The Top 10 Tax Mistakes to Avoid in Your Medical Practice


With Tax Day around the corner, CustomerBloom CEO talks with tax expert Craig Cody about the 10 biggest tax mistakes business are making today. He’ll make sense of all the tax information you want to know about, and explain what Trump’s tax plan could mean for business owners.

Click here to speak with Matt Coffy directly, and get a specialized medical marketing plan just for your practice.

Subscribe to iTunes


Show Notes:

Craig Cody – Certified Tax Coach


Matt: Alright, so today, we have a special guest. This is one of those episodes where I’ve invested some time and to research in some guest and I wanted to talk about taxes and especially because we are at the time of the year when the old taxman is knockin’ on the door, it’s getting close. I’d like Craig Cody, he’s a certified tax coach, he’s a certified public accountant, he’s a business owner, he’s a former New York City police officer, he’s got 17 years in the force. In addition to that, he’s an accountant for last 15 years. He’s a certified tax coach and again, I think this is one of those things where we’ve also got an author so Craig authored a best-selling book “The Secret of the Tax Real Life” and now we’re talking about the 10 biggest mistakes that cost business owners. Cash right? We need to figure this out so if you’ll listen to this podcast and you think like this is stuff that you want to know about, it’s me too I want to know as well. Craig, say hi.

Craig: Hi, how are you doing I’m glad to be here today. Thank you very much for having me.

Matt: Yes, and I appreciate you jumping on. I know that this was one of those podcasts where we wanted or at least I wanted to figure out a lot of the questions that you’ve brought up in your sort of outlay which are related to tax planning and listening to your CPA and listening to your tax coach to make better decisions. We all need to make a better decision because of a lot of changes going on so. Let’s just start off with what the heck is going on now with Trump? I know this is the big ball wax so I figured I’d ask it first because I know it’s under the mine. What is going on, where are the big changes that we should know about and what do you think, what’s your opinion, better, worst.

Craig: Well, I think that it creates a lot of opportunities for tax planning section 199 which is that everybody’s heard of that pass through 20% deductions that pass through companies were going to be receiving. Basically, what that means is that practice owner that gets a K1 at the end of the year for $3000,000. He would normally get to take a $60,000 deduction off of that. So that’s section 199, but for some reason what Congress decided to do if you are a professional, medical professional, this income stays out of that 20% deduction so that creates a huge planning opportunities for doctors, dentists, and professionals out there to make sure that their taxable income comes in $315,000 married join filer. So it’s really a good thing but you need to communicate with your CPA and work on ways where you can make sure you’re coming under that limit.

Matt: So the limit is really the big thing that’s the determining factor these days.

Craig: Well, for your typical pass-through entity which is most business owners out there or either single member OIC’s, S corporations, typically that’s what you see and for those businesses, they’re looking at that section 199. What they should be looking at the section 199 income limitations and doing some planning as far as where are they going to fall. And if they are well under that number, then they have to look at other planning so they can more of what they make and probably, like most business owner’s working really hard really hard.

Matt: So, that section 199 which seems to be the big discussion these days, is that the main thrust of this entire new Trump’s tax bill or is there other things that should be involved that we have to know about?

Craig: That would be the main thing that most people need to know about, like I mean they’ve expanded the brackets, they’ve lower the tax rates, alright, but the thing that’s gonna affect people the most if you’re in business for yourself is, are you going to get this section 199 deduction? So, if you’re a corporation a C corporation, they’ve lowered the tax rate to 21%, but most small businesses, most medical practices are not C corporations. So they have to look at how are they gonna take advantage of section 199 and I rewrote my book for section 199. I put a whole chapter on section 199 inside of my book.

Matt: Awesome! So are you thinking most practitioners, and again, I don’t know because know they could do a tally up. Are they LLC’s you think or the S corps, what do you think the general traditional practices they’re gonna be?

Craig: They’ve run a gamut I can’t say that they are all S corporations, I can’t say that they’re all LLC’s, but you know we find some that are LLC’s, we find some that are S Corporations. We really, usually comes down to one that they started the business they will sit down with an attorney and the attorney said okay form an LLC and they formed it. No tax planning one into it. Instead of having the CPA and the attorney have a little discussion then I say okay what works best, liability wise and what works best, tax-wise. Correct!

Matt: So I guess, every practice’s different on how they want to set up their structure. Do you have a preferred way of setting up businesses because of his new thing?

Craig: No, because everybody’s situation is a little bit different so you have to kinda look at that particular doctor’s business. What else does he have going on and what’s going to work best for him so I mean, you can be in the same business and LLC may work for me and as a corporation may work for you.

Matt: Okay, can you talk a little bit more about the limits since we were on that, (Sure!) just a recap the number and what are the ways that people are considering going around this? I know there’s also a lot of talks about thrust and stuff like that today which I’d like to get into this as well, but why don’t you just go and just recap the limit and then what are the ways to get around the limit? Or if there is way, again, I’m not trying to evade taxes I’m just trying to pay less.

Craig: I think it was one of the supreme court justices many years ago says there’s nothing illegal about planning to pay the proper amount of taxes, okay, so what you want to do is all about the limits for married join file this 20% deduction starts to pay out when your taxable income hits about $315,000 and when it goes to 315 to 407 its paid out. For a single filer, it’s half of that so that’s about a hundred and sixty-five thousand to about 207. So if you’re going to be court in that, you need to do some planning and what types of planning can you do? You should sit down with your CPA or accountant and say, you know what can we do? Give me some ideas. Some ideas are you able to segregate your income because if you’re not a professional, or if you have another business that you’re running, that maybe would not fit in the professional or medical, then that business no matter what your income is, is subject, is allowed to take that 20% deduction. Or there are other tax planning strategies you can use where you could keep your income below the $315,000 does it work with charitable planning, does it work with maybe setting up a management company in the C corporation, you need to just have that conversation and run the numbers and see what’s going to work best for your business.

Matt: Okay!

Craig: And the key is communication.

Matt: understand it, so a lot of people are mentioning thrust is that something that’s come up with you to get up to this process?

Craig: No, that hasn’t come up, I haven’t seen that come up anywhere and I’m part of a mastermind group, you know, that we meet 3 times a year, we’ve already met specifically on this. I’ve never heard of using a thrust for that, C Corporations are a way to go because C corporations are taxed at 21% and then when you take that money out, you are going to dividend that amounts about 20% again, but again, if you’ll leave the money in there, it’s almost kinda like the power of compounding. it’s one option. It all depends on where your numbers are and what you need to do to get under those numbers.

Matt: Right! And then, again, I didn’t mean to bring up the trust as a diversion,I just had heard a lot of people who would mention that, but I’m curious now when you start to talk about C corp capability, are you talking about setting up a second business to handle let’s say an overflow to manage that as a secondary business away from the original, like inbound cash flow?

Craig: Correct, correct! But that’s set up as a management company that’s managing your business maybe it’s managing some of your real estates, depending on how you set up and how you document everything you’re doing as long as you make it legitimate, you can do that. So now, you’re maybe moving some money to your C corporation where it might be paying, you know the 21% rate, but your personal income is gonna fall below 315 and you’re gonna whined up with that deduction that you would otherwise lose.

Matt: Right! So that’s a good thing you brought up about real estate because a lot of people are holding real estate there’s a lot of questions now I think on the. Is it the AMP that’s going away or what’s the thing that’s going away that a lot of people for screening bloody murder out right. I know there’s something because I know we have a bunch of properties, my family, you know, my wife and I invested in. We’re kind of thinking like I don’t know should we sell or should we stay you know there’s a lot of deduction problems now I guess, again, I’m kind of just taking the side of thin air in discussions and glad it will help out.

Craig: Yeah! So basically, with real estate, there are no real major changes that are going to hurt people. You still need to do your planning, you still need to look and see whether cost segregation make sense if you’re making money on your real estate. Are you, if you’re losing money, typically, you’re not going to get the benefit of those laws coz it’s called pass of laws and you have a passable income to offset that pass of laws unless you’ve had other let’s just say another real estate that’s generating pass of income. Those laws sit there forever, but if it’s generating income, there are a number of different things that you could do such a cost * study and maybe get a one-time big appreciation deduction as a catch-up, but there’s really nothing negative going on with real estate that I could point to.

Matt: Okay!

Craig: There people that could confuse with the interest deduction, the mortgage interest deduction, that might be what you’re hearing.

Matt: I think that’s what I might be, the interest deduction, but it’s not based on your own property?

Craig: That’s just your personal residence, correct. So if you have a business or rental property, that interest is still deductible, fully deductible, unless you get into some crazy numbers which you know for most the people are not going to get into that.

Matt: Got it! So what are the other * that we should know about, talk about the 199, we’ve talked about that limit of 315, or maybe setting up a C corp. Is there anything else that we should know about from a layman’s standpoint?

Craig: Yeah! Retuning plans, are you set up with the right retirement plan? Are you taking advantage of you know, your 41K, are you looking to couple it with some kind of the defined benefit plan. Are you working with the right people on a defined benefit plan, people that actually really know the way these plans work and how that can actually structure them so they’re really beneficial to the owner because you know as an owner, you’re paying payroll taxes, you’re paying work as compensation. You’re paying all these things, alright you’re matching something for a 41k. Now when it comes to a defined benefit plan what you wanna do is you want to really do something now that’s really good for you. Something that allows you to put his much money away as possible and not have to put money away for every single employee. And the problem is most people out there when they go and they look at a defined benefit plan, then not working with what I was called professionals that are really well versed and they’re coming up with plans that they need to cover where they think they need to cover all these employees when on actuality, they don’t need to cover all the employees. So, they need to work with somebody that knows what they’re doing and we work with a number of people. We don’t sell plans, we don’t do plans but we work with a number of people that are very good at analyzing plans and putting plans together so that the business owner really get a big bang for his dollar.

Matt: What do you think of the most, we can say like the top 3 proactive tax planning strategies? What would those be, do you think for a medical professional?

Craig: There are so many, but I mean, you know right now, planning itself is a big thing, the right entity. It is a big thing. You’d be surprised you know how somebody may have the wrong entity and the amount of money that it could be costing them. Getting the right retirement plan getting defined benefit plan. Then you have things that add up, they’re not huge things but they are adding up like you know, can I hire my kids? Is it worthwhile? How many deductions do I get for that? How do I document? If I have real estate, do I have medical expense reimbursement plan set up on my real estate? Because what if my kids needs braces, how do I write that off? Because those are things that people get a writ off from but I don’t get a benefit on my tax return because the threshold is so high because of my income I get no benefit. But if you have a medical expense reimbursement plan and you set it up the right way now you get to write your kids braces off, maybe you’re going for some type of cosmetic dentistry which turns into a lot of money. So, just communicating with your CPA and letting them know what’s going on and having him help you keep more of what you make and if he won’t communicate with you find somebody else that will communicate with you.

Matt: Those were two things, did you wanna say one more thing because I was wondering if there’s maybe another top?

Craig: I mean these are little things that add up, how about a home office? Do you have a home office? Most people I know spend at least about 15 hours a week working out of their home office whether they’re doing their billing, doing payroll, answering emails, reviewing records. Okay, the government says if you spend at least 15 hours a week in your home office is considered a bonafide home office and then you could start writing off percentage of your real estate taxes which are currently capped so that you’ll get more of deduction there, your mortgage interest, your utilities, your repairs, and maintenance. It also makes now your commute from your one office to your other office deductible. And it may not turn into a lot of money, but it adds up. Up until December 31st of 2017, you are actually allowed to write off what we call a home athletic facility so if you have a gym or pool and was and you had a home office, you could actually write the cost of that off. That went away on the tax reform.

Matt: Okay. And then, why do you think, if all the things, what do you think of all is a top mistake or the biggest mistake? I mean we are talking about proactive stuff, but now we’re talking about what mistake you constantly see or do you see is one of the thriving areas of your practice when people come to you?

Craig: You know they do run the gamut they really do it could be the businesses that they have chosen the wrong business entity. They’ve done no planning at all and a little bit of planning could help. Have they hidden their spouse have they set up a 41k with their spouse? That’s an extra $18,000 a year they could take, put away and deduct. And I’m sure their spouses are doing well in their business so it’s legitimate. Just really not taking the time to plan, people they look at accounting fees as an expense item. They should really be looking at them as an income item because if you spend the time and you’re working with the right person, he’s gonna uncover things for you and it’s actually gonna save you more money.

Matt: That’s a good point about the kid’s stuff, so you know, a while back there’s a lot of movement towards these college-bound programs and I forget the exact numbers, but there’s a plan specific for them. Is it still worth it to do these college-based things or is there a better return in the market in general? I’ve heard different opinions and just with kids that are now becoming close to going in the high school, I’m thinking of boy if I’ve done that. Originally being ideal but I’ve been told that if you haven’t done any tax savings in those college bounds types of program, but it’s better to put it in the market or put in a better vehicle that can get you better returns at this point.

Craig: Every state has a different plan so it really depends on the state but typically they’re getting a deduction only on the state law and when you’re talking about need-based aid, having a 529 plan is gonna hurt you with the need-based aid, but if you’re a typical medical profession, your children are not getting any need-based aid coz you make too much money.

Matt: The 529 has a cap or something like that involved in it?

Craig: No there’s no cap as far as your income, but there’s a cap in the amount of money you’re allowed to put in every year and it’s not deductible in the federal levels, just on the state level. But one nice thing about the new tax regulations is 529 plans can now be used for high school.

Matt: Really? Wow!

Craig: Elementary education so they made a change with that so that’s where people are getting a little bit of a bang for few and high tax bay like it’s New York or New York City, or New Jersey or California so that could be somewhere around 13% so it still adds up it’s something and we have clients now that they’re basically, they’re using that money to fund the high school, the private high school. if clients that they’re using they’re paying their kids to work and then they’re using that money to fund the * in their early age. So there’s a lot of different things you could do you just need to really take the time to plan and there is no policy there’s no one thing it’s usually a bunch of different things. Some of them could be big dollars and some of them could be not so big.

Matt: So, you know I keep asking the same question to, I’ve got a CPA I’ve got a business consultant, you know everybody has their listeners. What’s the difference between a certified tax coach and an accountant? Let’s just say because it sounds like there are some different variances in there to some degree of how they’re kind of one’s on one corner and on the other corner, did that make sense?

Craig: Yes, well a certified tax coach is to tax coach somebody that’s been through a number of days of training and then goes through additional training on a regular basis year after year. So I do about 15 days a year of training. Some of it’s through my organization tax coach and some are through a mastermind that runs some people that do what I do. Okay, so we’re up on all the latest ideas that are out there that we come up to save about client’s money. So it’s somebody that’s looking to be proactive and looking for ways for their clients to really, to keep more of what they make. People work hard if you could keep an extra 20,30, 40, 50,000 dollars that’s a wonderful thing. We save the client one year $450,000 in tax and there were no rockets, I mean, he’s making a lot of money, but it was, there was nothing there that could rock a signs that we took the time to go through in and find some ways for him to plan and he saves a lot of money but the average doctor is saving somewhere between 20 and $50,000 a year. And that’s a lot of shoes.

'People work hard if you could keep an extra 20,30, 40, 50,000 dollars that’s a wonderful thing.'Click To Tweet

Matt: Yeah I think the other part of this is, I think just a setup. You know we work with a lot of people coming into this business. They’re moving from a traditional employment with a hospital or employment, somebody else they’re coming in as an entrepreneur they’re getting started and of course, there are so many variations on how to think through the process of how do you want to set this up. You know I’ve been an LLC, I’ve been an S corp and now, I guess I think I want to end up a C Corp and I’m wondering if there is when you talk about someone coming in to the business if you’ve got recommended plans let’s say they’re starting off today. Its gonna start the business they’re gonna be running let’s say a medical spa and I could setup equipment. Do you typically go into the routine, I mean for an S corp, I know the thing that I like was that I could pay myself a salary, I could still take withdrawals from business, but there was definitely an advantage because of the tax rules on having obviously, once I have secured a salary, you know the employment status changed with the S corp on how the deductions are wrangled . I’m sorry I’m mangling this to death but I can kinda

Craig: I understand, Yes, so we ideally we wanna be involved from the beginning but that’s typically not the case

Matt: Right!

Craig: Because most people are already operating a business before they realize that they need somebody to help him out. There are awesome younger people we just started with dentists, real dentists that just started a business. He bought a business out west and you know he had the where at all and he had been working for someone for a number of years so, he had heard us and he called us so we helped him choose his entity type. But a lot of times you could actually correct those things retroactively and save some money.

Matt: So if I’m in the middle of this year and I say you know what I’ve got an LLC and not done this correctly, I need to be Scorp or C corp or whatever I need to change things around, it can go retroactively during the year and change over for that year I would think?

Craig: If you do it correctly and you followed the right regulations, yes. We’ve probably done 50 to 75 of those.

Matt: Got it! I think that’s a big thing for people to listen to on this I know we have a lot of people so who are gonna perk up on that one which is that you can change the stuff of its dream if you’ll do it the right way. I’m sure that there’s some time, are there any guidelines or timelines and so much to know in order for someone to make those changes or someone to engage with someone as yourself to start to have that discussion to open up the sort of “Hey this is what we got can you make a retroactive changes for this year? Especially coz I’m thinking a lot of people make these lot of different decisions based off of how they’ve got their income flowing based on section 199.

Craig: Correct, so section 199 stats in 2018, but those retroactive elections, we’re typically making them as long as the client meets the criteria, we would make them retroactive today to January 1st of 2017. So, if a client came to us and we had a set of facts and circumstances and we felt that they met the requirements, we could actually make that retroactive to January 1st of 2017.

Matt: Awesome! So that’s good news for anybody who’s concern about the fact that they may haven’t thought about this and they were concerned about the timing perspective. I bet you a lot of this, maybe not necessarily the people don’t know about us that I think it could push you to this side.

Craig: Most it’s not rocket signs, most practitioners are well aware of it, but they’re also so deep into it this time of year and then not talking with their clients throughout the year so when they see their clients this time of the year it’s just a matter of getting the right numbers and the right boxes and ending there coz it’s taking the time to plan and we like people to communicate and take the time to plan and that where they save the big money.

Matt: So I want to start to wrap this up, but do you have a sort of a punch down list of those 10 mode expensive tax mistakes? Or is your book title basically says it all which the real top 10. Could you bang those out in order of magnitude?

Craig: Well, yup I mean failing to plan, what a paranoia?, section 199, the wrong business entity, the wrong retirement plan, missing in hiring your kids, missing a medical expense reimbursement plan, missing a home office deduction, missing your car and traffic expenses, so I think that and I guess the last one would be missing my help or that of a good practitioner.

Matt: Got it! Perfect! Now we’ve got, because of the relationship obviously we’ve been having this discussion and I think it’s kinda cool. We do have a special for those people, so you talk about the book itself and then I’ll give people the link that they can go to get to the book.

Craig: Sure, we actually rewrote the book for the new tax changes and it is called the 10 Biggest Tax Mistakes that Cost Business Owners Thousands and we go through the top 10 mistakes in that book and those are the things that you can discuss with your CPA or you could reach out to us, but these are things that people are missing and it’s really all about keeping more of what you make and there are some things in there that we didn’t put in there that can be done that can turn into even bigger dollars for clients but we kinda kept it to something that does pertain to pretty much all business owners.

Matt: Got it! So, you’re giving this book to anyone who goes to the page which is and this will be in the podcast so if you don’t have a pen or you’re driving or running on a trip right now which I typically do, you can go back to this episode and you can actually go to the notes and we will have this link in there for your book from Craig’s Company and Craig, anything else that I didn’t ask or should have asked you? This is super informative and I know there’s a lot behind this and I’m sure we could talk technical details, but I think more important that they should get in touch with you to start a real discussion for tax planning and paying less, right? We all know the government has their hand out for sure in the world we’re in today.

Craig: Exactly! Keep on your work hard and keep more of what you make and the government allows you to do it and there are so many things you can do and why not keep it?

Matt: Yes, and is anybody ever said that you sound a lot like Ray Barone?

Craig: I actually have heard that before, but they tell me I look like Brad Pitt.

Matt: You got a nice visual for you folks. Again, everybody thanks for tuning in to this episode we’ve had a great discussion with Craig Cody again, if you’re looking to get the book, there is a link here, again it’s and you can pick up the book, or you can certainly go to the site, as well and get in contact with him. Is there any other places where you think there might be good content to coordinate with you at all Craig.

Craig: Sure! Before I give you that, that book is a real paper copy of the book and if they go to our website, they can look at all our blog, there’s a lot of good content in there and we post a lot of different things where you could learn and see what you can be doing to save more money.

Matt: But love saving money, I love the tax discussion it’s super needed. I think everybody’s mind right now and also on mine so I’ll definitely talk to you. Good! It’s great having you with this discussion and we look forward to maybe catching up to you in a little bit further down the road as we get in to maybe 2019 and the change that will probably end up happening after we get through 2018 as we get through to this first year of the Trump’s world and enter our next framework of really the first time at least I’ve seen some positive movement I think in the tax reform.

Craig: Yes! Business owners have a lot on the line there so it’s about time that they get rewarded and they should make sure they’re working to take advantage of those rewards

Matt: Thanks, Craig!

Craig: Well, thank you very much for having me. I appreciate it.