July 16, 2025 • 32 mins
In this episode, we're joined by Cody Daniels, CPA and founder of Builders Tax Group, for a deep dive into strategic tax planning tailored for the construction industry. Cody shares his journey from leading a construction and real estate tax team to launching Builders Tax Group with a mission to help blue-collar business owners—drawing from a family legacy in the trades. He breaks down his ebook, Laying the Foundation, which unpacks 10 essential tax strategies for construction and trades businesses—tools that can save you real money and set your business up for long-term success.
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Episode Transcript
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Speaker 1 (00:04):
Hi, I'm Jennifer Hires, your host of the Lumberyard. Today
I have a special guest. I want to introduce you
to Cody Daniels, founder of Builders Tax Group. So before
we dive into today's topic, Cody, go ahead and tell
us a little bit about who you are and really
what led you to focus on construction businesses. Yeah.
Speaker 2 (00:27):
Sure, thanks, Jennifer, happy to be here, excited to sit
down and talk taxes with the fellow CPA. Well, yeah,
a little bit about myself. I've been a CPA in
public practice for the last thirteen years. Launched my own firm,
Builders Tax Group in twenty twenty four with the focus
of serving exclusively construction and you know, service trades type businesses.
(00:48):
At my prior firm, I led the construction and real
estate tax team there for several years. And you know,
when I decided to take the leap in entrepreneurship, myself
knew that this was the industry that I wanted to
continue focusing on. I grew up around blue collar individuals.
One grandpa was a union carpenter, another grandpa was a welder,
(01:09):
and my dad built the house that we grew up in.
I had uncles doing electrical plumbing, cousins doing HVAC and
mechanic work and all that stuff. So you know, I'm
kind of the odd ball that went the best job route,
but you know, I'm thankful and appreciative that I can
get to continue working with, you know, those blue collar
type businesses.
Speaker 3 (01:28):
Yeah.
Speaker 1 (01:29):
Absolutely, And then just a touch on it, and I
introduced it. But the book that you wrote, and we'll
talk about this a little bit later, is kind of
what we're going to base this podcast on. But what
is that book?
Speaker 2 (01:41):
Yeah, so I wrote an ebook last year. It's called
Laying the Foundation, and it outlines, you know, what I
consider sort of ten essential tax strategies specifically geared towards
construction and trades type businesses. Certainly, some of the topics
could be universal and applied to any industry, but the
book it self is really written from the perspective of
(02:02):
someone that owns and operates a construction business and focuses
in on the strategies that I think are most important
for them to consider in order to save some of
the harder and cash if they've generated for themselves.
Speaker 3 (02:15):
Yeah.
Speaker 1 (02:15):
Absolutely, And I know your mission. Your mission is helped
contractors run more profitable businesses through strategic tax planning, outsource accounting,
and fractional CFO services as well. What a beautiful mission
that you do have, which leads me to my next question, Well,
why should guests that are listening to this podcast work
(02:40):
with an expert a CPA that is in the construction
industry versus just going to any CPA.
Speaker 2 (02:48):
Yeah, well, I mean I think you kind of hit
the nail on the head right there, Jennifer. Right, we're
on a podcast right where the target audience is folks
in the construction industry, probably even more specifically people that
own construction businesses. I think overall, uh, specialization, expertise, you know, nicheng,
whatever term you want to use for that's just becoming
(03:10):
more common throughout all facets of business. And I think
the accounting profession is a little bit behind other industries,
you know, I think podcasting itself, I only listen to
podcasts that are geared towards individuals running accounting firms as
opposed to like general business podcasts. I only utilize software
within my business that has developed specifically for the accounting industry.
(03:32):
And you see that within the trades as well. You know,
there's there's industry specific software. So why hasn't the accounting
field caught up to that and started again kind of
developing these sort of boutique specialized expert firms. You know,
we're trying to be a little bit ahead of the
curve on that in terms of the way we're building
this firm.
Speaker 4 (03:51):
Yeah.
Speaker 1 (03:51):
Absolutely, So let's let's dive into a little bit. We're
going to go high level with your book, laying the foundation.
And by the way, we will drop in the link
to your ebook in the notes of the recording here.
But let's go ahead and let's just start with the basics, right,
(04:12):
financial statements, P and L, balance sheet, cash flow statement.
Why are accurate financials such a big deal when it
comes to tax planning.
Speaker 2 (04:21):
Yeah, So every tax return calculation, every tax projection calculation
out there for any business, the starting point is your
financial statements.
Speaker 3 (04:30):
Right.
Speaker 2 (04:30):
We start with your book income, and we work through
various adjustments and the tax law where where tax law
differs from book rules and regulations, and we adjust down
to what your taxable income should be as part of
that calculation. So, if you don't have good financial statements
to start with, it's kind of a garbage in garbage
out scenario. Right, if we're starting bad books, the majority
(04:54):
of the figures that I'm going to be working with
are bad invalid numbers, and it's going to produce a
bad tax outcome as we work through that calculation. So
it's it's the foundation not to you know, no pun intended,
I guess on the title of the book, accounting is
the foundation for all of the tax decision making and
strategies that we can implement.
Speaker 4 (05:15):
Yeah, yeah, absolutely.
Speaker 1 (05:17):
Do you have any examples of, you know, where clients,
you know they would have missed potential deductions and where
you were able to help them.
Speaker 3 (05:29):
Yeah.
Speaker 2 (05:29):
So actually, just earlier this year, I was working with
the real estate developer and a former contractor that's kind
of moved more onto the development side of things, and
they sold a building at the end of twenty twenty four.
So we're working through the tax return earlier this year,
and yeah, I worked through the calculation. I say, hey, guys,
(05:50):
I'm coming up with a six hundred thousand dollars gain
on the sale of this property. As a result, you're
going to owe x dollars in taxes. And they say
that that doesn't past the smell test. Cody that something
about that seems off, Like, we know we've put a
ton of money into upgrading this building and we've had
to contribute dollars personally beyond the construction loan that we received,
(06:12):
and we think we lost money on this deal. I said, Okay, guys,
let's go back to the beginning. You bought this property
in twenty eighteen. Give me all of your historical tax returns.
I know they don't have financial statements because I started
the preparation of the twenty twenty four tax return utilizing
bank statements only. So already we're off to a not
(06:33):
so great start. We're just working off of bank statements.
We don't have true financial statements. Long story short. Review
the historical tax returns, we can see that there was
an increase to the construction load in twenty twenty, no
subsequent capitalization of any improvements. The prior tax prepare didn't
(06:54):
dig deep enough, didn't ask questions. They knew that the
balance and the load increase. They didn't ask where did
the money go. They just pushed to push it through distributions,
so it wasn't treated as a capitalized cost. It wasn't
part of the basis of the building that they sold.
It was as though they received that cash themselves. So
(07:16):
we were able to work through it. You know, I
produced the appropriate documentation, you know, draw statements from the
title company, you know, historical record of where the actual
dollars from the construction loan went, and we were able
to identify roughly nine hundred thousand dollars of missing missing costs.
So it's it's a nine hundred thousand dollars flip in
(07:37):
taxable income. We go from a six hundred thousand dollars
game down to a three hundred thousand dollars loss, which
is in line with their expectations and ultimately, you know,
obviously has a huge six figure impact on their tax bill.
Speaker 4 (07:52):
That it does. That it does.
Speaker 1 (07:55):
Yeah, when so I'm at CPA, but I call myself
more about recovering CPA. They don't really practice anymore. I
went more in the ERP side of things. But I
know a common mistake when it comes to financials is
mixing personal and business expenses. Can you elaborate on this.
Speaker 2 (08:13):
Yeah, we definitely see that, especially kind of with like
newer startup businesses. You know, you have individuals that they're
just getting things up and running eventually learning to get
that business bank account set up, but they're probably using
personal funds to get things started. You know, they may
not take the time to go get a business credit card,
so they may be running business expenses through their personal
(08:35):
credit card. And if we don't have a pretty clear
separation of those business and personal expenses, it's not to
say that we can't comb through it, you know, and
identify the items that are personal versus business, but it's
it's going to cost you, Like I mean, there's going
to be a cost associated with either hiring somebody to
do that or for you personally, there's going to be
(08:56):
a time cost for you to go through and start
to set parade out those expenses. And again very much
like this, so this example here with this developer, like
if it doesn't run through the business.
Speaker 3 (09:08):
Account, there's a greater than you know, there's a there's.
Speaker 2 (09:12):
A great chance that we're going to miss it on
our end and we're not going to be able to
identify those expenses and you're going to overstate your income
and you're going to pay too much in tax simply
because like we don't know what we don't know, and
we can't go through all your personal expenses and identify that,
you know, expensive was a business expense versus you know, your.
Speaker 3 (09:29):
Your daycare payment or your you know, your rent payment
and mortgage payment whatever.
Speaker 2 (09:34):
So it's it's it's really important from day one to
get that separate business checking account set up, get a
separate business credit card set up, and and I guess
on the flip side, don't run personal expenses through the
business either. Yeah, you know, once you get those two
things set up, just just just keep them separate. Don't
com mingle the funds, you know, keep your distributions clear
(09:55):
to yourself. However you're compensating yourself as the owner of
the business, you know, take those dollars out and then
use those to pay for your personal expenses. Don't pay
for the personal through the business account.
Speaker 3 (10:05):
It just you don't want to muddy those waters.
Speaker 4 (10:09):
No, no, absolutely not no good.
Speaker 1 (10:12):
I think that this was a good high level overview
of the chapter. So the chapter that we are just
referencing is ensure your financial statements are accurate and up
to date. So if you want to dive in a
little bit more, go ahead and download that ebook and
learn more about financial statements. So let's go to another chapter.
This chapter is going to be evaluating your entity structure.
(10:38):
So Cody, tell me how should contractors approach their entity structure,
Let's say, if they're just starting out or have been
in business for many years.
Speaker 2 (10:49):
Yeah, So I guess before I dive into that, Jennifer,
I'll just real quick, I kind of want to talk
to you through my mindset in terms of ordering the
chapters here and why we're going through this in the
order that we're going through it.
Speaker 4 (11:01):
Yeah.
Speaker 2 (11:01):
I tried to kind of dual rank each strategy based
on two things, you know. Number one, like the importance
to the overall kind of dollars and cents aspect of
things like what strategies have the greatest return on like
the investment of getting them correct? And then number two,
what what is sort of the like chronology of your
of your business. Right, So, if you're just starting out,
(11:25):
like getting good financial statements chapter one, like that is
that is the most important thing that you can do
starting out. It's also going to have the greatest benefit
to you because it's it's the baseline that the foundation,
like we said, for every tax calculation that we're going
to do. Moving into chapter two or strategy to your
entity structure. It's also it's it's a decision that you
(11:48):
make early on in the life of your business. So
it's one of the first decisions a new business owner
has to make is how how am I going to
set up this business? And it's not a set it in,
for get it, you know, decision, right, It's it's something
that you need to continue to evaluate. So it's not
just for startups. It's a consideration you need to evaluate
(12:09):
throughout the life of your business. As your business goals change,
as your business evolves, your enity structure may need to
evolve with it. So that's just a little bit kind
of behind the scenes as to why I've ordered these
things the way that I have. And also this choice
of entity structure has a huge impact on the dollars
and cents aspect of your ultimate tax bill.
Speaker 4 (12:33):
Yeah, it does, it does, absolutely.
Speaker 1 (12:36):
Can you dive more into that what structure?
Speaker 3 (12:40):
Yeah?
Speaker 2 (12:40):
So, so really for tax purposes, there's four different structures
that a business owner can choose from. There's a sole proprietorship,
there's partnership, and then there's ans corporation or a C corporation.
You'll notice I didn't say LLC. I think you know.
LLC is the term that everybody throws out there on
social media. An LLC is not an entity type for
(13:03):
tax purposes. It is a legal entity type in depending
on the elections that you make for that LLC will
dictate the entity type for tax purposes. So your LLC
could be one of any of the four entity types
that I mentioned there kind of to dive into the
(13:23):
different entity types a little bit further provideable background on them.
I always start with sold proprietorship because I think that's
where most new businesses start out. It's it's an easy
to set up structure. You don't actually have to file
anything with like a Secretary of State or other government
agency to formally organize this business. You can just go
out there and start running as a sole proprietorship, and
(13:46):
you report all of the activity from your sole proprietorship
directly on your individual tax returns. So from a filing perspective,
it's it's super easy. Again, That's why you see it
commonly with startups. The downside, one of the main sites
to a sole proprietorship is as you start to grow,
as your profitability increases, all of your income is subject
(14:07):
to the self employment tax, which is essentially a replacement
for Social Security and Medicare that you're.
Speaker 3 (14:13):
Paying as a sole proprietor business.
Speaker 2 (14:16):
So it's an additional fifteen point three percent tax on
top of the income tax that you're paying. So can
it can start to become pretty burdensome over time, and
that's really where you start to see a potential shift
as your business grows into one of the other other structures.
Got it, so kind of moving through the book. In
(14:40):
the other structures, we have two different types of flow
through businesses, partnerships and s corporations. There's a lot of
similarities between the two in that you as an owner
within this business, your income will pass out to you
and be taxed on your individual tax return via a
Schedule K one. So partnerships and as corporations they don't
(15:01):
actually pay tax at the federal level. At the business level,
they consider pass through entities where the income flows out
to the owners and his tax on their individual tax return.
Speaker 3 (15:13):
Kind of a change as far as I.
Speaker 2 (15:15):
Think a lot of business owners aren't aren't maybe used
to that when they make that change. The requirement to
do estimated tax payments and things like that can catch
people by surprise. So it's important to know how the
choice of entity impacts your individual tax liability because you
could be surprised and end up owing tax later in
the year based on the profits of that company, whether
(15:37):
or not you've received any any actual cash payout.
Speaker 3 (15:40):
From the business.
Speaker 2 (15:41):
Okay, okay, So some of the differences between the two
partnerships are very flexible. You can especially allocate income and
deduction between partners You can have kind of special allocations
of distributions based on the way your partnership agreement is written.
So it provides a ton of flex a bit. Again,
one of the downsides here is if you're actively participating
(16:04):
in the business, your income is very likely going to
be subject to that self employment tax, just like with
this proprietor structure. So I will say just kind of
in my professional experience, most of the contractors I work with,
I see that they eventually move into the s corp
structure because it still provides that kind of flow through
structure of a partnership. But you can pay yourself a
(16:26):
reasonable compensation through that entity, and you can you know,
mitigate or reduce the amount of the Social Security and
Medicare tax that you're paying based on the compensation. Any
income that flows out to you on your K one
that's above and beyond your compensation is not subject to that.
(16:46):
That's self employment tax.
Speaker 1 (16:49):
And that is why we hire you because you know
how we can save on taxes through switching different entities.
Speaker 2 (16:58):
Then, yeah, and you know that that's a very common,
you know, kind of path for us is we work
with these sole proprietors and once you hit it's going
to vary, you know, based on based on your business
and kind of you know, where where your profitability is
in your maybe want or need to take on things
like payroll filings and you know, additional corporate filings and
(17:22):
things like that. But at a certain point, most businesses
outgrow that sole proprietorship and we tend to advise them
to move into an es CORP structure. I did that
just a couple of years ago for a client and
right away, you know, annual tax savings in the range
of about ten to eleven thousand dollars just by just
by you know, switching that button over to the escorp status.
(17:43):
And that's going to be annual savings, right that's going
to be every single year that they're going to save that,
you know, ten to eleven thousand dollars. As they start
to grow the business and it becomes more profitable, those
savings are going to continue to compound and it becomes
than a twenty thousand dollars savings for thirty thousand dollars
savings as your business continues to.
Speaker 1 (18:01):
And was that the husband wife who were running the
business together and they were finally as a soul proprietorship.
Speaker 2 (18:06):
Correct, Yeah, they were a husband and wife actually a
dual real estate agents, so very successful kind of husband
and wife real estate team.
Speaker 3 (18:14):
The business was set up.
Speaker 2 (18:15):
As a sole proprietorship that the wife owned originally, so
they were paying that self employment tax and we were
able to convert into anes corporation, set them up with
a reasonable compensation as required by the IRS, but essentially
cap the amount of income that was subject to the
Social Security and Medicare taxes so that anything on top
(18:35):
of that is not subject to the fifteen point three
percent tax that I mentioned, and that's where the tax
benefits are coming from. And apparently on a side note,
and I will not pretend to be an expert in
this at all, but a big reason that they came
to me initially was that going through this entity restructuring
(18:56):
and moving to Escort allowed them to get a better
health insurance plan. Again, I can't comment on on why
that worked out for them, but that was the story
that I was told, and so there were other non
tax benefits to them making that change as well.
Speaker 1 (19:12):
Yeah, no, that's I mean it all it's a domino effect, right,
So again we get you to help out and switching
over SOL proprietorship, then to an escorpor and then it
goes from there. What about for companies who are structuring
for growth, like I hear it in my industry right,
like we we plan on growing and plan on ground
(19:33):
scaling and growing bringing in potentially partners. Any advice on that.
Speaker 2 (19:38):
Yeah, I mean I think that's that's something that you
need to have a conversation with somebody informed in these
matters about, you know, your CPA and attorney, probably a
joint combination of different providers to talk through that, you know,
depending on exactly how you want to broach that subject
or you know, a partnership maybe a good opportunity there.
(19:58):
There's a lot of flexibility, like I said, with how
you allocate things and setting up sort of different tiers
of waterfalls and income allocations. So the partnership is certainly
a good structure for bringing in outside investors.
Speaker 3 (20:11):
So it's a sea corporation, you know, you can bring
in outside investment there.
Speaker 2 (20:15):
You know, I've started to see within the construction industry,
not to again jump ahead too far into the book,
utilizing a sea corporation to set up an ESOP so
that you can get employees skin in the game and
have a bit of the ownership through an ESOP, which
again is you know, you need a corporate structure to
utilize that. So yeah, it's definitely something to have a
(20:36):
conversation about because it's not a one size, fit fits
all answer. You'll note in the book, I don't actually
recommend anything to anybody.
Speaker 3 (20:44):
It's all just food for thought.
Speaker 2 (20:46):
It's all just here are choices that are available to you,
and here's you know when some of these choices may
be beneficial versus not beneficial. But you really do need
to sit down and talk through this with somebody because
everybody's tax situation is different and unique, and one slight
variation in your situation versus you know, your buddy situation
(21:08):
can have a totally different recommendation or.
Speaker 3 (21:11):
Outcome as far as how we want to move forward
with things.
Speaker 4 (21:15):
Yeah, it's good advice. Cody.
Speaker 1 (21:17):
Ready to talk about the next chapter?
Speaker 3 (21:19):
Yeah? Sure?
Speaker 1 (21:20):
Okay, So this chapter is Assess your Accounting methods. So
we are talking cash a CRUL completed contract percentage of
completion sounds a little technical, so very much does this
really mean for a contractor Yeah?
Speaker 2 (21:37):
And I think I sort of preface it in the
book as like, this is the most complicated strategy that
we're going to dive into here, and this is an
area where I even see accountants, you know, struggle with
conceptualizing this because this is of all the strategies in
the book, this is the most I would say specific
to the construction industry. Okay, most business owners know that
(22:00):
that they have a choice between cash and a creole
as far as accounting methods go. You know, a CRUL
essentially meaning that you know, when you bill your client,
you're going to recognize it as revenue, and then when
you incurrent expense.
Speaker 3 (22:10):
You're you're gonna recognize that expense.
Speaker 2 (22:12):
It has nothing to do with when you receive cash
from your clients and has nothing to do with when
you pay expenses out to your vendors. Cash is obviously
the exact opposite. You recognize revenue when you receive cash,
and you recognize expenses when paid within construction you touched
on it. You know, we have other methods available, such
as completing contract percentage of completion. Even within kind of
(22:35):
those buckets, there's some other sort of more nuanced specific
methods available. So it does get very complicated because instead
of deciding between cash and a cruel and only having
two potential options to move forward with, you you could
have upwards of you know, four or five, maybe even
six methods that you're applying on your tax return. In
(22:57):
different jobs or job types could be treated under different methods.
So a home contract may have a different method than
like a you know, commercial building, you know, an office building,
or you know, you know, a manufacturing facility or something
like that. So even within like one one kind of
(23:18):
contractor schedule of whip like, you could be applying different
methods to different types of jobs, and it could get
very very nuanced and very complicated very fast, just depending
on the kind of the types of work and the
types of jobs that you're you're moving forward with all.
Speaker 1 (23:33):
Right, and you mentioned what right, and immediately my brain
goes to overbilling versus underbilling and calculating that out.
Speaker 2 (23:41):
And maybe, I don't know, maybe we should to to
sort of circle back to chapter one, just talk about, like,
you know, what our over buildings and under buildings, and
how do you account for you know, jobs for a
contractor you know, I guess very simply put, for book purposes,
most contractors should be maintaining their long term contracts on
(24:02):
a percentage of completion basis. And what a long term
contract is is it's any job that spans tax hears
so it doesn't have to go more than three hundred
and sixty five days. You can have a job that
starts in November and ends in February. That's that's a
long term contract because it spans tax hears, it spans
reporting periods. So maybe just like a very basic example
(24:24):
just to kind of educate everybody on how this should
be done. You know, let's say you have one job.
It's a one hundred thousand dollars job. You expect that
you're going to incur eighty thousand dollars of costs to
complete the job. You're gonna have twenty thousand dollars of
profit on it. Right at the end of the year.
Let's say you've invoiced your client sixty sixty thousand dollars.
(24:48):
When you do that, your accounting system is going to
recognize sixty thousand dollars of revenue. When you send out
that invoice, you're gonna have sixty thousand dollars of revenue
show up on your P and L. Let's say at
the end of the job, you've only incurred forty thousand
dollars of the total eighty thousand dollars of costs. So
your job, your job is fifty percent complete, you should
(25:12):
have only recognized fifty percent of your revenue, so fifty thousand,
not sixty thousand. So you're overbilled on that job by
by ten thousand dollars. So to adjust your books, you know,
for the percent complete that that job is actually complete,
you're going to need to reduce your revenue by ten
thousand dollars and you're going to need to book an
(25:33):
overbilling on your balance sheet of that ten thousand dollars.
So it's a very basic example of how you apply
the percentage of completion method of accounting. But imagine, you know,
you do that for one hundred jobs on your schedule,
right your web scheduling, you got to go through, and
you got to go through and kind of make those
over under billing analyzes and update your financials accordingly. That's
(25:57):
the book side of things. On the tag side of things,
we have a lot of opportunity to utilize other methods
to defer income. This is this is not like a
permanent tax savings game, you know, like the entity structuring
where you can move from one entity a structure to another.
You can achieve permanent tax savings through that. This is
purely a timing strategy. It's purely kicking the can down
(26:18):
the road so that you can save a dollar today.
And we all know that a dollar today is much
more valuable than a dollar a year or two down
the roads. So we can implement, you know, these other strategies.
And I have a couple examples, you know, just over
the years. Back in it gives me twenty eighteen because
the Tax cuts and the Tax Cuts and Jobs Act
(26:40):
was passed at the tail into twenty seventeen, so that
was kind of.
Speaker 3 (26:42):
The first Trump tax bill. And obviously we're going through.
Speaker 2 (26:46):
You know what will be the second Trump tax bill
right now the House, and the House is actually.
Speaker 3 (26:51):
Debating that I think today as of the day of
this recording.
Speaker 2 (26:54):
So we may have some some updates there as the
upcoming tax lot changes, but we're not going to talk
about that until the bill's final. But back in twenty seventeen,
the first Trump tax bill was passed, the Tax Dosing
Jobs Act, and one of the provisions there increased the
gross receipts threshold for the definition of what is considered
(27:16):
a small business. So prior to that bill, the threshold
was ten million dollars in average annual gross receipts for
the past three years. When that bill was passed, it
up to the threshold to twenty five million dollars, and
it indexed it for inflation. So I think today twenty
twenty five, the threshold is now thirty one million dollars.
I believe the reason that that matters and why that's
(27:40):
beneficial is it it significantly increased the number of contractors
that could utilize methods like cash or like completed contract
on their tax return and move away from the requirement
to report their tax return on percentage of completion basis.
(28:00):
So we saw a huge opportunity when that bill was passed.
And I can probably think of half a dozen or
more examples of contractors that fell between that ten and
that twenty five million dollar threshold where we were able
to convert them away from percentage of completion over to
like a cash method.
Speaker 3 (28:22):
And defer.
Speaker 2 (28:24):
I would say, depending on the client, anywhere from six
to maybe even seven figures of taxable incommed into the center.
So again we're kicking the can. It's not a permanent savings,
but there's there's huge benefit to kicking that can down
the road.
Speaker 4 (28:40):
Yeah.
Speaker 1 (28:41):
No, absolutely, Cody, this has been great. What's the one
thing you'd want every contractor listening today to take away
from this conversation between us?
Speaker 2 (28:52):
Yeah, I would say, don't wait on tax planning, just
you know, download the book some time to run through.
It's it's a meaty book. It's over fifty pages. It's
not your typical you know, one page lead magnet that
people put out there, and it's got one sentence on
each strategy, like, no, this is a this is a
deep dive into the strategies. I don't expect any construction
(29:15):
business owner to become a tax expert in this, but
I wanted to put out something that was incredibly detailed
and incredibly valuable so that you could you could take
this and not learn how to do your own tax return,
but go to an expert and have a conversation about
these strategies, about these opportunities, and take advantage of them
(29:35):
before it's too late. Right it's it's July right now
when we're recording this. If you come to your CPA,
your tax prepair in February.
Speaker 3 (29:44):
March, April of twenty twenty six, it's too late.
Speaker 2 (29:47):
It started now. I start with all my clients at
least in Q four. We're doing tax planning for everybody.
Some clients we start earlier in the year. You know,
we're starting maybe even potentially now, depending on the industry
that they're in, in the.
Speaker 3 (30:01):
Situation that they might fall into.
Speaker 2 (30:03):
So I think, yeah, the one the one takeaway is,
you know, take advantage of the free book. Download it,
get started today, don't wait. Contact an expert doesn't have
to be Cody Daniels, a builder's tasher. It can be
your your CPA that you've had a long term relationship with.
But you know, we exist to help you, but we
(30:23):
can't do it if you wait until the year's over.
You know, work with somebody proactive, be proactive. Taxes are
one of the largest expenses any of us are going
to pay in our lifetime, So don't make it an afterthought.
I know this is a busy season for contractors. Everybody's
busy out there running jobs. But you know, find some
time and you know, take control of this liability for
(30:44):
your business.
Speaker 1 (30:45):
Yeah. Absolutely, And then I will put a link to
Laying the Foundation again where you can download this free ebook.
How about if they do want to learn more, they
do want to contact to Cody, how would somebody get
a hold of you.
Speaker 2 (30:59):
Yeah, I mean we could host like the contact us
page in for the website directly in the show notes,
so you can certainly go there. There's a short questionnaire
to fill out just to help me learn more about
the business. So I can come into any conversation well informed,
you know, if you want to contact me kind of
on a more personal level. LinkedIn is where I'm most
active on social media. I don't really do the X
(31:20):
or you know, anything, Twitter, whatever you want to call it.
I'm not really active on any of those platforms. But
pretty active on LinkedIn, so add me on LinkedIn, shoot
me a DM, or contact us through the website and
having to you know, strike up a conversation.
Speaker 4 (31:33):
Awesome.
Speaker 1 (31:34):
And Cody, it has been such a pleasure. Will you
come back to the show and continue this.
Speaker 3 (31:38):
Yeah, I would love to come back. This has been great,
Thanks Jennifer.
Speaker 1 (31:41):
Okay, we'll go through some more chapters, but again, if
you want to reach Cody Daniels, founder of Builders Tax Group,
we'll put that link in there and you can also
speak on LinkedIn as well. Cody. Again, absolute pleasure and
I look forward to our next recording.
Speaker 4 (31:56):
Yeah.
Speaker 3 (31:56):
Likewise, thanks Jennifer.
Speaker 4 (31:58):
All right, take care
Speaker 3 (32:00):
It, Issa,
Hi, I'm Jennifer Hires, your host of the Lumberyard. Today
I have a special guest. I want to introduce you
to Cody Daniels, founder of Builders Tax Group. So before
we dive into today's topic, Cody, go ahead and tell
us a little bit about who you are and really
what led you to focus on construction businesses. Yeah.
Speaker 2 (00:27):
Sure, thanks, Jennifer, happy to be here, excited to sit
down and talk taxes with the fellow CPA. Well, yeah,
a little bit about myself. I've been a CPA in
public practice for the last thirteen years. Launched my own firm,
Builders Tax Group in twenty twenty four with the focus
of serving exclusively construction and you know, service trades type businesses.
(00:48):
At my prior firm, I led the construction and real
estate tax team there for several years. And you know,
when I decided to take the leap in entrepreneurship, myself
knew that this was the industry that I wanted to
continue focusing on. I grew up around blue collar individuals.
One grandpa was a union carpenter, another grandpa was a welder,
(01:09):
and my dad built the house that we grew up in.
I had uncles doing electrical plumbing, cousins doing HVAC and
mechanic work and all that stuff. So you know, I'm
kind of the odd ball that went the best job route,
but you know, I'm thankful and appreciative that I can
get to continue working with, you know, those blue collar
type businesses.
Speaker 3 (01:28):
Yeah.
Speaker 1 (01:29):
Absolutely, And then just a touch on it, and I
introduced it. But the book that you wrote, and we'll
talk about this a little bit later, is kind of
what we're going to base this podcast on. But what
is that book?
Speaker 2 (01:41):
Yeah, so I wrote an ebook last year. It's called
Laying the Foundation, and it outlines, you know, what I
consider sort of ten essential tax strategies specifically geared towards
construction and trades type businesses. Certainly, some of the topics
could be universal and applied to any industry, but the
book it self is really written from the perspective of
(02:02):
someone that owns and operates a construction business and focuses
in on the strategies that I think are most important
for them to consider in order to save some of
the harder and cash if they've generated for themselves.
Speaker 3 (02:15):
Yeah.
Speaker 1 (02:15):
Absolutely, And I know your mission. Your mission is helped
contractors run more profitable businesses through strategic tax planning, outsource accounting,
and fractional CFO services as well. What a beautiful mission
that you do have, which leads me to my next question, Well,
why should guests that are listening to this podcast work
(02:40):
with an expert a CPA that is in the construction
industry versus just going to any CPA.
Speaker 2 (02:48):
Yeah, well, I mean I think you kind of hit
the nail on the head right there, Jennifer. Right, we're
on a podcast right where the target audience is folks
in the construction industry, probably even more specifically people that
own construction businesses. I think overall, uh, specialization, expertise, you know, nicheng,
whatever term you want to use for that's just becoming
(03:10):
more common throughout all facets of business. And I think
the accounting profession is a little bit behind other industries,
you know, I think podcasting itself, I only listen to
podcasts that are geared towards individuals running accounting firms as
opposed to like general business podcasts. I only utilize software
within my business that has developed specifically for the accounting industry.
(03:32):
And you see that within the trades as well. You know,
there's there's industry specific software. So why hasn't the accounting
field caught up to that and started again kind of
developing these sort of boutique specialized expert firms. You know,
we're trying to be a little bit ahead of the
curve on that in terms of the way we're building
this firm.
Speaker 4 (03:51):
Yeah.
Speaker 1 (03:51):
Absolutely, So let's let's dive into a little bit. We're
going to go high level with your book, laying the foundation.
And by the way, we will drop in the link
to your ebook in the notes of the recording here.
But let's go ahead and let's just start with the basics, right,
(04:12):
financial statements, P and L, balance sheet, cash flow statement.
Why are accurate financials such a big deal when it
comes to tax planning.
Speaker 2 (04:21):
Yeah, So every tax return calculation, every tax projection calculation
out there for any business, the starting point is your
financial statements.
Speaker 3 (04:30):
Right.
Speaker 2 (04:30):
We start with your book income, and we work through
various adjustments and the tax law where where tax law
differs from book rules and regulations, and we adjust down
to what your taxable income should be as part of
that calculation. So, if you don't have good financial statements
to start with, it's kind of a garbage in garbage
out scenario. Right, if we're starting bad books, the majority
(04:54):
of the figures that I'm going to be working with
are bad invalid numbers, and it's going to produce a
bad tax outcome as we work through that calculation. So
it's it's the foundation not to you know, no pun intended,
I guess on the title of the book, accounting is
the foundation for all of the tax decision making and
strategies that we can implement.
Speaker 4 (05:15):
Yeah, yeah, absolutely.
Speaker 1 (05:17):
Do you have any examples of, you know, where clients,
you know they would have missed potential deductions and where
you were able to help them.
Speaker 3 (05:29):
Yeah.
Speaker 2 (05:29):
So actually, just earlier this year, I was working with
the real estate developer and a former contractor that's kind
of moved more onto the development side of things, and
they sold a building at the end of twenty twenty four.
So we're working through the tax return earlier this year,
and yeah, I worked through the calculation. I say, hey, guys,
(05:50):
I'm coming up with a six hundred thousand dollars gain
on the sale of this property. As a result, you're
going to owe x dollars in taxes. And they say
that that doesn't past the smell test. Cody that something
about that seems off, Like, we know we've put a
ton of money into upgrading this building and we've had
to contribute dollars personally beyond the construction loan that we received,
(06:12):
and we think we lost money on this deal. I said, Okay, guys,
let's go back to the beginning. You bought this property
in twenty eighteen. Give me all of your historical tax returns.
I know they don't have financial statements because I started
the preparation of the twenty twenty four tax return utilizing
bank statements only. So already we're off to a not
(06:33):
so great start. We're just working off of bank statements.
We don't have true financial statements. Long story short. Review
the historical tax returns, we can see that there was
an increase to the construction load in twenty twenty, no
subsequent capitalization of any improvements. The prior tax prepare didn't
(06:54):
dig deep enough, didn't ask questions. They knew that the
balance and the load increase. They didn't ask where did
the money go. They just pushed to push it through distributions,
so it wasn't treated as a capitalized cost. It wasn't
part of the basis of the building that they sold.
It was as though they received that cash themselves. So
(07:16):
we were able to work through it. You know, I
produced the appropriate documentation, you know, draw statements from the
title company, you know, historical record of where the actual
dollars from the construction loan went, and we were able
to identify roughly nine hundred thousand dollars of missing missing costs.
So it's it's a nine hundred thousand dollars flip in
(07:37):
taxable income. We go from a six hundred thousand dollars
game down to a three hundred thousand dollars loss, which
is in line with their expectations and ultimately, you know,
obviously has a huge six figure impact on their tax bill.
Speaker 4 (07:52):
That it does. That it does.
Speaker 1 (07:55):
Yeah, when so I'm at CPA, but I call myself
more about recovering CPA. They don't really practice anymore. I
went more in the ERP side of things. But I
know a common mistake when it comes to financials is
mixing personal and business expenses. Can you elaborate on this.
Speaker 2 (08:13):
Yeah, we definitely see that, especially kind of with like
newer startup businesses. You know, you have individuals that they're
just getting things up and running eventually learning to get
that business bank account set up, but they're probably using
personal funds to get things started. You know, they may
not take the time to go get a business credit card,
so they may be running business expenses through their personal
(08:35):
credit card. And if we don't have a pretty clear
separation of those business and personal expenses, it's not to
say that we can't comb through it, you know, and
identify the items that are personal versus business, but it's
it's going to cost you, Like I mean, there's going
to be a cost associated with either hiring somebody to
do that or for you personally, there's going to be
(08:56):
a time cost for you to go through and start
to set parade out those expenses. And again very much
like this, so this example here with this developer, like
if it doesn't run through the business.
Speaker 3 (09:08):
Account, there's a greater than you know, there's a there's.
Speaker 2 (09:12):
A great chance that we're going to miss it on
our end and we're not going to be able to
identify those expenses and you're going to overstate your income
and you're going to pay too much in tax simply
because like we don't know what we don't know, and
we can't go through all your personal expenses and identify that,
you know, expensive was a business expense versus you know, your.
Speaker 3 (09:29):
Your daycare payment or your you know, your rent payment
and mortgage payment whatever.
Speaker 2 (09:34):
So it's it's it's really important from day one to
get that separate business checking account set up, get a
separate business credit card set up, and and I guess
on the flip side, don't run personal expenses through the
business either. Yeah, you know, once you get those two
things set up, just just just keep them separate. Don't
com mingle the funds, you know, keep your distributions clear
(09:55):
to yourself. However you're compensating yourself as the owner of
the business, you know, take those dollars out and then
use those to pay for your personal expenses. Don't pay
for the personal through the business account.
Speaker 3 (10:05):
It just you don't want to muddy those waters.
Speaker 4 (10:09):
No, no, absolutely not no good.
Speaker 1 (10:12):
I think that this was a good high level overview
of the chapter. So the chapter that we are just
referencing is ensure your financial statements are accurate and up
to date. So if you want to dive in a
little bit more, go ahead and download that ebook and
learn more about financial statements. So let's go to another chapter.
This chapter is going to be evaluating your entity structure.
(10:38):
So Cody, tell me how should contractors approach their entity structure,
Let's say, if they're just starting out or have been
in business for many years.
Speaker 2 (10:49):
Yeah, So I guess before I dive into that, Jennifer,
I'll just real quick, I kind of want to talk
to you through my mindset in terms of ordering the
chapters here and why we're going through this in the
order that we're going through it.
Speaker 4 (11:01):
Yeah.
Speaker 2 (11:01):
I tried to kind of dual rank each strategy based
on two things, you know. Number one, like the importance
to the overall kind of dollars and cents aspect of
things like what strategies have the greatest return on like
the investment of getting them correct? And then number two,
what what is sort of the like chronology of your
of your business. Right, So, if you're just starting out,
(11:25):
like getting good financial statements chapter one, like that is
that is the most important thing that you can do
starting out. It's also going to have the greatest benefit
to you because it's it's the baseline that the foundation,
like we said, for every tax calculation that we're going
to do. Moving into chapter two or strategy to your
entity structure. It's also it's it's a decision that you
(11:48):
make early on in the life of your business. So
it's one of the first decisions a new business owner
has to make is how how am I going to
set up this business? And it's not a set it in,
for get it, you know, decision, right, It's it's something
that you need to continue to evaluate. So it's not
just for startups. It's a consideration you need to evaluate
(12:09):
throughout the life of your business. As your business goals change,
as your business evolves, your enity structure may need to
evolve with it. So that's just a little bit kind
of behind the scenes as to why I've ordered these
things the way that I have. And also this choice
of entity structure has a huge impact on the dollars
and cents aspect of your ultimate tax bill.
Speaker 4 (12:33):
Yeah, it does, it does, absolutely.
Speaker 1 (12:36):
Can you dive more into that what structure?
Speaker 3 (12:40):
Yeah?
Speaker 2 (12:40):
So, so really for tax purposes, there's four different structures
that a business owner can choose from. There's a sole proprietorship,
there's partnership, and then there's ans corporation or a C corporation.
You'll notice I didn't say LLC. I think you know.
LLC is the term that everybody throws out there on
social media. An LLC is not an entity type for
(13:03):
tax purposes. It is a legal entity type in depending
on the elections that you make for that LLC will
dictate the entity type for tax purposes. So your LLC
could be one of any of the four entity types
that I mentioned there kind of to dive into the
(13:23):
different entity types a little bit further provideable background on them.
I always start with sold proprietorship because I think that's
where most new businesses start out. It's it's an easy
to set up structure. You don't actually have to file
anything with like a Secretary of State or other government
agency to formally organize this business. You can just go
out there and start running as a sole proprietorship, and
(13:46):
you report all of the activity from your sole proprietorship
directly on your individual tax returns. So from a filing perspective,
it's it's super easy. Again, That's why you see it
commonly with startups. The downside, one of the main sites
to a sole proprietorship is as you start to grow,
as your profitability increases, all of your income is subject
(14:07):
to the self employment tax, which is essentially a replacement
for Social Security and Medicare that you're.
Speaker 3 (14:13):
Paying as a sole proprietor business.
Speaker 2 (14:16):
So it's an additional fifteen point three percent tax on
top of the income tax that you're paying. So can
it can start to become pretty burdensome over time, and
that's really where you start to see a potential shift
as your business grows into one of the other other structures.
Got it, so kind of moving through the book. In
(14:40):
the other structures, we have two different types of flow
through businesses, partnerships and s corporations. There's a lot of
similarities between the two in that you as an owner
within this business, your income will pass out to you
and be taxed on your individual tax return via a
Schedule K one. So partnerships and as corporations they don't
(15:01):
actually pay tax at the federal level. At the business level,
they consider pass through entities where the income flows out
to the owners and his tax on their individual tax return.
Speaker 3 (15:13):
Kind of a change as far as I.
Speaker 2 (15:15):
Think a lot of business owners aren't aren't maybe used
to that when they make that change. The requirement to
do estimated tax payments and things like that can catch
people by surprise. So it's important to know how the
choice of entity impacts your individual tax liability because you
could be surprised and end up owing tax later in
the year based on the profits of that company, whether
(15:37):
or not you've received any any actual cash payout.
Speaker 3 (15:40):
From the business.
Speaker 2 (15:41):
Okay, okay, So some of the differences between the two
partnerships are very flexible. You can especially allocate income and
deduction between partners You can have kind of special allocations
of distributions based on the way your partnership agreement is written.
So it provides a ton of flex a bit. Again,
one of the downsides here is if you're actively participating
(16:04):
in the business, your income is very likely going to
be subject to that self employment tax, just like with
this proprietor structure. So I will say just kind of
in my professional experience, most of the contractors I work with,
I see that they eventually move into the s corp
structure because it still provides that kind of flow through
structure of a partnership. But you can pay yourself a
(16:26):
reasonable compensation through that entity, and you can you know,
mitigate or reduce the amount of the Social Security and
Medicare tax that you're paying based on the compensation. Any
income that flows out to you on your K one
that's above and beyond your compensation is not subject to that.
(16:46):
That's self employment tax.
Speaker 1 (16:49):
And that is why we hire you because you know
how we can save on taxes through switching different entities.
Speaker 2 (16:58):
Then, yeah, and you know that that's a very common,
you know, kind of path for us is we work
with these sole proprietors and once you hit it's going
to vary, you know, based on based on your business
and kind of you know, where where your profitability is
in your maybe want or need to take on things
like payroll filings and you know, additional corporate filings and
(17:22):
things like that. But at a certain point, most businesses
outgrow that sole proprietorship and we tend to advise them
to move into an es CORP structure. I did that
just a couple of years ago for a client and
right away, you know, annual tax savings in the range
of about ten to eleven thousand dollars just by just
by you know, switching that button over to the escorp status.
(17:43):
And that's going to be annual savings, right that's going
to be every single year that they're going to save that,
you know, ten to eleven thousand dollars. As they start
to grow the business and it becomes more profitable, those
savings are going to continue to compound and it becomes
than a twenty thousand dollars savings for thirty thousand dollars
savings as your business continues to.
Speaker 1 (18:01):
And was that the husband wife who were running the
business together and they were finally as a soul proprietorship.
Speaker 2 (18:06):
Correct, Yeah, they were a husband and wife actually a
dual real estate agents, so very successful kind of husband
and wife real estate team.
Speaker 3 (18:14):
The business was set up.
Speaker 2 (18:15):
As a sole proprietorship that the wife owned originally, so
they were paying that self employment tax and we were
able to convert into anes corporation, set them up with
a reasonable compensation as required by the IRS, but essentially
cap the amount of income that was subject to the
Social Security and Medicare taxes so that anything on top
(18:35):
of that is not subject to the fifteen point three
percent tax that I mentioned, and that's where the tax
benefits are coming from. And apparently on a side note,
and I will not pretend to be an expert in
this at all, but a big reason that they came
to me initially was that going through this entity restructuring
(18:56):
and moving to Escort allowed them to get a better
health insurance plan. Again, I can't comment on on why
that worked out for them, but that was the story
that I was told, and so there were other non
tax benefits to them making that change as well.
Speaker 1 (19:12):
Yeah, no, that's I mean it all it's a domino effect, right,
So again we get you to help out and switching
over SOL proprietorship, then to an escorpor and then it
goes from there. What about for companies who are structuring
for growth, like I hear it in my industry right,
like we we plan on growing and plan on ground
(19:33):
scaling and growing bringing in potentially partners. Any advice on that.
Speaker 2 (19:38):
Yeah, I mean I think that's that's something that you
need to have a conversation with somebody informed in these
matters about, you know, your CPA and attorney, probably a
joint combination of different providers to talk through that, you know,
depending on exactly how you want to broach that subject
or you know, a partnership maybe a good opportunity there.
(19:58):
There's a lot of flexibility, like I said, with how
you allocate things and setting up sort of different tiers
of waterfalls and income allocations. So the partnership is certainly
a good structure for bringing in outside investors.
Speaker 3 (20:11):
So it's a sea corporation, you know, you can bring
in outside investment there.
Speaker 2 (20:15):
You know, I've started to see within the construction industry,
not to again jump ahead too far into the book,
utilizing a sea corporation to set up an ESOP so
that you can get employees skin in the game and
have a bit of the ownership through an ESOP, which
again is you know, you need a corporate structure to
utilize that. So yeah, it's definitely something to have a
(20:36):
conversation about because it's not a one size, fit fits
all answer. You'll note in the book, I don't actually
recommend anything to anybody.
Speaker 3 (20:44):
It's all just food for thought.
Speaker 2 (20:46):
It's all just here are choices that are available to you,
and here's you know when some of these choices may
be beneficial versus not beneficial. But you really do need
to sit down and talk through this with somebody because
everybody's tax situation is different and unique, and one slight
variation in your situation versus you know, your buddy situation
(21:08):
can have a totally different recommendation or.
Speaker 3 (21:11):
Outcome as far as how we want to move forward
with things.
Speaker 4 (21:15):
Yeah, it's good advice. Cody.
Speaker 1 (21:17):
Ready to talk about the next chapter?
Speaker 3 (21:19):
Yeah? Sure?
Speaker 1 (21:20):
Okay, So this chapter is Assess your Accounting methods. So
we are talking cash a CRUL completed contract percentage of
completion sounds a little technical, so very much does this
really mean for a contractor Yeah?
Speaker 2 (21:37):
And I think I sort of preface it in the
book as like, this is the most complicated strategy that
we're going to dive into here, and this is an
area where I even see accountants, you know, struggle with
conceptualizing this because this is of all the strategies in
the book, this is the most I would say specific
to the construction industry. Okay, most business owners know that
(22:00):
that they have a choice between cash and a creole
as far as accounting methods go. You know, a CRUL
essentially meaning that you know, when you bill your client,
you're going to recognize it as revenue, and then when
you incurrent expense.
Speaker 3 (22:10):
You're you're gonna recognize that expense.
Speaker 2 (22:12):
It has nothing to do with when you receive cash
from your clients and has nothing to do with when
you pay expenses out to your vendors. Cash is obviously
the exact opposite. You recognize revenue when you receive cash,
and you recognize expenses when paid within construction you touched
on it. You know, we have other methods available, such
as completing contract percentage of completion. Even within kind of
(22:35):
those buckets, there's some other sort of more nuanced specific
methods available. So it does get very complicated because instead
of deciding between cash and a cruel and only having
two potential options to move forward with, you you could
have upwards of you know, four or five, maybe even
six methods that you're applying on your tax return. In
(22:57):
different jobs or job types could be treated under different methods.
So a home contract may have a different method than
like a you know, commercial building, you know, an office building,
or you know, you know, a manufacturing facility or something
like that. So even within like one one kind of
(23:18):
contractor schedule of whip like, you could be applying different
methods to different types of jobs, and it could get
very very nuanced and very complicated very fast, just depending
on the kind of the types of work and the
types of jobs that you're you're moving forward with all.
Speaker 1 (23:33):
Right, and you mentioned what right, and immediately my brain
goes to overbilling versus underbilling and calculating that out.
Speaker 2 (23:41):
And maybe, I don't know, maybe we should to to
sort of circle back to chapter one, just talk about, like,
you know, what our over buildings and under buildings, and
how do you account for you know, jobs for a
contractor you know, I guess very simply put, for book purposes,
most contractors should be maintaining their long term contracts on
(24:02):
a percentage of completion basis. And what a long term
contract is is it's any job that spans tax hears
so it doesn't have to go more than three hundred
and sixty five days. You can have a job that
starts in November and ends in February. That's that's a
long term contract because it spans tax hears, it spans
reporting periods. So maybe just like a very basic example
(24:24):
just to kind of educate everybody on how this should
be done. You know, let's say you have one job.
It's a one hundred thousand dollars job. You expect that
you're going to incur eighty thousand dollars of costs to
complete the job. You're gonna have twenty thousand dollars of
profit on it. Right at the end of the year.
Let's say you've invoiced your client sixty sixty thousand dollars.
(24:48):
When you do that, your accounting system is going to
recognize sixty thousand dollars of revenue. When you send out
that invoice, you're gonna have sixty thousand dollars of revenue
show up on your P and L. Let's say at
the end of the job, you've only incurred forty thousand
dollars of the total eighty thousand dollars of costs. So
your job, your job is fifty percent complete, you should
(25:12):
have only recognized fifty percent of your revenue, so fifty thousand,
not sixty thousand. So you're overbilled on that job by
by ten thousand dollars. So to adjust your books, you know,
for the percent complete that that job is actually complete,
you're going to need to reduce your revenue by ten
thousand dollars and you're going to need to book an
(25:33):
overbilling on your balance sheet of that ten thousand dollars.
So it's a very basic example of how you apply
the percentage of completion method of accounting. But imagine, you know,
you do that for one hundred jobs on your schedule,
right your web scheduling, you got to go through, and
you got to go through and kind of make those
over under billing analyzes and update your financials accordingly. That's
(25:57):
the book side of things. On the tag side of things,
we have a lot of opportunity to utilize other methods
to defer income. This is this is not like a
permanent tax savings game, you know, like the entity structuring
where you can move from one entity a structure to another.
You can achieve permanent tax savings through that. This is
purely a timing strategy. It's purely kicking the can down
(26:18):
the road so that you can save a dollar today.
And we all know that a dollar today is much
more valuable than a dollar a year or two down
the roads. So we can implement, you know, these other strategies.
And I have a couple examples, you know, just over
the years. Back in it gives me twenty eighteen because
the Tax cuts and the Tax Cuts and Jobs Act
(26:40):
was passed at the tail into twenty seventeen, so that
was kind of.
Speaker 3 (26:42):
The first Trump tax bill. And obviously we're going through.
Speaker 2 (26:46):
You know what will be the second Trump tax bill
right now the House, and the House is actually.
Speaker 3 (26:51):
Debating that I think today as of the day of
this recording.
Speaker 2 (26:54):
So we may have some some updates there as the
upcoming tax lot changes, but we're not going to talk
about that until the bill's final. But back in twenty seventeen,
the first Trump tax bill was passed, the Tax Dosing
Jobs Act, and one of the provisions there increased the
gross receipts threshold for the definition of what is considered
(27:16):
a small business. So prior to that bill, the threshold
was ten million dollars in average annual gross receipts for
the past three years. When that bill was passed, it
up to the threshold to twenty five million dollars, and
it indexed it for inflation. So I think today twenty
twenty five, the threshold is now thirty one million dollars.
I believe the reason that that matters and why that's
(27:40):
beneficial is it it significantly increased the number of contractors
that could utilize methods like cash or like completed contract
on their tax return and move away from the requirement
to report their tax return on percentage of completion basis.
(28:00):
So we saw a huge opportunity when that bill was passed.
And I can probably think of half a dozen or
more examples of contractors that fell between that ten and
that twenty five million dollar threshold where we were able
to convert them away from percentage of completion over to
like a cash method.
Speaker 3 (28:22):
And defer.
Speaker 2 (28:24):
I would say, depending on the client, anywhere from six
to maybe even seven figures of taxable incommed into the center.
So again we're kicking the can. It's not a permanent savings,
but there's there's huge benefit to kicking that can down
the road.
Speaker 4 (28:40):
Yeah.
Speaker 1 (28:41):
No, absolutely, Cody, this has been great. What's the one
thing you'd want every contractor listening today to take away
from this conversation between us?
Speaker 2 (28:52):
Yeah, I would say, don't wait on tax planning, just
you know, download the book some time to run through.
It's it's a meaty book. It's over fifty pages. It's
not your typical you know, one page lead magnet that
people put out there, and it's got one sentence on
each strategy, like, no, this is a this is a
deep dive into the strategies. I don't expect any construction
(29:15):
business owner to become a tax expert in this, but
I wanted to put out something that was incredibly detailed
and incredibly valuable so that you could you could take
this and not learn how to do your own tax return,
but go to an expert and have a conversation about
these strategies, about these opportunities, and take advantage of them
(29:35):
before it's too late. Right it's it's July right now
when we're recording this. If you come to your CPA,
your tax prepair in February.
Speaker 3 (29:44):
March, April of twenty twenty six, it's too late.
Speaker 2 (29:47):
It started now. I start with all my clients at
least in Q four. We're doing tax planning for everybody.
Some clients we start earlier in the year. You know,
we're starting maybe even potentially now, depending on the industry
that they're in, in the.
Speaker 3 (30:01):
Situation that they might fall into.
Speaker 2 (30:03):
So I think, yeah, the one the one takeaway is,
you know, take advantage of the free book. Download it,
get started today, don't wait. Contact an expert doesn't have
to be Cody Daniels, a builder's tasher. It can be
your your CPA that you've had a long term relationship with.
But you know, we exist to help you, but we
(30:23):
can't do it if you wait until the year's over.
You know, work with somebody proactive, be proactive. Taxes are
one of the largest expenses any of us are going
to pay in our lifetime, So don't make it an afterthought.
I know this is a busy season for contractors. Everybody's
busy out there running jobs. But you know, find some
time and you know, take control of this liability for
(30:44):
your business.
Speaker 1 (30:45):
Yeah. Absolutely, And then I will put a link to
Laying the Foundation again where you can download this free ebook.
How about if they do want to learn more, they
do want to contact to Cody, how would somebody get
a hold of you.
Speaker 2 (30:59):
Yeah, I mean we could host like the contact us
page in for the website directly in the show notes,
so you can certainly go there. There's a short questionnaire
to fill out just to help me learn more about
the business. So I can come into any conversation well informed,
you know, if you want to contact me kind of
on a more personal level. LinkedIn is where I'm most
active on social media. I don't really do the X
(31:20):
or you know, anything, Twitter, whatever you want to call it.
I'm not really active on any of those platforms. But
pretty active on LinkedIn, so add me on LinkedIn, shoot
me a DM, or contact us through the website and
having to you know, strike up a conversation.
Speaker 4 (31:33):
Awesome.
Speaker 1 (31:34):
And Cody, it has been such a pleasure. Will you
come back to the show and continue this.
Speaker 3 (31:38):
Yeah, I would love to come back. This has been great,
Thanks Jennifer.
Speaker 1 (31:41):
Okay, we'll go through some more chapters, but again, if
you want to reach Cody Daniels, founder of Builders Tax Group,
we'll put that link in there and you can also
speak on LinkedIn as well. Cody. Again, absolute pleasure and
I look forward to our next recording.
Speaker 4 (31:56):
Yeah.
Speaker 3 (31:56):
Likewise, thanks Jennifer.
Speaker 4 (31:58):
All right, take care
Speaker 3 (32:00):
It, Issa,
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