

and people really were struggling to figure out what EBITDA is, but EBITDA is just a fancy way of saying profitability for the business, and there's some ad backs you could do, I mean tuition and things, that if you're supporting with your people, there's obviously your ad backs. But then we look at it, and they go, well, all my business is worth is two or three times my profit. And because it's a small company, yeah, it's not worth more than three times. I mean, you might be able to get four depending on the business. And I don't want to say this is a universal rule, but typically in the home service niche, you're going to find that you're only able to get three, four times as you grow.

And let's say you're doing over 10 million a year. The reason why other companies and especially big, the funds, they start looking at you as they start saying, hey, I've got all these shares. I could just raise capital from my shareholders. I could buy this up and it's a machine. When you hit $100 million, it's not uncommon to get 12 to 14 times EBITDA because if you go away, you're not going to destroy the company. It's $100 million. There's obviously checks and balances in place to be able to do that kind of money. And the funds would love to eat up something like that because they could go raise $100 million in their sleep. And then they've got another vehicle that's making money. They're always looking to spend money in a good opportunity.

So talk to me a little bit about succession planning and what the people on here that may be looking to retire in the next five to ten years have to start thinking about. Well, you don't want that business just to be based on you. You want to have an executive team in place because that means if I come in and I buy it, I shouldn't have to skip a beat to maintain everything that you've been doing. Whereas if you're the guy doing everything and everything is in your head, which is very, very common in a lot of small businesses, if you're not there, everything collapses. So the value is in having a team.

And as you grow, you make sure you have that internal team together. So the value of the company. Obviously, you also want to make sure your clients are good payers. All right. That always helps if you're getting paid net 15, net 30, net 60, net 90. The longer your payables are, the less valuable they are because the more that they're going to be written off. So those are things you want to look forward to. And that is a long process. It doesn't happen overnight.

Yeah, it doesn't. And people, you got to start thinking about, typically when you look at a business, you're looking at the last few years minimum. And you want to have a record. So if you're going to be returning in the next five years, start thinking about making sure. Zig Ziglar, there's all kinds of great people. They say, if I was to sell my company today, what would I have to do to get ready?

Who would I fire? Who would I hire? Who would I have in place? And how would I not be so reliant on myself? And those are great things that you need to start asking yourself today is, why are you waiting until the companies, you're ready to sell it to do these things start doing them today because we're going to look at the last three years and when you wonder why we ask these certain questions i'm going to want to look at your call records i'm going to want to look at your bank

account i'm going to want to look at your financial statements i'm going to want to know how many customers come back and how often and all these things are important a lot of people the best advice is i would say is before you give this up to anybody make them sign a very comprehensive non-disclosure agreement because they're going to have access to a lot of stuff but any cpa or attorney would tell you that right and you you want to have systems you want to have systems in place so all those things happen and so you know you're you know like i said it doesn't happen overnight. It takes a while. You should be doing this way before you're thinking of selling a business because you never know.

Yeah, that's a great point. You never know when you're going to want to get rid of it. I've seen people sell their business for pennies on the dollar because something happens family related and they got to get out. And they just didn't realize it wasn't worth anything. And talking to a guy like you sitting down and saying, how much is my business worth today? Of course, you're not going to be able to tell them exactly. It depends on supply and demand. It's a basic economics, but, you know, at least you'll know what you need to do to get it there. And it's a double-edged sword because when I'm talking to anybody who does tax planning,

they say, of course, we want to write off as much as we want. But sometimes we write off too much and we can't get a loan. So you can't write off everything and expect to get a great loan and you cannot write off anything and expect to save money, right? That's right. That's right. And for people that think they're going to pay no tax, well, that doesn't work. Yeah, that's not good. And I don't recommend anybody going under the table because, you know, I know a lot of small business owners, they do cash. They keep it under the table. They keep two sets of books.

But, you know, there's not a lot of people that are going to pay for that second set of books. And you're going to go, you know, I've heard a lot of guys, you know, I've been in the market to buy businesses. And they go, you know how we do it. We've got two sets of books and i go well no that's not really something i want to buy because it just seems like what else have you done you know exactly exactly tell me what your thoughts are on that because i hear that all the time well you know this might be offensive to some people but i had a a client in the service industry use this term to me once before. He says, I started out, I was a schmuck with a truck.

He says, now I have a business. So I have to do everything the right way. So, you know, we all grow, we all start out, okay? You might be able to cut some corners when you're just starting out because it's just you and maybe your truck. But as you grow, more people are relying on you. Your family is relying on you. You need to do things correctly. Yeah, there's a couple things that really come to mind when I first really started being successful.

Number one, I would say that you start growing a red target on your back. Everybody wants to chase you if you're successful and your competitors want to bury you and you get the old people you had to fire the disgruntled employees that want to find a reason that they knew you took a cash job trust me there's a lot of whistleblowers out there that the irs do they give a uh some type of uh whistleblower fee if you you you yes i believe the number's 10%. So that means if you're doing stuff wrong and you piss off an employee, and whether that's collecting tax when you shouldn't have,

keeping cash, whatever it might be, a lot of people know they're incentivized to go to the IRS and get you audited, which is going to cost you a ton of money in itself. So I just really say stay away from that. And then the two things that I found that really affect business the most from a CPA standpoint is they're going to tell you is it's taxes, it's those local taxes, it's the state tax, the local tax, the city tax, and then it's the inventory. Because most people say, yeah, I know how much inventory I have. It's in this thing. Well, they don don't know they're getting robbed i i've seen the biggest companies in the world

who are getting robbed from blind they don't have any process behind it they're getting stole from every day and they think they got blinders on and those are the two big things local taxes stay up with your freaking taxes guys and secondly is get control over your inventory is that something that you find too, Craig, that you find a big problem with? Yeah, inventory is always a problem with smaller businesses. They're not really tracking it. And when I realized, well, they think, well, I spent $50,000 on that inventory over there. And we're like, yes, but you can't deduct it because you haven't sold it. That's another one. And then payroll taxes, people getting behind in

the payroll taxes, it's a big problem. So you need to stay abreast of that and need to make sure you take care of that. And you need to communicate with your CPA so that it's not a problem. Yeah, that's huge. Communication is by far the most important. One of the things I just thought about, and I've done this test a million times, and it's, I do things the right way. And unfortunately, sometimes, you you know the nice guy finishes last but you know there's what's called a 1099 contractor and then there's what's called a w-2 employee now in the home service niche we find ourselves always saying well we would rather 1099 them and I'm going to tell you I've got a lot of things going and I always do the W-2 employee

and people go well it's not long term I don't want to have to pay unemployment on these guys well I think there's a rule I think they got to work for you three to six months before they could even qualify for that but tell me a little bit about the 1099 because a lot of companies my question for you is how the hell did the big guys get away with 1099? They've got scheduled jobs. I just don't get it. I don't know how they get away with it. It's only because they haven't been caught yet.

That's the only way they get away with it. Yeah, but when they get caught, it might be one year. It might be in 30 years. The penalties are going to be huge. And when they have their workers' comp audits, they're always – those 1099s, they're paying workers' comp insurance on all those people they pay 1099s to. So they're saving a little bit of self-employment tax, but the risk is if somebody gets hurt, you know, Department of Labor is going to come down and you're going to have a problem. It's very hard to qualify as a true independent contractor. Yeah, I mean, I could go through some of those with you guys.

I mean, number one, do you schedule their time? If you schedule their time, you're kind of in a situation where you're telling them where they need to be. Another big one is, do they make 100% or the majority of their income through you? Because if they do, they're not a 1099. They're an employee. Another one is, you can't even have a meeting with these guys. They're not even supposed to wear your shirts. They can wear a vest when they're on your job site.

You could have them do that. They shouldn't be driving your trucks. You're not paying for their gas. They don't have anything that you own. If they're using your tools, your tablet, your ladder, your anything, they're not a 1099. If they're wearing colored shirts, they're not a 1099. If you have them call the customer before they get there, they're not a 1099. If they're wearing colored shirts, they're not a 1099. If you have them call the customer before they get there, they're not a 1099. So I like what you said. There's not a matter of if, it's a matter of when. And what do you see? Explain to me a company that you may work for that does qualify for 1099. Because I don't know a lot of them in the home

service niche, but give me an example. 1099 would really be just a subcontractor. You bring a subcontractor in for maybe one job, and he takes over the job. Otherwise, there's 28 or 32 different tests to qualify as an employee, and you have to make all of them. So most people in the home service

industry, unless that's a legitimate subcontractor that you're subbing out and he's handling the job, you're not going to qualify for that. So I'll give you an example of my 1099. I have a painter who randomly, when I get a customer that wants to paint a door, he doesn't have a schedule. He literally arranges it with the homeowner and goes out there and paints, number one. Number two, if I need something framed out and it's way beyond what we're able to do in-house and it's a carport conversion, it's a one-off thing. Yeah, that guy's not an employee. He's just going out there to do that one job. So typically when you see these huge businesses and they've literally figured out a way to do the 1099, it's just it's it's crazy to me because they're really the liability. Everything about it, just if you get a buy with it.

But I've seen especially in like California and stuff, Washington, New York, Chicago. I mean, these areas, they you get caught and you owe 500 grand. And of course, it's a lot of money. Oh, it's so much money. I mean, it adds up. You don't even realize how much it adds up. I mean, the people out there say, you know, maybe 50 bucks a check or something that you're saving. Well, if you got 10 employees, that's 500 bucks a week. You do it for several years. You're looking at a couple hundred grand and i mean it adds up really quickly you know craig i got a lot of great stuff today out of this there's one thing you know is there any book that you would recommend i mean you've probably read hundreds of books is there something and it doesn't need to be even be tax related but

is there a particular book that you really think jumps out at you? It might have been something current or something that you read years ago. Well, two books other than my own. I have Secrets of a Tax-Free Life, and I also have The Ten Most Expensive Tax Mistakes That Cost Business Owners Thousands. And I will give you a link where your listeners can go and actually request a free copy. But I have two books that I would recommend one is traction and the other is extreme ownership US Navy SEALs lead and win it's by Jocko Welnick and the leaf babin I listen to him on audio and it's great especially if in the car and truck but those are two really good books so what I'm gonna

do is I'm gonna go on go tohomeserviceexpert.com forward slash tax. And I'm going to have links. We're going to talk about secrets of a tax-free life. And then the most recent one is the 10 biggest tax mistakes that cost business owners thousands. And you're going to get a lot out of these books. And Craig's got 10 people, I believe, working for him. He's got three other CPAs. He's got a great firm.

You can tell he's a straight-up guy. He cares about the people he works with. And you go in, he provides a plan. If you don't like it, you get money back. He said that's never happened before, but at least you got that reassurance. And then he'll give you a detailed plan. I always like to close, Craig, of just saying that there's anything else we might have left out, anything that maybe I didn't ask you. Is there anything else you want to leave as a closing tip to maybe that we didn't touch on or maybe that you wanted to dive into a little more?

I just think it's really important that you communicate with your advisors. You need to communicate with them. It's kind of like the doctor doesn't call you up and say, are you sick today? You need to tell him when you're sick. You need to communicate with your CPA or your accountant, and he should be able to communicate with you. But if they don't know things, they can't help you. So it's really important to deal with somebody that's proactive and it'll help you keep more of what you make absolutely why not take way more home and be proactive rather than reactive listen craig i really appreciated this one of the things that i always do because i really get into

the people i interview is i buy the books and i listen to them and i take so much out of this stuff so here's what i'll do i'll read these books and then I'll give you a call and if we could maybe have a second time we get together and actually talk about not everything in the books but maybe a couple of gold nuggets to share with them. That would be amazing. You think we could do that? Oh, we could definitely do that.

We could definitely do that. All right. Listen, everybody, this is Craig Cody and you can find him on the website homeserviceexpert.com forward slash tax. I'll have everything on there for you guys. And Craig, thank you so much for taking the time today. We really appreciate it. And people need to know how important taxes are. At the end of the day, it's there's two things you can't get away from in life, death and taxes. So be planning on those. Exactly. And that link we're going to give you is going to be www.craigcodeyandcompany.com forward slash home service. And we'll give you that link for your notes. That'll be great. Perfect. Well, I'll get back to you, Craig. Thank you again. I appreciate everything. We'll be in touch. All right. Thank you very much for

having me. Take care. All right. Bye bye. This was the Home Service Expert podcast. Now listen up. Do you want to dominate your market, triple the profit you make without working those long 12-hour days, seven days a week? If the answer is yes, my team and I are opening up some new time slots to help you solve your biggest business challenge. Just go to homeserviceexpert.com forward slash discovery and book a free 30-minute call with our team today. I will repeat that, homeserviceexpert.com forward slash discovery and book your free call today.