Jason and Craig talk about tax strategies as you prepare for retirement.

Craig Cody is a Certified Tax Coach, Certified Public Accountant, Business Owner and Former New York Police Officer with 17 years experience in the Force.  As a Certified Tax Coach, Craig belongs to a select group of tax practitioners throughout the country who undergo extensive training and continue education on various tax planning techniques and strategies to become, as well as remain, certified.  With this organization, Craig has co-authored an Amazon best seller book, Secrets of a Tax-Free Life.

To learn more visit: craigcodyandcompany.com/SRP

Below is the full transcript:


Announcer: Welcome back, America, to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.

Jason: America, welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. We’re always looking to bring experts onto this program who we believe can add significant meaningful value to your financial life as you’re preparing for and transitioning through retirement. I’ve got a great guest I’m going to bring on in just a minute. But before we do, I always like to get the morning started right two ways. The first is by renewing our mind. So, I’ve got a verse here for us. This comes to us from Hebrews 9:28.

 “So, Christ was sacrificed once to take away the sins of many and He will appear a second time, not to bear sin, but to bring salvation to those who are waiting for Him.” Then of course, I want to give you a joke, something you can share with the grandkids. What did the Dalmatian say after lunch? That hit the spot. Okay. Today’s topic, we are going to be talking about taxes. Everybody’s favorite subject. A lot of the people we serve, they say, “Jason, we don’t mind paying taxes. We live in the greatest country in the world. But we don’t want to pay more than our fair share of taxes.”

 So, today, I have a guest with us to talk about tax planning. This is episode 164. Craig Cody is a certified tax coach, a certified public accountant, business owner, and former New York City police officer with 17 years of experience on the force. In addition to being a certified public accountant for the past 15 years, he is also a certified tax coach. As a certified tax coach, Craig belongs to a select group of tax practitioners throughout the country who undergo extensive training and continued education on various tax planning techniques and strategies to become, as well as remain, certified. With this organization, Craig has co-authored an Amazon bestselling book called Secrets of a Tax Free Life. Craig Cody, welcome to Sound Retirement Radio.

Craig: Thank you very much for having me. I’m psyched to be here.

Jason: Aw, man. I’m excited to have you here. This is a fun topic, especially with all these tax law changes that just went into effect for 2018. So, Craig, you may not know this, but Sound Retirement Planning, Sound Retirement Radio, we really focus on people who are just getting ready for retirement and people who are making that transition into and through retirement. What are some of the biggest things people need to be thinking about with respect to this new tax law change that just took effect?

Craig: They need to make sure that they’re communicating with their CPAs to figure out where they’re going to wind up for 2018. If they haven’t retired yet, what they need to do to make sure they can maximize everything, such as can they go into a defined benefit plan, can they put more money away in different areas, are they subject to limitations on the big tax deduction for business owners as part of this new overhaul, the Section 199? There are certain limits for different types of categories of business owners. So, you want to really have that conversation to make sure you can maximize this because the more you make, the more you keep, the more you can put away for retirement.

Jason: The more you make, the more you keep, huh? I think that’s what everybody wants. It’s not about how much you make. It’s about how much you get to keep at the end of the day. One of the things we’ve been doing because a lot of clients have been finishing up their 2017 tax returns, and for the most, as we take those 2017 numbers and project them forward just to see what kind of impact it’s going to have, I would say most people are looking at tax reductions next year, but not everybody.

 Some of the people that we find are getting hit are people that had high itemized deductions that are losing the personal exemption and they’re also losing out on that ability to itemize some of those miscellaneous expenses, such as investment advisory fees. Have you run into this at all? Do you find that people are going to have to be paying more money in taxes?

Craig: I look at it as a huge planning opportunity. There are people that if they do nothing will pay more taxes. But if people do some planning, and there are a number of different strategies out there where people are discussing for those portfolio expenses, they may be able to salvage some of that stuff. So, I think it’s important that they really have that conversation and not just at the end of the year or when they finish up their taxes this year and they get a projection.

 Based on the new rules, this is what you should make on quarterly payments. It should be something like, hey, what can we do a little bit differently to take advantage of the new tax code and to make up for where I might be getting dinged a bit on certain items, such as a cap on my real estate taxes or a cap on my state taxes or no longer being able to deduct any of my investment expenses?

Jason: Mm-hmm (affirmative). Do you have any ideas or tips you could share with our listeners that would help them start that planning process?

Craig: Yeah. Those that are still working, definitely have that conversation. See if you are actually able to take advantage of Section 199, which is a 20% pass through deduction. So, if you’re a business owner, if you’re strictly a W2 person, there’s not a whole lot of planning you can do. But if you’re, happen to be a business owner or maybe have a side hustle and you’re looking to put some money away, have that conversation, see what you can do. Can you maybe do a different type of retirement plan? Can you do some type of defined benefit plan?

 I think sometimes cosmetically, people may think they’re going to be in a worse shape than they are because a lot of people with large itemized deductions, such as real estate taxes, state income taxes, and/or investment expenses, when they look at their tax return, they may think they’re getting a big deduction for something. But because of the way alternative minimum tax used to work, those things were added back in so it looked pretty. But it really did not give them the benefit that they thought they were getting.

Jason: I was just shocked and surprised. We had somebody who recently, after meeting with their CPA, brought us their projections for next year and we saw that they were actually going to pay more money in taxes under this new tax law because of the loss of the personal exemption and those miscellaneous itemized deductions. These are people that, they’ve been retired for a long time, they happened to have a lot of expenses, and they tend to be very charitable. But it was surprising to see that not everybody wins under this new tax law. Especially, people you would think, retirees, would.

 So, I guess it really is dependent on one off kind of situation. I always try to teach people, Craig, there’s a difference between tax preparation and tax planning. The focus of our talk today is really about trying to look out into the future. As you’re doing tax planning with people, what are some of the things we need to be looking out into the future concerned with?

Craig: So, let’s just take that client you were just discussing where they’re very charitable, but it looks like they’re going to owe more money at the end of the year based on what their CPA had projected for them. So, if they are charitable, maybe they should look at setting something up like a charitable lead trust or a charitable remainder trust where they put some money away that they’re eventually going to be giving away to get a deduction up front.

 There’s always a way to take advantage of the various things out there in the tax code, but if you’re just going to that CPA in March or April and you’re not communicating with him throughout the year, there’s not a whole lot he can do because he’s got his head down and he’s focused on putting the right numbers in the right boxes, whereas maybe at another point during the year, he’ll have a little bit more time to breathe. So, I would suggest go back, have that conversation. What can we do? The guy’s probably a pretty smart guy. What can we do?

Jason: Yeah. We were looking at the numbers and one of the idea that we came up with was the qualified charitable distributions, because they’re over 70 and a half, they can give money directly from their IRA to the charitable organizations and help reduce their income that way. So, it’s a way for them to give a little bit more strategically. Do you think the qualified charitable distributions are going to become more valuable? Maybe help our listeners understand what qualified charitable distributions are as well.

Craig: Yes. It’s basically going from the IRA right to the charity and it doesn’t really hit your tax return on schedule A. So, right now, let’s just say a married couple, the standard deduction’s going to be about $20,000 in 2018. So, if you have a couple thousand dollars in real estate taxes and you have maybe $18,000 in charity, you hit the 20. But you’re really not getting any benefit of that $18,000 that you gave away and that 18 is actually showing up as income for you. If you take that 18 and you pass it directly through your IRA into the charity, it’s not going to show up as income and then you’re going to get the full benefit of the $20,000 itemized deduction, the $20,000 standard deduction.

Jason: I think it’s important too that people understand because I’m sure a lot of people out there are thinking, “Oh, great. That will be a great strategy.” But you do have to be 70 and a half. You have to be eligible for the required minimum distribution, right?

Craig: Anything we discuss, you should always go back and speak with your current CPA on the right way to do because if I leave out one little thing, that one little thing my wind up costing you money and you don’t want that to happen.

Jason: Yeah, great point. Craig, I want to keep asking you about taxes, but I’m curious about your story here. 17 years as a New York City police officer and now you’re a CPA. Tell me, I’m just curious to know a little bit about your background and your story and how you ended up going from a police officer to a CPA.

Craig: Yeah. My dad was a police officer. I was an economics major. Where I grew up, it was the thing you did. You took the test. It was civil service. Everybody was pretty much, in one form or another, civil service. I took the test my third year, I got called, I said, “Jeez, if I can make 50 grand by the time I retire, I’ll be set.” Young and stupid. So, I joined the police department. I did about 17 years. I retired as a lieutenant. I went into accounting when I left. I started out with an international firm doing a lot of international work. Then eventually, I went out on my own.

 So, I find it very exciting when I sit down with a client and we save them money. It’s probably as exciting, if not more, than chasing a perp through the streets of New York City. So, it’s very different but it’s a lot of the same skills. You need to communicate with people. As a cop, I had to communicate with people in the corporate titans in Midtown to the people maybe that were at the lower end of the poverty level. So, you learn to speak with people and get your message heard. I think as a CPA, it comes in really handy.

Jason: There are not a lot of CPAs that have that quality. You guys tend to be number crunchers and not always necessarily the greatest communicators. So, that’s an interesting set of skills that you have there to be able to cross over that divide.

Craig: Yes. Fortunately the … I’m sorry.

Jason: Oh, go ahead.

Craig: Fortunately, the bar is set very low. But I do have a pocket protector.

Jason: You definitely need one of those in your profession, for sure. For all my CPA friends around town here, they’re going to be giving me a hard time. Craig, as we look out, this tax reform that took place, it’s scheduled to sunset in 10 years. So, some people say that that creates a really unique opportunity for the next 10 years to be thinking strategically about moving money out of retirement accounts, IRAs, 401ks, 43Bs, TSPs and over to Roth accounts. What are your thoughts on that?

Craig: I think people should always be planning to see what they can do now that’s going to have a long-term positive effect for them. So, it’s going to sunset, 10 years sounds like a long time. But 10 from now will roll around really quick. So, I think planning is important and when I say planning, it’s not sitting with your CPA and saying, “Okay. What payment do we need to make every quarter?” That’s not planning.

 Planning is seeing what can we do a little bit differently to really maximize what the code allows us to do? There’s nothing illegal about it. There was a Supreme Court justice that has a comment, something like there’s nothing illegal about planning to pay less taxes. If you think of Donald Trump, you think of Bill Gates, Warren Buffet, they all have teams that plan for them.

Jason: Mm-hmm (affirmative). I’m always a little bit paranoid when it comes to the IRS. I think a healthy level of paranoia just to make sure, when possible, I like to deal in black and white with the IRS. I don’t like to get into any gray area. What are your thoughts? How can people make sure they’re not getting into something where they think is going to be really tax advantageous to them today only to have it come back and bite them in the future? Have you ever run into a situation where people have been in that situation? They thought they were doing good tax planning only to come back with penalties and big expenses down the road.

Craig: There were people that got involved in these partnerships years ago or offshore accounts that wound up getting hit pretty hard. But when we do a tax plan for someone, we actually show them the code and in the plan, we put the code where it actually says you can do what we say you can do. So, I don’t believe in gray areas either. It’s black and white. Take advantage of what the code allows you to do. Document what you’re doing and you’ll be okay.

Jason: I like that. So, when you’re putting together a plan, you’re actually providing them with a written plan that includes the code that says this is how we can do what we’re trying to accomplish.

Craig: Correct. Correct.

Jason: So, you have this book, Secrets of a Tax Free Life. Before our meeting, you mentioned that there’s a way … Is this the book that our listeners have the ability to get a copy of?

Craig: Actually, no. That one, I co-authored that was an Amazon bestseller. My recent book, which has actually been updated for the new tax law changes, is The 10 Most Expensive Tax Mistakes That Cost Business Owners Thousands. We’ll give you a link. It’ll be on our site, craigcodyandcompany.com/srp for Sound Retirement Planning, and they can actually get a paper copy of that book.

Jason: Oh, okay. Cool. So, craigcodyandcompany.com/srp for our listeners if they’d like to get a copy of this new book that you have out.

Craig: Great.

Jason: That’s awesome.

Craig: That would be wonderful.

Jason: Great.

Craig: Yep.

Jason: So, what are some of the secrets of a tax free life?

Craig: Mostly, they deal with business owners because business owners have the most opportunities out there. There are some opportunities for a regular W2 earner, but the tax code really rewards people who take the risk and go into business for themselves. So, some of the ideas are planning, choosing the right entity type. Are you taking advantage of the right retirement plan? We go into Section 199, the qualified business income, hiring your kids, having a medical expense reimbursement plan to pay for these medical expenses that are out of pocket. Sometimes they could be quite hefty if we’re talking about braces or cosmetic dentistry. So, those are a couple things that we talk about in my latest book.

Jason: Okay. As we look out into the economy, one of the concerns a lot of people have today is that our national debt has recently surpassed $21 trillion and the Congressional Budget Office says that we will be increasing our debt by, I believe it was one and a half trillion dollars as a result of these tax cuts that have gone into effect. Should people be expecting that tax rates will be going up? Do you think this current tax law will sunset in 10 years or do you think that Congress will keep them enacted and we’ll just keep growing this debt forever?

Craig: That’s a really good question. I wish I had that crystal ball. I say plan for what we know and leave as much flexibility as you can.

Jason: Okay. I want to ask you a personal question because I think we learn the best from real people that have had real life experiences. So, as you think about your own financial life, Craig, what has been your greatest victory, in terms of what you’ve done right with your finances, and what’s been the biggest mistake you’ve personally made?

Craig: I think the biggest victory is starting, pretty much from day one when I was in the police department, putting something away. Right? It could be 1%, but over time, 1% adds up. That goes to 2%. Whatever. So, that’s probably my biggest victory. I’d say my biggest catastrophe was probably the crisis in ’07 to ’09 when business was probably not diversified enough and we took a huge hit.

Jason: Okay. Yeah. That was a tough time for a lot of people. What did you learn going through that?

Craig: I learned diversification is key. We also learned we need to constantly be bringing in new clients and providing real value for those clients. Also, cash flow is very important.

Jason: Yeah. Yeah. Cash flow is something that we talk about all the time when it comes to retirement. I sound like a broken record, but I’m always saying retirement is all about cash flow. It’s your income that will determine your lifestyle and retirement, not your net worth. You’ve probably had the opportunity to meet with people that have made this transition into retirement, and it can be really scary for them to the walking away from an income at a time in their life when they’re at some of the highest income levels and then switching into this area of life where they’re having to depend on their resources to provide for them for the rest of their life. What are some of the things you’ve learned helping people make that transition into retirement?

Craig: I think being really more, not actual, but knowing what the numbers really are going to be, not thinking that you’re going to be able to live on a third what you were making and do the things you were still doing.

Jason: Oh, man. I’m so glad you said that. So, you’re talking about what your spending is, what your budget it, how much you actually spend.

Craig: Right. Exactly.

Jason: What I’m hearing you say is that’s probably one of the most important things that people need to know as they’re making that transition.

Craig: Exactly.

Jason: See? Now, there was no promoting. Craig and I didn’t talk about this beforehand. I don’t even know if Craig knows this, but we developed, Craig, what we call the retirement budget calculator. It’s software as a service. It’s to help people develop that retirement spending plan. There’s a one-time fee to have access to it.

 But it’s really probably, in my opinion, the reason I created it was because we wanted to have the most comprehensive budgeting tool, spending tool for people getting ready to make that transition so they really understand what their spending is because what I’ve found is you can’t create a good plan for people to help answer the question of have you saved enough unless you really understand that spending piece. It’s really the most important part.

 The other thing I wanted to ask you, now I know you’re a tax guy. I don’t know if you follow the market closely. But we’ve been experiencing a lot of volatility in the stock market here the first part of 2018. Do you have any thoughts about the volatility and the risks that people are taking within their investment portfolio as they’re preparing for retirement?

Craig: I don’t really follow the market. I just say if you’re going to be in the market, be prepared to be in for the long haul. Don’t lose sleep over downturns and don’t get too excited over upturns because they all even out.

Jason: They do even out. Yep. Time is the cure to the volatility of the stock market is something that we’re always trying to teach.

Craig: Exactly.

Jason: What about medical expenses, because this is a big one, can be a big one for retirees? When it comes to their medical expenses, are they going to be better off under the new tax law than they were under the old tax law, in terms of being able to capture those medical expenses, or how did that change?

Craig: They basically just lowered it to … It used to be seven and a half. It used to be 10% of your adjusted gross income and for people over a certain age, it was seven and a half percent. Now they just lowered it all to seven and a half percent. So, if you make $100,000, the first 7,500 out of pocket is not deductible. So, HSAs are important. If you’re in business, a medical expense reimbursement plan is important. If you’re totally retired, you just have to really do the best you can. Hopefully, you don’t get swamped with large medical costs because if you’re making a hundred grand, the first 7,500’s not going to be deductible.

Jason: Yeah. So, and then, you still have this high itemized deduction level. So, for retirees, I want to say it’s $26,000 because they get a little boost. Is it 65 that they get that extra boost on the standard deduction?

Craig: Yeah. It’s not a huge number.

Jason: No.

Craig: No.

Jason: But it’s a little bit extra. So, we’re almost out of time here, Craig. I want to remind our listeners, folks, if you’re just tuning into the show, you’re listening to episode number 164. If you’re driving down the road in Seattle this morning, we archive all of these programs at soundretirementplanning.com. You can click on the radio button and listen to the archived program. I’ve got Craig Cody as my guest. He’s a certified tax coach, he’s a author, and specializes in tax planning, proactive and strategic tax strategies. He’s got a free book for our listeners. One more time, Craig, can you tell them where they can find that?

Craig: Sure. It’s craigcodyandcompany.com/srp for Sound Retirement Planning.

Jason: Okay. Very good. I just wanted to say thank you, Craig, for being a guest on Sound Retirement Planning, Sound Retirement Radio.

Craig: Thank you very much for having me. I appreciate it.

Jason: Absolutely. Folks, until next week, this is Jason Parker signing out. I hope you have a wonderful Easter and a great time with your family. This is the season of hope, a time of new beginnings. If you haven’t had the opportunity to plug into a church recently and hear the good news about Jesus, I want to encourage you to do that. This is a great time to get plugged in. Until next week, this is Jason Parker signing out.

Announcer: Information and opinions expressed here are believe to be accurate and complete, for general information only, and should not be construed as specific tax, legal, or financial advice for any individual and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives, or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program.

 All insurance related discussions are subject to claims paying ability of the company. Investing involves risk. Jason Parker is the president of Parker Financial, an independent fee based wealth management firm, located at 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-800-514-5046 or visit us online at soundretirementplanning.com.