August 12, 2025 • 34 mins
In this second part of our tax strategy series with Cody Daniels, founder of Builders Tax Group, we dive into some often overlooked but powerful tax strategies specifically for contractors and construction businesses. Cody breaks down valuable insights on tax credits like the Research & Development and Work Opportunity Tax Credits, accelerated depreciation options including Section 179 and cost segregation studies, plus smart ways to implement tax-efficient retirement plans that can help you save today while building wealth for the future.
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Episode Transcript
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Speaker 1 (00:05):
All right, I want to welcome everybody to the Lumberyard
once again. Very excited to have our guest speaker today,
Cody Daniels, a founder of Builders Tax Group, specializing in
tax strategies for construction and service trades businesses. Not only
is he the founder of that, he also authored Laying
(00:27):
the Foundation, a Contractor's Guide to Strategic tax Savings where
you can minimize taxes for contractors. And also it is
available free for download. And this is actually our second
part of the series that we're doing with Cody. When
(00:49):
we did part one, that one we focus on financial statements,
the foundation of tax strategy. Then we went into talking
about entity structure and then picking the right accounting method
and so we're going to dive back into it. But
let me go ahead, let me welcome Cody and then
he'll give you an introduction to what we're going to
(01:12):
cover today. So welcome Cody to the show.
Speaker 2 (01:15):
Yeah, Jennifer, thanks so much for having me back. Always
a good day to talk taxes.
Speaker 1 (01:20):
Yeah, absolutely, So where are we going to talk about today, Cody?
Speaker 2 (01:23):
Yeah, So today, I think in the last session, like
you alluded to, we talked about pretty foundational tax strategies
every contractor should be implementing.
Speaker 3 (01:33):
Today we're going to.
Speaker 2 (01:34):
Talk about maybe some more overlook strategies or maybe misunderstood strategies,
things that maybe as a business owner, you've you've heard
a little bit about, but maybe you don't have a
great understanding of. But you know, if available to you
are certainly strategies that could could result in significant tax savings.
Speaker 1 (01:54):
Awesome, Well, let's go ahead and let's dive right into it.
So the first strategy, what would you say that would be?
Speaker 2 (02:01):
Yeah, So the first of these three strategies is considering
tax credits and incentives. I think a lot of business
owners when they think about tax credits think about, you know,
like large publicly traded Fortune five hundred type businesses. Maybe
they think about specialized industry such as tech, or you know,
like oil and gas, like energy type credits, things like that.
(02:23):
But even within construction in the trades, there's a lot
of opportunity to take advantage of various credits if you
know where to look.
Speaker 1 (02:31):
All right, So give me some examples that contractors might
qualify for.
Speaker 2 (02:38):
Yeah, So the first one that comes to mind is
the Research and Development tax credit. This is a federal
tax credit designed to reward businesses that invest in innovation,
process improvement, problem solving. So you'll notice I didn't say
anything about like, you know, technological advancement or anything like that.
So there's a plenty of opportunity for more construction businesses
(03:01):
to take advantage of this credit. There's obvious opportunities such
as maybe electrical contractors getting into solar energy or something
like that, but even less obvious opportunities if you're developing
like innovative building techniques, improving construction processes or using you know,
new and innovative raw materials.
Speaker 1 (03:22):
All right, and then if if they use this credit, Uh,
how would you then as a tax advisor, how would
you know or how would you tell them that this
is available?
Speaker 2 (03:37):
Yeah, so I think you know, having an in depth
conversation with your tax advisor, you know, talking about the
type of activities that you're doing. Certainly, if you're somebody
that has like engineers on staff and you're doing more
like engineering based activities, that that might be a sign that, hey,
you know, there's some opportunities here. I will say it's
something that most CPAs we don't produce this studies in house.
(04:01):
These R and D tax credit studies. So this is
something where we're likely to refer you to an outside
firm that can prepare a comprehensive credit study. And the
process for that is it's not too burdensome necessarily on
the business owner. The process is they're going to focus
on interviewing your different employees. Your employees are going to
(04:22):
have to track time on qualifying activities. But you know,
these firms, they'll walk you through the process, you know,
give you sort of a guidebook to.
Speaker 3 (04:30):
Follow, and then they'll produce on an.
Speaker 2 (04:32):
Annual basis this comprehensive R and D tax Credit study report.
Speaker 1 (04:38):
Okay, perfect, no good to know. So then with the
R and D, what would be another tax credit?
Speaker 2 (04:44):
Yeah, so another one is the work Opportunity tax Credit.
And I will caveat this by saying right now, this
is set to expire at the end.
Speaker 3 (04:54):
Of twenty twenty five.
Speaker 2 (04:56):
However, throughout the life of this tax credit, there have
been very expirations in prior years, and the federal government
has extended it at various times. In my understanding, it
was not part of the One Big Beautiful Bill Act
that passed recently. But my understanding is there is bipartisan
support to extending this credit. So, as always with taxes,
(05:19):
you know, stay tuned, stay aware, because things.
Speaker 3 (05:21):
Are likely to change at any moment.
Speaker 2 (05:24):
But the purpose of the credit is to reward businesses
that hire individuals from certain targeted groups such as veterans
ex felon's, long term unemployed individuals, or individuals that receive
certain public benefits such as SNAP or SSI.
Speaker 1 (05:41):
Okay, what is the typical credit range that you see
for eligible employees that are hired.
Speaker 2 (05:48):
Yeah, it's going to vary, you know, someone's going to
depend on how long the employee work for you. But
the credits can range from anywhere around twenty four hundred
dollars per employee upwards of nine six hundred dollars per
eliguble employee. So could could certainly be significant if you're
hiring many individuals from these protected groups.
Speaker 1 (06:09):
Okay, so then how would an employer acclaim this credit?
Speaker 3 (06:15):
Yeah?
Speaker 2 (06:16):
So again, this is this is another area where your
CPA is probably not going to be able to work
you through the process entirely in house. Typically, to claim
the credit, the employers need to complete a spreading and
certification process to verify that these individuals meet the criteria
to be eligible for the credit, and typically they're going
(06:37):
to want to work with.
Speaker 3 (06:38):
An outside firm.
Speaker 2 (06:40):
In my understanding, Jennifer, is that lumber has recently acquired
Builder Facts. Could could you know, help out employers with
this certification process?
Speaker 3 (06:51):
Yeah?
Speaker 1 (06:51):
Yeah, absolutely. You know, we really make credential management simple
using Builder Facts, so all of your workforces like certifications, licenses,
and training are kept all in one place. So that
is something that we added we acquired back in May.
Speaker 3 (07:13):
Awesome.
Speaker 2 (07:14):
Yeah, and it's really not something that somebody's going to
be able to do internally. They're going to need that
outside resource with that specialization to make it cost effective
to do this. This is like a whole separate process
that you shouldn't be burdening your internal in place with
learning that you should really be relying on your experts
to work through that process for you.
Speaker 1 (07:33):
Okay, no, good to know. So we have R and
D credit, the Work Opportunity tax credit. What's another one
that you have for us?
Speaker 2 (07:44):
Another one that I see that's commonly overlooked our various
fuel tax credits. So there are federal credits available to
recover the X size taxes paid on fuel. If the
fuel is used for off highway purposes, such as being
used in construction equipment or vehicles that are not driven
on public roads.
Speaker 1 (08:06):
Okay, and so let's talk more about this. What would
be some good examples for contractors.
Speaker 2 (08:14):
Yeah, so I think if you're a roadbuilder, if you're
a excavation or like demolition contractor. I've seen this in
practice with a lot of landscapers, so you can see
how those types of businesses would be using significant amounts
of fuel in off highway purposes. And the credits are significant.
For gasoline, it's currently eighteen point three cents per gallon
(08:39):
in twenty four point three cents per gallon for diesels.
So you can see again if you're a roadbuilder like
a demolition contractor, that this could add up to significant
dollars at the end of the year. There is a
process that you'll need to implement. Again, this is one
you probably could do internally where you're going to have
to maintain a record differentiate between on road usage and
(09:02):
off road consumption. So again, like a lot of my landscapers,
they have a fueling tank on site to fuel up
their mowers and their other small equipment and things like that.
So you may implement a policy that the on site
fueling is just for equipment and all of you know,
your vehicles that are taking the crews to different job sites.
(09:24):
You know, maybe they're getting their fuel at local fuel
stations and things like that. So that could be a
very easy way to separate the two and help you
track this in an efficient manner.
Speaker 1 (09:33):
Yeah, that's a really good idea for contractors to do. Okay,
so then we have that one still going along the
lines of vehicles. What is another one that can contractors
can have.
Speaker 2 (09:50):
Yeah, there are still, for a very short amount of time,
electrical vehicle credits available to anyone, you know, interested in
buying like electric vehicle, whether you know, for like fleet
purposes or just you know kind of you know, owner
business used vehicles, things like that. I will say these
(10:10):
credits are sunsetting very quickly. The One Big Beautiful Bill
Act did move forward the sunset date for these credits.
It's now September thirty. It's twenty twenty five. So if
you're somebody that's interested in acquiring an electric vehicle, you're
going to need to move pretty quickly and make those
(10:30):
purchases before September thirtieth.
Speaker 3 (10:33):
Otherwise those credits will cease to be available.
Speaker 1 (10:36):
Okay, do you know what the credit is for electric vehicles?
Speaker 3 (10:40):
You know? Offhand?
Speaker 2 (10:41):
I think it's seventy five hundred dollars. Probably should have
double checked.
Speaker 1 (10:44):
Out personally, that's what it is. Yeah, if I were
to go buy one, it's seventy five hundred.
Speaker 2 (10:49):
Yeah, So I think there's a reduced credit for used
vehicles that's still available. Most of these credits now, they're
not claimed on your income tax return. Most of them
can be claimed at the dealership when you make the
purchase now, So it's the burden of reporting has shifted
away from us as the CPA is over to the
dealerships are responsible in those cases for facilitating that credit.
Speaker 1 (11:13):
Okay, good to know. And any other specific credits that
you want to mention.
Speaker 2 (11:19):
Nothing specific, but I do want to mention that there
are some state level credits and incentives out there, typically
again around hiring. So there are some like state level
credits similar to work Opportunity tax credit. There may be
credits at the state level for training, and then there
may be you know, state like energy type credits as well,
(11:39):
where some states do have you know, credits for alternative.
Speaker 3 (11:44):
Fuel vehicles and things like that.
Speaker 2 (11:46):
So obviously not something that I know the inner workings
of every single state.
Speaker 3 (11:51):
But that's why you work with with the CPA.
Speaker 2 (11:54):
You know, we can certainly research these things and do
deep dive for clients to assess what might be available
based on the states that they're operating in.
Speaker 1 (12:04):
Okay, And it's very important to tax your talk to
your tax pro about these credits before filing, not right after.
Speaker 3 (12:15):
Right.
Speaker 2 (12:15):
Yeah, there's a lot of this that has to be
handled real time and after the fact. As with as
with most things in tax, it's hard to go back
in time and you know, set these things up probably, So, Yeah,
the work Opportunity tax credit, for example, that's really something
you want to be on top of because you need
to be submitting the certifications during the onboarding process. It
(12:37):
takes time, uh for these certifications to process. So in
order to complete your tax return on time, you really
want to be doing this as you're hiring employees and
not trying to you know, go back in time submit
the certifications after they've been working for you for a
period of time and you know, just kind of dragging
out the process.
Speaker 3 (12:57):
Otherwise you're gonna you're gonna really kind.
Speaker 2 (12:59):
Of put yourself in a position when it comes time
to file your tax return.
Speaker 3 (13:03):
Yeah.
Speaker 1 (13:04):
Absolutely, all right, that was a good strategy again considering
tax credits and incentives. So let's move on to strategy
number two, taking advantage of accelerated depreciation. So do you
want to go ahead and expand on strategy two for us?
Speaker 3 (13:23):
Yeah? Absolutely.
Speaker 2 (13:25):
I think this one is maybe not so much an
overlooked strategy as a misunderstood strategy. I think I think
most construction business owners know that, you know, hey, we're
in an industry where, depending on what you're doing, you
may have pretty significant capax expenditures, and you want to
make sure you're getting the advantage of depreciation on that
(13:46):
cap X. The issue is that I think there's a
there's frequently misunderstanding around the different methods for taking advantage
of depreciation. So first I kind of want to dive
into Section one seventy nine.
Speaker 3 (14:00):
I think most.
Speaker 2 (14:00):
Business owners are aware of Section one seventy nine. It
allows for immediate expensing of eligible assets. Per the One
Big Beautiful Bill Act, it's now increased up to two
point five million dollars per year, so significant increase in
the threshold that allows us to take advantage of writing
off those assets. It is unique in that it's elected
(14:24):
on an asset by asset basis, and that's going to
differ from something like bonus appreciation, which we'll dive into next.
One downside of Section one seventy nine is that it
cannot create a loss, so you can only bring your
taxable income down to zero. But what I like about
Section one seventy nine is that it gives you a
(14:46):
lot of flexibility because you can elect it on an
asset by asset basis. So there may be very specific
reasons why you do not want to drive your taxable
income all the way down to zero or use something
like bonus appreciation to create a loss. I mean, you
may have expiring tax credit carryovers, you may have expiring
(15:07):
lost carryovers from prior years, and if you if you
drive your income down to zero or to a loss,
you're going to lose out on those prior to year
benefits that you generated for yourself.
Speaker 3 (15:17):
So there may be very.
Speaker 2 (15:19):
Strategic reasons why you target a specific amount of income,
and Section one seventy nine gives you a ton of
flexibility to if you're placing in service significant fixed assets
during the year, like really kind of target like almost
to the dollar, like what you want your taxable income
to be for the year, Okay, And.
Speaker 1 (15:36):
That's why you need to talk to your tax pro
to be able to go into a deeper dive with
that and try what is your best situation?
Speaker 3 (15:45):
Right?
Speaker 2 (15:45):
Yeah, Sometimes good tax planning is not just about driving
to the lowest number possible. Sometimes it's about, you know,
looking at the picture holistically, looking at other sources of
income that you may have, looking at tax rates. Just
there's a lot more that goes into have been like
let's just drive all the way to zero.
Speaker 1 (16:02):
Sure, sure, okay. So you talked about section one seventy
nine and then you hinted on bonus appreciations.
Speaker 3 (16:09):
Talk about that one.
Speaker 2 (16:10):
Yeah, so so bonus appreciation a lot of similarities to
Section one seventy nine. Again, the One Big Beautiful Bill
Act has reinstated one percent bonus appreciation, so it's it's
very similar to one seventy nine, and that we can
use it to fully write off the cost of eligible assets.
And that that bill made one percent bonus appreciation permanent.
(16:33):
So unlike the Tax Cuts and Jobs Act, which provided
one hundred percent bonus appreciation for your period of years
and then scheduled it too slowly sunset over a number
of years. We do have one hundred percent bonus appreciation,
I will say permanently. What that means in the tax
law is until another bill is passing the changes it.
Speaker 3 (16:54):
But the current bill there is no.
Speaker 2 (16:57):
Scheduled sunsetting or termination of one hund percent bonus appreciation.
Speaker 3 (17:02):
Okay, so we have a lot of opportunity there.
Speaker 2 (17:06):
One of the differences between bonus and one seventy nine
is that for bonus it is by default an election
in so if you do not want to claim bonus,
you have to include a statement electing out of bonus appreciation,
and it's elected on an entire class of assets. So
all five year assets, for example, which for contractors would
(17:27):
include you know, most of their equipment and vehicles would
be five year assets. So you don't have quite the
same flexibility a section one seventy nine, and that you
can't pick and choose individual assets. It's you know, individual
classes of assets.
Speaker 1 (17:42):
Okay, okay, good? And then what is another accelerated depreciation
that we can look at?
Speaker 2 (17:49):
Yeah, so I think this is very overlooked and I've
actually heard in conversation with other CPAs that there are
some people in our industry that don't even believe that
this is legal to do, and that is a cost
aggregation study. So a cost aggregation study is a tax
focused study that can be conducted on real estate to
(18:12):
identify components of real estate that can be depreciated over
shorter years. So generally speaking, real estate is depreciate over
very long.
Speaker 3 (18:23):
Time period.
Speaker 2 (18:24):
For residential properties, it's twenty seven and a half years,
for commercial properties it's thirty nine years. So you can
see if you're investing in real estate, it takes you
a very long time to recover those costs. Well, with
the cost aggregation study, we can come in and identify
components of the building that qualify for shorter tax lives.
(18:44):
So some examples of that might be many types of
flooring qualify for five year tax life. Most things like
furnitures and fixtures qualify for seven year tax life. And
actually if you look to the exterior of the building,
most of the areas around the building, such as you know,
like landscaping, parking lot, sidewalks, anything that's kind of like
(19:07):
a land improvement qualifies for a fifteen year tax life.
And what makes this incredibly beneficial is that now was
this one hundred percent bonus appreciation available. Anything that we
reclassify to like a five, seven or fifteen year tax
life now qualifies for that one hundred percent bonus appreciation,
(19:27):
So we can fully write off those dollars entirely in
the year that you've placed the building in service. So,
depending on the type of building, I think you could
easily ride off if it's acquired placed in service after
January nineteen, twenty twenty five, so that's when the new
(19:48):
bonus rules come into effect. But if you acquire it
after that date and we have one hundred percent bonus
appreciation available to us, I think you could easily ride
off between fifteen and forty percent of the hire purchase
price of that building in year one.
Speaker 1 (20:04):
I feel like when this goes live, a lot of
our tax pros are tax experts are going to be
getting phone calls from contractors out there when they're listening
to this, going yeah, do what I.
Speaker 2 (20:15):
Would hope So because this ties so ties in so
well to construction, because the vast majority of contractors I
know get into real estate as a as a form
of investment in some capacity. It may just be the
building that they're operating out of. They'll frequently own that
and that that's enough. If you own just that building,
(20:36):
that's great. But if you're a contractor that is getting
into you know, other forms of real estate investing, you know,
whether it's commercial, residential, you know, whatever types of properties
that you're acquiring and renting out, there's some there's some
significant opportunity there to generate significant tax write offs and potentially,
(20:57):
depending on your circumstances, offset the profits from your construction
business with those write offs.
Speaker 1 (21:03):
Awesome. So what would be some strategic angles you would
say for contractors out there?
Speaker 2 (21:13):
Yeah, I think you know this. This has to be
an integral part of your year in tax planning. With
most of my contractors, you know, we have the conversation
every fall, should I go on buy some new trucks?
Speaker 3 (21:25):
Should I go on buy some new vans?
Speaker 2 (21:27):
And I will I will say that I wouldn't put
the car before the horse when it comes to tax planning. Again,
like I said earlier, good tax planning is not all
about necessarily driving down to zero if you don't need
that equipment, like if you're not going to use you know,
the new truck, the new van, whatever it might be.
I wouldn't advocate for somebody to spend fifty grand to
(21:50):
generate twenty grand of tax saving if that doesn't make
good economic sense. But if you're if you're a growing business,
if you're a business that you know has aging equipment,
can definitely benefit from adding more to the fleet, you know,
adding more or replacing old, whatever it might be.
Speaker 3 (22:11):
I think you have to.
Speaker 2 (22:11):
Consider this as a significant tax raving strategy as you
kind of approach your end.
Speaker 1 (22:17):
Couldn't agree with you more, couldn't agree with you more? Awesome. Well,
let's go ahead and let's dive into strategy three, implementing
a tax efficient retirement plan. Care to expand more on
this one?
Speaker 2 (22:31):
Yeah? Again, I think this is frequently overlooked. It's something
that's easy to put on the back burner, especially like
in your startup years where you know you may be
a little.
Speaker 3 (22:41):
More cash strapped.
Speaker 2 (22:42):
It's hard to justify, you know, I'm going to put
away X dollars, you know, for twenty thirty years down
the road. If I can take those dollars and again
continue to grow the business, make that next hire, you know,
get that next crew, on the road, whatever it might be.
But I do think that retirement planning is obviously it's
a it's a key part of tax strategy, but also
(23:05):
it's just a key part of building your wealth overall
as a business owner.
Speaker 1 (23:09):
Yeah. Absolutely. So what are some options for small construction businesses?
Speaker 2 (23:14):
Yeah, So for purposes of this discussion, I've kind of
lumped a few different plans together. Uh. You know, you
can look at like a four oh one K, something
like a step I RA, maybe maybe even a profit
sharing plan. This is another area kind of like some
of the credits, where you know, you really need to
bring in your team of outside experts to work together
(23:37):
on this. Your your CPA is very likely not like
a financial planner investment advisor type person. Certainly some are,
certainly they have those services in house, but a lot
of us don't have those services in house. So we
need to bring in other members of the team of
experts to help advise on this because I'm probably not
the person to break down the nuances and some of
(23:58):
the subtleties around the plans. I can tell you from
a tax planning perspective, you know what makes sense and
what we might consider doing. But I think it's a
good thing to work with h work with the financial
planner investment advisor on you know, setting up the plan
and getting their feedback from from all that as well.
But as far as you know, those those kind of
(24:19):
initial sort of for one K steps things like that
that like more new businesses are likely to implement. From
a tax planning perspective, you know, it's important to recognize
that we have tax deductible contributions that we can make
into those accounts. Frequently we have tax deferred growth with
those with those accounts. And in certain cases, again, if
(24:41):
you're like a startup, you may you may want to
consider a WROTH option, So like a for one K
might provide a WROTH option for you. Again, that's where
you got to really work together, you know, hand in
hand with the CPA and the investment advisor to uh
to work through those things. But the thing that I
like about the retirement plan just overall as a tax
plan strategy, and maybe we can contrast this with like
(25:03):
the purchase of the vehicle. You know, let's say we're
coming to your end, you got an extra fifty grand
that you want to put somewhere you can you can
go out and buy a truck with that, and you
can generate fifty grand of tax right off. That fifty
grand's going into a dealer's hands, right, you take If
you take fifty grand and you put it into a
retirement plan that stays with you, that's those are still
(25:24):
your dollars, right. So it's really one of those areas
where you can generate a current your tax deduction for
yourself while keeping keeping the dollars in your pocket. Right,
it's just right pocket, left pocket. We're taking out of
our current account. We're putting it into a different account
that's still for us.
Speaker 1 (25:43):
You know.
Speaker 2 (25:44):
Yeah, maybe we can't touch it for several years without
incurring the penalty, but we're still retaining that full fifty
grand as opposed to taking that money out and handing
it over to another business. Again, there's no right or
wrong answer here, Like, depending on where you're at with
your business, the truck purchase may make sense, the retirement
you know, contribution may make sense. But that that's why
(26:05):
you know, you've got to be working with somebody and
talking through those different strategies.
Speaker 1 (26:09):
Yeap, different centarios and what's going to work best for you? Absolutely?
What about cash balance plans.
Speaker 2 (26:16):
Yeah, this is this is an area that I think
can work really well for construction businesses if you have
the right dynamics. So, in contrast to you know, like
the four and case the steps, you know, plans like
that that are considered defined contribution plans, a cash balance
plan is more akin to like a traditional retirement like
(26:36):
a traditional pension plan, like a defined benefit plan. So
it is a different way of thinking about things. But
if the dynamics are right, I think it can really
help business owners safe significant dollars for themselves. I think
you have to be a little bit more of a
mature business, so you got to have meaningful profits and
(26:56):
cash flow to contribute to it. Because it is it
is different in that there is an actuarial calculation that
will determine how much you can contribute to the plan.
It's not something like a four to one k where
you know you got like a sort of hard cap
that you can put into it. You know, there's a
more complicated calculation around what you're required to contribute. Not
(27:20):
that you know you can contribute, but you may be
required to make contributions of a certain amount. It works
really well for businesses where you have a small population
of employees that participate in the plan. So I've seen
this work really well for union contractors that have non
(27:41):
union member owners. So if you're the owner of the
business and you drop your union card, you can create
this cash balance plan and the bulk of the moneies
that go into this are going to typically be for
you as the business owner. You may have some other
non union employees, maybe some office staff and things like
(28:01):
that that have to participate in and certainly some of
the dollars are going to go to them. But I've
worked with you know, clients in the past where you know,
upward eighty ninety percent of the total contribution is going
to the owners and these plans, and because they have
high contribution limits, it really works out well if you're
you know, maybe one of those businesses that did put
(28:24):
retirement planning on the back burner early in your career,
because you have a lot of opportunity to make up
those contributions later in your career due to the high
high contribution limits available to you.
Speaker 1 (28:35):
Okay, Okay, good point there. What about employee stock ownership plans?
Speaker 2 (28:42):
Yeah, ESOPs admittedly not an area that I have seen
in practice A lot I've been in public accounting for
thirteen years. I've only seen this in practice twice, but
it's an area that the more I learn about it,
the more I'm intrigued by it, and I definitely see
it as again a good option for the construction industry.
(29:05):
Similar to a cash balance plan. I think you probably
need to be a little bit more mature in your
business for this to make sense. You need to have
a probably a larger employee base from what I've heard,
you know typically need to have at least twenty five
employees to make this make sense. But it can be
a really interesting strategy for transitioning ownership away from the
(29:28):
original owner group to the employees, getting you know, the
employees invested in the business growing in the same direction
because they're going to you know, directly reap benefits from
the success of the business. So it's it's a great
transition plan. But there are significant tax benefits as well.
The contributions to the plan are tax deductible, just like
(29:49):
all the other plans we've we've talked about. If you're
the original owner or owners of the business, there may
be opportunities as you start to sell off your stock
in the business uh, to defer or even potentially eliminate
some of the capital gain associated with that stock. So
that can be a very powerful tax saving strategy as well.
(30:11):
And again like your employees in yourself as as the
owner can benefit from the tax deferred growth associated with
with using the plan. The one the one downside I
will say is that, you know, unlike any of the
other retirement plans, there's no diversification here.
Speaker 3 (30:28):
You know, it's all tied to the business.
Speaker 2 (30:32):
So so it's uh, definitely putting a lot of your
eggs in a single basket. But again, if you're a growing,
profitable construction company, I think it's a very you know,
valid strategy.
Speaker 3 (30:43):
Yeah.
Speaker 1 (30:43):
Absolutely. Now what would you say would be an advantage
or a bonus for employers to offer retirement plans?
Speaker 2 (30:54):
Yeah, I mean, I think in this day and age,
it's kind of table stakes for hiring good employees, even.
Speaker 3 (31:01):
Even as a small business.
Speaker 2 (31:02):
You know, I think people are expecting that. So if
you want to attract like the best talent and retain
the best talent, you know, it's kind of bare minimum
to offer like some sort of retirement plan and to
be contributing to that plan on behalf of your employees. So, uh,
you know, any one of these plans I think is
a good option. But yeah, I think you've got to
(31:23):
have something to bring in the top tier talent.
Speaker 1 (31:27):
Yeah, absolutely, anything else that you want to cover with
these three strategies that we just spoke about today, No, I.
Speaker 2 (31:36):
Think you know, it's we're in a very interesting time
with the tax build passing pretty recently, the one big
beautiful bill AX. So there are certainly, you know, elements
of that build that impact some of these things, like
the changes to bonus appreciations actually one seventy nine. Uh,
there are you know, other things in that in that build.
(31:58):
It might start to play into some of these things,
like there's there's these Trump accounts that you can set
up for kids as kind of a savings plan for
children that you know, maybe how can you package that
into you know, sort of your just overall like estate planning,
wealth planning, you know, relative to your other like retirement
contribution of plans, you know, education plans, things like that.
(32:18):
So there's there's a lot of things happening right now
that have impacts on these strategies. But overall, I mean
these are pretty evergreen strategies. There's there's nothing you know,
within the tax law that is you know, saying no
that you should absolutely.
Speaker 3 (32:35):
Not take advantage of depreciation.
Speaker 2 (32:37):
You should not be considering R and D credit studies
if if they're available to you. You know, there's there's
just a lot going on right now that says tax
planning should be at the forefront of all business owners'
minds because of all these changes. There's so many opportunities
and and like we've said multiple times throughout this episode,
last episode, like you don't want to wait until next
(32:59):
year to say, hey, I should have been doing this, Like,
you need to get in front of it. You need
to be having these conversations now so that you can
take advantage of every option available to you and you know, ultimately, uh,
you know, hopefully create significant wealth for yourself in the process.
Speaker 3 (33:16):
Yeah.
Speaker 1 (33:17):
Absolutely, I couldn't agree with you more. And again, I
just really encourage those listening today, you know, go ahead,
give Cody a call. We're going to put a link
to download his ebook in the notes as well, and
then we're also going to do another recording where we're
(33:41):
gonna wrap up this ebook of the chapters of it.
So we're gonna go ahead and do a part three,
but it won't stop from there. We're going to keep
these recordings going because there's a lot to it, a
lot of advantages that you can take from them. So Cody,
it's been an absolute pleasure. I look forward to Part three,
(34:05):
but if you miss it, we also recorded a part one.
This will be this is Part two, and then part
to three coming up. So again, Cody, thank you so
much and I wish everybody a great day.
Speaker 3 (34:18):
Thanks Jennifer
All right, I want to welcome everybody to the Lumberyard
once again. Very excited to have our guest speaker today,
Cody Daniels, a founder of Builders Tax Group, specializing in
tax strategies for construction and service trades businesses. Not only
is he the founder of that, he also authored Laying
(00:27):
the Foundation, a Contractor's Guide to Strategic tax Savings where
you can minimize taxes for contractors. And also it is
available free for download. And this is actually our second
part of the series that we're doing with Cody. When
(00:49):
we did part one, that one we focus on financial statements,
the foundation of tax strategy. Then we went into talking
about entity structure and then picking the right accounting method
and so we're going to dive back into it. But
let me go ahead, let me welcome Cody and then
he'll give you an introduction to what we're going to
(01:12):
cover today. So welcome Cody to the show.
Speaker 2 (01:15):
Yeah, Jennifer, thanks so much for having me back. Always
a good day to talk taxes.
Speaker 1 (01:20):
Yeah, absolutely, So where are we going to talk about today, Cody?
Speaker 2 (01:23):
Yeah, So today, I think in the last session, like
you alluded to, we talked about pretty foundational tax strategies
every contractor should be implementing.
Speaker 3 (01:33):
Today we're going to.
Speaker 2 (01:34):
Talk about maybe some more overlook strategies or maybe misunderstood strategies,
things that maybe as a business owner, you've you've heard
a little bit about, but maybe you don't have a
great understanding of. But you know, if available to you
are certainly strategies that could could result in significant tax savings.
Speaker 1 (01:54):
Awesome, Well, let's go ahead and let's dive right into it.
So the first strategy, what would you say that would be?
Speaker 2 (02:01):
Yeah, So the first of these three strategies is considering
tax credits and incentives. I think a lot of business
owners when they think about tax credits think about, you know,
like large publicly traded Fortune five hundred type businesses. Maybe
they think about specialized industry such as tech, or you know,
like oil and gas, like energy type credits, things like that.
(02:23):
But even within construction in the trades, there's a lot
of opportunity to take advantage of various credits if you
know where to look.
Speaker 1 (02:31):
All right, So give me some examples that contractors might
qualify for.
Speaker 2 (02:38):
Yeah, So the first one that comes to mind is
the Research and Development tax credit. This is a federal
tax credit designed to reward businesses that invest in innovation,
process improvement, problem solving. So you'll notice I didn't say
anything about like, you know, technological advancement or anything like that.
So there's a plenty of opportunity for more construction businesses
(03:01):
to take advantage of this credit. There's obvious opportunities such
as maybe electrical contractors getting into solar energy or something
like that, but even less obvious opportunities if you're developing
like innovative building techniques, improving construction processes or using you know,
new and innovative raw materials.
Speaker 1 (03:22):
All right, and then if if they use this credit, Uh,
how would you then as a tax advisor, how would
you know or how would you tell them that this
is available?
Speaker 2 (03:37):
Yeah, so I think you know, having an in depth
conversation with your tax advisor, you know, talking about the
type of activities that you're doing. Certainly, if you're somebody
that has like engineers on staff and you're doing more
like engineering based activities, that that might be a sign that, hey,
you know, there's some opportunities here. I will say it's
something that most CPAs we don't produce this studies in house.
(04:01):
These R and D tax credit studies. So this is
something where we're likely to refer you to an outside
firm that can prepare a comprehensive credit study. And the
process for that is it's not too burdensome necessarily on
the business owner. The process is they're going to focus
on interviewing your different employees. Your employees are going to
(04:22):
have to track time on qualifying activities. But you know,
these firms, they'll walk you through the process, you know,
give you sort of a guidebook to.
Speaker 3 (04:30):
Follow, and then they'll produce on an.
Speaker 2 (04:32):
Annual basis this comprehensive R and D tax Credit study report.
Speaker 1 (04:38):
Okay, perfect, no good to know. So then with the
R and D, what would be another tax credit?
Speaker 2 (04:44):
Yeah, so another one is the work Opportunity tax Credit.
And I will caveat this by saying right now, this
is set to expire at the end.
Speaker 3 (04:54):
Of twenty twenty five.
Speaker 2 (04:56):
However, throughout the life of this tax credit, there have
been very expirations in prior years, and the federal government
has extended it at various times. In my understanding, it
was not part of the One Big Beautiful Bill Act
that passed recently. But my understanding is there is bipartisan
support to extending this credit. So, as always with taxes,
(05:19):
you know, stay tuned, stay aware, because things.
Speaker 3 (05:21):
Are likely to change at any moment.
Speaker 2 (05:24):
But the purpose of the credit is to reward businesses
that hire individuals from certain targeted groups such as veterans
ex felon's, long term unemployed individuals, or individuals that receive
certain public benefits such as SNAP or SSI.
Speaker 1 (05:41):
Okay, what is the typical credit range that you see
for eligible employees that are hired.
Speaker 2 (05:48):
Yeah, it's going to vary, you know, someone's going to
depend on how long the employee work for you. But
the credits can range from anywhere around twenty four hundred
dollars per employee upwards of nine six hundred dollars per
eliguble employee. So could could certainly be significant if you're
hiring many individuals from these protected groups.
Speaker 1 (06:09):
Okay, so then how would an employer acclaim this credit?
Speaker 3 (06:15):
Yeah?
Speaker 2 (06:16):
So again, this is this is another area where your
CPA is probably not going to be able to work
you through the process entirely in house. Typically, to claim
the credit, the employers need to complete a spreading and
certification process to verify that these individuals meet the criteria
to be eligible for the credit, and typically they're going
(06:37):
to want to work with.
Speaker 3 (06:38):
An outside firm.
Speaker 2 (06:40):
In my understanding, Jennifer, is that lumber has recently acquired
Builder Facts. Could could you know, help out employers with
this certification process?
Speaker 3 (06:51):
Yeah?
Speaker 1 (06:51):
Yeah, absolutely. You know, we really make credential management simple
using Builder Facts, so all of your workforces like certifications, licenses,
and training are kept all in one place. So that
is something that we added we acquired back in May.
Speaker 3 (07:13):
Awesome.
Speaker 2 (07:14):
Yeah, and it's really not something that somebody's going to
be able to do internally. They're going to need that
outside resource with that specialization to make it cost effective
to do this. This is like a whole separate process
that you shouldn't be burdening your internal in place with
learning that you should really be relying on your experts
to work through that process for you.
Speaker 1 (07:33):
Okay, no, good to know. So we have R and
D credit, the Work Opportunity tax credit. What's another one
that you have for us?
Speaker 2 (07:44):
Another one that I see that's commonly overlooked our various
fuel tax credits. So there are federal credits available to
recover the X size taxes paid on fuel. If the
fuel is used for off highway purposes, such as being
used in construction equipment or vehicles that are not driven
on public roads.
Speaker 1 (08:06):
Okay, and so let's talk more about this. What would
be some good examples for contractors.
Speaker 2 (08:14):
Yeah, so I think if you're a roadbuilder, if you're
a excavation or like demolition contractor. I've seen this in
practice with a lot of landscapers, so you can see
how those types of businesses would be using significant amounts
of fuel in off highway purposes. And the credits are significant.
For gasoline, it's currently eighteen point three cents per gallon
(08:39):
in twenty four point three cents per gallon for diesels.
So you can see again if you're a roadbuilder like
a demolition contractor, that this could add up to significant
dollars at the end of the year. There is a
process that you'll need to implement. Again, this is one
you probably could do internally where you're going to have
to maintain a record differentiate between on road usage and
(09:02):
off road consumption. So again, like a lot of my landscapers,
they have a fueling tank on site to fuel up
their mowers and their other small equipment and things like that.
So you may implement a policy that the on site
fueling is just for equipment and all of you know,
your vehicles that are taking the crews to different job sites.
(09:24):
You know, maybe they're getting their fuel at local fuel
stations and things like that. So that could be a
very easy way to separate the two and help you
track this in an efficient manner.
Speaker 1 (09:33):
Yeah, that's a really good idea for contractors to do. Okay,
so then we have that one still going along the
lines of vehicles. What is another one that can contractors
can have.
Speaker 2 (09:50):
Yeah, there are still, for a very short amount of time,
electrical vehicle credits available to anyone, you know, interested in
buying like electric vehicle, whether you know, for like fleet
purposes or just you know kind of you know, owner
business used vehicles, things like that. I will say these
(10:10):
credits are sunsetting very quickly. The One Big Beautiful Bill
Act did move forward the sunset date for these credits.
It's now September thirty. It's twenty twenty five. So if
you're somebody that's interested in acquiring an electric vehicle, you're
going to need to move pretty quickly and make those
(10:30):
purchases before September thirtieth.
Speaker 3 (10:33):
Otherwise those credits will cease to be available.
Speaker 1 (10:36):
Okay, do you know what the credit is for electric vehicles?
Speaker 3 (10:40):
You know? Offhand?
Speaker 2 (10:41):
I think it's seventy five hundred dollars. Probably should have
double checked.
Speaker 1 (10:44):
Out personally, that's what it is. Yeah, if I were
to go buy one, it's seventy five hundred.
Speaker 2 (10:49):
Yeah, So I think there's a reduced credit for used
vehicles that's still available. Most of these credits now, they're
not claimed on your income tax return. Most of them
can be claimed at the dealership when you make the
purchase now, So it's the burden of reporting has shifted
away from us as the CPA is over to the
dealerships are responsible in those cases for facilitating that credit.
Speaker 1 (11:13):
Okay, good to know. And any other specific credits that
you want to mention.
Speaker 2 (11:19):
Nothing specific, but I do want to mention that there
are some state level credits and incentives out there, typically
again around hiring. So there are some like state level
credits similar to work Opportunity tax credit. There may be
credits at the state level for training, and then there
may be you know, state like energy type credits as well,
(11:39):
where some states do have you know, credits for alternative.
Speaker 3 (11:44):
Fuel vehicles and things like that.
Speaker 2 (11:46):
So obviously not something that I know the inner workings
of every single state.
Speaker 3 (11:51):
But that's why you work with with the CPA.
Speaker 2 (11:54):
You know, we can certainly research these things and do
deep dive for clients to assess what might be available
based on the states that they're operating in.
Speaker 1 (12:04):
Okay, And it's very important to tax your talk to
your tax pro about these credits before filing, not right after.
Speaker 3 (12:15):
Right.
Speaker 2 (12:15):
Yeah, there's a lot of this that has to be
handled real time and after the fact. As with as
with most things in tax, it's hard to go back
in time and you know, set these things up probably, So, Yeah,
the work Opportunity tax credit, for example, that's really something
you want to be on top of because you need
to be submitting the certifications during the onboarding process. It
(12:37):
takes time, uh for these certifications to process. So in
order to complete your tax return on time, you really
want to be doing this as you're hiring employees and
not trying to you know, go back in time submit
the certifications after they've been working for you for a
period of time and you know, just kind of dragging
out the process.
Speaker 3 (12:57):
Otherwise you're gonna you're gonna really kind.
Speaker 2 (12:59):
Of put yourself in a position when it comes time
to file your tax return.
Speaker 3 (13:03):
Yeah.
Speaker 1 (13:04):
Absolutely, all right, that was a good strategy again considering
tax credits and incentives. So let's move on to strategy
number two, taking advantage of accelerated depreciation. So do you
want to go ahead and expand on strategy two for us?
Speaker 3 (13:23):
Yeah? Absolutely.
Speaker 2 (13:25):
I think this one is maybe not so much an
overlooked strategy as a misunderstood strategy. I think I think
most construction business owners know that, you know, hey, we're
in an industry where, depending on what you're doing, you
may have pretty significant capax expenditures, and you want to
make sure you're getting the advantage of depreciation on that
(13:46):
cap X. The issue is that I think there's a
there's frequently misunderstanding around the different methods for taking advantage
of depreciation. So first I kind of want to dive
into Section one seventy nine.
Speaker 3 (14:00):
I think most.
Speaker 2 (14:00):
Business owners are aware of Section one seventy nine. It
allows for immediate expensing of eligible assets. Per the One
Big Beautiful Bill Act, it's now increased up to two
point five million dollars per year, so significant increase in
the threshold that allows us to take advantage of writing
off those assets. It is unique in that it's elected
(14:24):
on an asset by asset basis, and that's going to
differ from something like bonus appreciation, which we'll dive into next.
One downside of Section one seventy nine is that it
cannot create a loss, so you can only bring your
taxable income down to zero. But what I like about
Section one seventy nine is that it gives you a
(14:46):
lot of flexibility because you can elect it on an
asset by asset basis. So there may be very specific
reasons why you do not want to drive your taxable
income all the way down to zero or use something
like bonus appreciation to create a loss. I mean, you
may have expiring tax credit carryovers, you may have expiring
(15:07):
lost carryovers from prior years, and if you if you
drive your income down to zero or to a loss,
you're going to lose out on those prior to year
benefits that you generated for yourself.
Speaker 3 (15:17):
So there may be very.
Speaker 2 (15:19):
Strategic reasons why you target a specific amount of income,
and Section one seventy nine gives you a ton of
flexibility to if you're placing in service significant fixed assets
during the year, like really kind of target like almost
to the dollar, like what you want your taxable income
to be for the year, Okay, And.
Speaker 1 (15:36):
That's why you need to talk to your tax pro
to be able to go into a deeper dive with
that and try what is your best situation?
Speaker 3 (15:45):
Right?
Speaker 2 (15:45):
Yeah, Sometimes good tax planning is not just about driving
to the lowest number possible. Sometimes it's about, you know,
looking at the picture holistically, looking at other sources of
income that you may have, looking at tax rates. Just
there's a lot more that goes into have been like
let's just drive all the way to zero.
Speaker 1 (16:02):
Sure, sure, okay. So you talked about section one seventy
nine and then you hinted on bonus appreciations.
Speaker 3 (16:09):
Talk about that one.
Speaker 2 (16:10):
Yeah, so so bonus appreciation a lot of similarities to
Section one seventy nine. Again, the One Big Beautiful Bill
Act has reinstated one percent bonus appreciation, so it's it's
very similar to one seventy nine, and that we can
use it to fully write off the cost of eligible assets.
And that that bill made one percent bonus appreciation permanent.
(16:33):
So unlike the Tax Cuts and Jobs Act, which provided
one hundred percent bonus appreciation for your period of years
and then scheduled it too slowly sunset over a number
of years. We do have one hundred percent bonus appreciation,
I will say permanently. What that means in the tax
law is until another bill is passing the changes it.
Speaker 3 (16:54):
But the current bill there is no.
Speaker 2 (16:57):
Scheduled sunsetting or termination of one hund percent bonus appreciation.
Speaker 3 (17:02):
Okay, so we have a lot of opportunity there.
Speaker 2 (17:06):
One of the differences between bonus and one seventy nine
is that for bonus it is by default an election
in so if you do not want to claim bonus,
you have to include a statement electing out of bonus appreciation,
and it's elected on an entire class of assets. So
all five year assets, for example, which for contractors would
(17:27):
include you know, most of their equipment and vehicles would
be five year assets. So you don't have quite the
same flexibility a section one seventy nine, and that you
can't pick and choose individual assets. It's you know, individual
classes of assets.
Speaker 1 (17:42):
Okay, okay, good? And then what is another accelerated depreciation
that we can look at?
Speaker 2 (17:49):
Yeah, so I think this is very overlooked and I've
actually heard in conversation with other CPAs that there are
some people in our industry that don't even believe that
this is legal to do, and that is a cost
aggregation study. So a cost aggregation study is a tax
focused study that can be conducted on real estate to
(18:12):
identify components of real estate that can be depreciated over
shorter years. So generally speaking, real estate is depreciate over
very long.
Speaker 3 (18:23):
Time period.
Speaker 2 (18:24):
For residential properties, it's twenty seven and a half years,
for commercial properties it's thirty nine years. So you can
see if you're investing in real estate, it takes you
a very long time to recover those costs. Well, with
the cost aggregation study, we can come in and identify
components of the building that qualify for shorter tax lives.
(18:44):
So some examples of that might be many types of
flooring qualify for five year tax life. Most things like
furnitures and fixtures qualify for seven year tax life. And
actually if you look to the exterior of the building,
most of the areas around the building, such as you know,
like landscaping, parking lot, sidewalks, anything that's kind of like
(19:07):
a land improvement qualifies for a fifteen year tax life.
And what makes this incredibly beneficial is that now was
this one hundred percent bonus appreciation available. Anything that we
reclassify to like a five, seven or fifteen year tax
life now qualifies for that one hundred percent bonus appreciation,
(19:27):
So we can fully write off those dollars entirely in
the year that you've placed the building in service. So,
depending on the type of building, I think you could
easily ride off if it's acquired placed in service after
January nineteen, twenty twenty five, so that's when the new
(19:48):
bonus rules come into effect. But if you acquire it
after that date and we have one hundred percent bonus
appreciation available to us, I think you could easily ride
off between fifteen and forty percent of the hire purchase
price of that building in year one.
Speaker 1 (20:04):
I feel like when this goes live, a lot of
our tax pros are tax experts are going to be
getting phone calls from contractors out there when they're listening
to this, going yeah, do what I.
Speaker 2 (20:15):
Would hope So because this ties so ties in so
well to construction, because the vast majority of contractors I
know get into real estate as a as a form
of investment in some capacity. It may just be the
building that they're operating out of. They'll frequently own that
and that that's enough. If you own just that building,
(20:36):
that's great. But if you're a contractor that is getting
into you know, other forms of real estate investing, you know,
whether it's commercial, residential, you know, whatever types of properties
that you're acquiring and renting out, there's some there's some
significant opportunity there to generate significant tax write offs and potentially,
(20:57):
depending on your circumstances, offset the profits from your construction
business with those write offs.
Speaker 1 (21:03):
Awesome. So what would be some strategic angles you would
say for contractors out there?
Speaker 2 (21:13):
Yeah, I think you know this. This has to be
an integral part of your year in tax planning. With
most of my contractors, you know, we have the conversation
every fall, should I go on buy some new trucks?
Speaker 3 (21:25):
Should I go on buy some new vans?
Speaker 2 (21:27):
And I will I will say that I wouldn't put
the car before the horse when it comes to tax planning. Again,
like I said earlier, good tax planning is not all
about necessarily driving down to zero if you don't need
that equipment, like if you're not going to use you know,
the new truck, the new van, whatever it might be.
I wouldn't advocate for somebody to spend fifty grand to
(21:50):
generate twenty grand of tax saving if that doesn't make
good economic sense. But if you're if you're a growing business,
if you're a business that you know has aging equipment,
can definitely benefit from adding more to the fleet, you know,
adding more or replacing old, whatever it might be.
Speaker 3 (22:11):
I think you have to.
Speaker 2 (22:11):
Consider this as a significant tax raving strategy as you
kind of approach your end.
Speaker 1 (22:17):
Couldn't agree with you more, couldn't agree with you more? Awesome. Well,
let's go ahead and let's dive into strategy three, implementing
a tax efficient retirement plan. Care to expand more on
this one?
Speaker 2 (22:31):
Yeah? Again, I think this is frequently overlooked. It's something
that's easy to put on the back burner, especially like
in your startup years where you know you may be
a little.
Speaker 3 (22:41):
More cash strapped.
Speaker 2 (22:42):
It's hard to justify, you know, I'm going to put
away X dollars, you know, for twenty thirty years down
the road. If I can take those dollars and again
continue to grow the business, make that next hire, you know,
get that next crew, on the road, whatever it might be.
But I do think that retirement planning is obviously it's
a it's a key part of tax strategy, but also
(23:05):
it's just a key part of building your wealth overall
as a business owner.
Speaker 1 (23:09):
Yeah. Absolutely. So what are some options for small construction businesses?
Speaker 2 (23:14):
Yeah, So for purposes of this discussion, I've kind of
lumped a few different plans together. Uh. You know, you
can look at like a four oh one K, something
like a step I RA, maybe maybe even a profit
sharing plan. This is another area kind of like some
of the credits, where you know, you really need to
bring in your team of outside experts to work together
(23:37):
on this. Your your CPA is very likely not like
a financial planner investment advisor type person. Certainly some are,
certainly they have those services in house, but a lot
of us don't have those services in house. So we
need to bring in other members of the team of
experts to help advise on this because I'm probably not
the person to break down the nuances and some of
(23:58):
the subtleties around the plans. I can tell you from
a tax planning perspective, you know what makes sense and
what we might consider doing. But I think it's a
good thing to work with h work with the financial
planner investment advisor on you know, setting up the plan
and getting their feedback from from all that as well.
But as far as you know, those those kind of
(24:19):
initial sort of for one K steps things like that
that like more new businesses are likely to implement. From
a tax planning perspective, you know, it's important to recognize
that we have tax deductible contributions that we can make
into those accounts. Frequently we have tax deferred growth with
those with those accounts. And in certain cases, again, if
(24:41):
you're like a startup, you may you may want to
consider a WROTH option, So like a for one K
might provide a WROTH option for you. Again, that's where
you got to really work together, you know, hand in
hand with the CPA and the investment advisor to uh
to work through those things. But the thing that I
like about the retirement plan just overall as a tax
plan strategy, and maybe we can contrast this with like
(25:03):
the purchase of the vehicle. You know, let's say we're
coming to your end, you got an extra fifty grand
that you want to put somewhere you can you can
go out and buy a truck with that, and you
can generate fifty grand of tax right off. That fifty
grand's going into a dealer's hands, right, you take If
you take fifty grand and you put it into a
retirement plan that stays with you, that's those are still
(25:24):
your dollars, right. So it's really one of those areas
where you can generate a current your tax deduction for
yourself while keeping keeping the dollars in your pocket. Right,
it's just right pocket, left pocket. We're taking out of
our current account. We're putting it into a different account
that's still for us.
Speaker 1 (25:43):
You know.
Speaker 2 (25:44):
Yeah, maybe we can't touch it for several years without
incurring the penalty, but we're still retaining that full fifty
grand as opposed to taking that money out and handing
it over to another business. Again, there's no right or
wrong answer here, Like, depending on where you're at with
your business, the truck purchase may make sense, the retirement
you know, contribution may make sense. But that that's why
(26:05):
you know, you've got to be working with somebody and
talking through those different strategies.
Speaker 1 (26:09):
Yeap, different centarios and what's going to work best for you? Absolutely?
What about cash balance plans.
Speaker 2 (26:16):
Yeah, this is this is an area that I think
can work really well for construction businesses if you have
the right dynamics. So, in contrast to you know, like
the four and case the steps, you know, plans like
that that are considered defined contribution plans, a cash balance
plan is more akin to like a traditional retirement like
(26:36):
a traditional pension plan, like a defined benefit plan. So
it is a different way of thinking about things. But
if the dynamics are right, I think it can really
help business owners safe significant dollars for themselves. I think
you have to be a little bit more of a
mature business, so you got to have meaningful profits and
(26:56):
cash flow to contribute to it. Because it is it
is different in that there is an actuarial calculation that
will determine how much you can contribute to the plan.
It's not something like a four to one k where
you know you got like a sort of hard cap
that you can put into it. You know, there's a
more complicated calculation around what you're required to contribute. Not
(27:20):
that you know you can contribute, but you may be
required to make contributions of a certain amount. It works
really well for businesses where you have a small population
of employees that participate in the plan. So I've seen
this work really well for union contractors that have non
(27:41):
union member owners. So if you're the owner of the
business and you drop your union card, you can create
this cash balance plan and the bulk of the moneies
that go into this are going to typically be for
you as the business owner. You may have some other
non union employees, maybe some office staff and things like
(28:01):
that that have to participate in and certainly some of
the dollars are going to go to them. But I've
worked with you know, clients in the past where you know,
upward eighty ninety percent of the total contribution is going
to the owners and these plans, and because they have
high contribution limits, it really works out well if you're
you know, maybe one of those businesses that did put
(28:24):
retirement planning on the back burner early in your career,
because you have a lot of opportunity to make up
those contributions later in your career due to the high
high contribution limits available to you.
Speaker 1 (28:35):
Okay, Okay, good point there. What about employee stock ownership plans?
Speaker 2 (28:42):
Yeah, ESOPs admittedly not an area that I have seen
in practice A lot I've been in public accounting for
thirteen years. I've only seen this in practice twice, but
it's an area that the more I learn about it,
the more I'm intrigued by it, and I definitely see
it as again a good option for the construction industry.
(29:05):
Similar to a cash balance plan. I think you probably
need to be a little bit more mature in your
business for this to make sense. You need to have
a probably a larger employee base from what I've heard,
you know typically need to have at least twenty five
employees to make this make sense. But it can be
a really interesting strategy for transitioning ownership away from the
(29:28):
original owner group to the employees, getting you know, the
employees invested in the business growing in the same direction
because they're going to you know, directly reap benefits from
the success of the business. So it's it's a great
transition plan. But there are significant tax benefits as well.
The contributions to the plan are tax deductible, just like
(29:49):
all the other plans we've we've talked about. If you're
the original owner or owners of the business, there may
be opportunities as you start to sell off your stock
in the business uh, to defer or even potentially eliminate
some of the capital gain associated with that stock. So
that can be a very powerful tax saving strategy as well.
(30:11):
And again like your employees in yourself as as the
owner can benefit from the tax deferred growth associated with
with using the plan. The one the one downside I
will say is that, you know, unlike any of the
other retirement plans, there's no diversification here.
Speaker 3 (30:28):
You know, it's all tied to the business.
Speaker 2 (30:32):
So so it's uh, definitely putting a lot of your
eggs in a single basket. But again, if you're a growing,
profitable construction company, I think it's a very you know,
valid strategy.
Speaker 3 (30:43):
Yeah.
Speaker 1 (30:43):
Absolutely. Now what would you say would be an advantage
or a bonus for employers to offer retirement plans?
Speaker 2 (30:54):
Yeah, I mean, I think in this day and age,
it's kind of table stakes for hiring good employees, even.
Speaker 3 (31:01):
Even as a small business.
Speaker 2 (31:02):
You know, I think people are expecting that. So if
you want to attract like the best talent and retain
the best talent, you know, it's kind of bare minimum
to offer like some sort of retirement plan and to
be contributing to that plan on behalf of your employees. So, uh,
you know, any one of these plans I think is
a good option. But yeah, I think you've got to
(31:23):
have something to bring in the top tier talent.
Speaker 1 (31:27):
Yeah, absolutely, anything else that you want to cover with
these three strategies that we just spoke about today, No, I.
Speaker 2 (31:36):
Think you know, it's we're in a very interesting time
with the tax build passing pretty recently, the one big
beautiful bill AX. So there are certainly, you know, elements
of that build that impact some of these things, like
the changes to bonus appreciations actually one seventy nine. Uh,
there are you know, other things in that in that build.
(31:58):
It might start to play into some of these things,
like there's there's these Trump accounts that you can set
up for kids as kind of a savings plan for
children that you know, maybe how can you package that
into you know, sort of your just overall like estate planning,
wealth planning, you know, relative to your other like retirement
contribution of plans, you know, education plans, things like that.
(32:18):
So there's there's a lot of things happening right now
that have impacts on these strategies. But overall, I mean
these are pretty evergreen strategies. There's there's nothing you know,
within the tax law that is you know, saying no
that you should absolutely.
Speaker 3 (32:35):
Not take advantage of depreciation.
Speaker 2 (32:37):
You should not be considering R and D credit studies
if if they're available to you. You know, there's there's
just a lot going on right now that says tax
planning should be at the forefront of all business owners'
minds because of all these changes. There's so many opportunities
and and like we've said multiple times throughout this episode,
last episode, like you don't want to wait until next
(32:59):
year to say, hey, I should have been doing this, Like,
you need to get in front of it. You need
to be having these conversations now so that you can
take advantage of every option available to you and you know, ultimately, uh,
you know, hopefully create significant wealth for yourself in the process.
Speaker 3 (33:16):
Yeah.
Speaker 1 (33:17):
Absolutely, I couldn't agree with you more. And again, I
just really encourage those listening today, you know, go ahead,
give Cody a call. We're going to put a link
to download his ebook in the notes as well, and
then we're also going to do another recording where we're
(33:41):
gonna wrap up this ebook of the chapters of it.
So we're gonna go ahead and do a part three,
but it won't stop from there. We're going to keep
these recordings going because there's a lot to it, a
lot of advantages that you can take from them. So Cody,
it's been an absolute pleasure. I look forward to Part three,
(34:05):
but if you miss it, we also recorded a part one.
This will be this is Part two, and then part
to three coming up. So again, Cody, thank you so
much and I wish everybody a great day.
Speaker 3 (34:18):
Thanks Jennifer
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