Howard: It is just a huge honor for me today to be podcast interviewing Craig Cody all the way from Manhasset, New York. Where's Manhasset, New York? Is that a suburb of Brooklyn or Long Island?
Craig: It's a suburb of Queens. It's on Long Island about twenty miles as the crow flies to midtown Manhattan.
Howard: I think it's so funny because everybody… you say, ‘what's the biggest city in America?’ Everybody says, ‘New York City’. And there's actually nobody that lives in New York City? I've never met anyone who says I live in New York City. They say, ‘do you live in New York City?’ ‘No, I live in Brooklyn’. ‘No, I live in Queens’. ‘No, I live in Manhattan’. I'm like, ‘well why did they even say New York City?’ Because I've never met anyone who says they live there.
Craig Cody has been a Certified Public Accountant for the past seventeen years and is also a certified tax coach, business owner, and former New York City police officer. That's how I met him. He was arresting me in Central Park but we'll just stop there. Craig belongs to a select group of tax practitioners throughout the United States who undergo extensive training and continuing education on various tax planning techniques and strategies to become as well as remain certified. With this organization, Craig has co-authored the Amazon best-selling book ‘Secrets of a Tax-free Lifestyle’ and recently wrote ‘Ten Biggest Tax Mistakes That Cost Business-owners Thousands of Dollars’.
Well, I want to start with that. I have four boys, Eric, Greg, Ryan, and Zach and I always say that I've written books before. I always say that writing a book is like having a kid. I mean it's nine months. What was going on in your life and your journey that made you… first of all, how many kids do you have?
Craig: I have to three.
Howard: Three. Would you agree that it took longer to write a book than it did the nine months to make a baby.
Craig: Yeah. Yeah. You have to make it a priority. You have to make it a priority.
Howard: So, what was going on in your life, in your journey that made you want to write a book and why should my homies buy this book? What are they going to be edumacated on if they read this book?
Craig: So, the best thing about is The 10 Most Expensive Tax Mistakes, they don't have to buy. I'm going to give them that for free. Okay.
Howard: Wow. Right now you mean?
Craig: Yes, right now. They just have to go to the website and they'll have it. So, the first book I wrote…
Howard: So, that's your website which is craigcodyandcompany. So, your name's Craig Cody, so Craig Cody C. O. D. Y. and company
Craig: .com/dentistryuncensored.
Howard: /dentistryuncensored. So, what's going to happen if they go to craigcodyandcompany.com/dentistryuncensored?
Craig: There will be a little blurb about the show and then there'll be a box to fill in their name, address, and we will send them out a book.
Howard: You're just going to send them a book?
Craig: Just go send them a book.
Howard: Nice. My, gosh, nice. So, what are they going to learn when they read that book?
Craig: They can learn about common things that business owners as well as dentists make expense… tax expense… tax mistakes that they make, that cost them a lot of money. That basically no rocket science there. Okay. It's just basic things that people fail to do. Like failing to plan.
Howard: On the internet you see when they started the IRS it was a one-page deal. Here's your income and then I think it was a times three percent, and that's a tax you owe. And now there's people saying that the tax code is something like sixty thousand pages, is that true?
Craig: Yeah, it's a big book.
Howard: So, why are taxes so complicated? Why did it… why is this… whatever happened to just a good old days were here's what you make, here's the percent, here's what you owe. Why is there a sixty thousand page tax code, and what do dentists need to know about that tax code?
Craig: Well the tax code is what it is because of government and what does the government really run that they run efficiently and there's always special interest. So we don't even get to get into why… why it is, what it is. We just figured what can we do to take advantage of all those little loopholes in there. So, what can dentists do? There's a whole bunch of things that dentists could do. Number one, they could plan. Most…
Howard: Number one they can what?
Craig: Plan.
Howard: Plan.
Craig: Most dentists and accountants when you talk to them about tax planning they say, ‘Okay. Yeah, we're gonna sit down in December, figure out how much we made, how much tax I'm going to pay, how much I've paid, and what kind of tax payment I need to make by January 15’. That's what they call tax planning. Okay. What we call tax planning is sitting down early in the year and figuring out what you're doing it, how you're doing it, what ways can you maybe do it differently and save some taxes.
Howard: I think one of the… first thing I want to start on which I think is cruel and unusual, these dentists hire these young kids out of school then they simply don't want to pay the FICA matching. So they say, ‘well, I'm going to hire you as an independent contractor’, which an independent contractor was more setup for more like construction. Like I'm gonna build a house and I'm not a plumber. I'm gonna bring Craig Cody and who's a plumber and you bring in your own materials, your own instruments, you do the plumbing. Then I get an electrician, I get a roofer.
But when you are not an independent contractor, when you get a job at a dental office and you're using… the dentist is setting the hours, you're using all their tools and equipment and all that. But since they don't want to do FICA matching they pay him an independent contractor then this dentist thinks he's making all this money, and he's going out to eat, and he's drinking, and he's going to Disneyland, he's having all this fun. And he's not setting aside any quarterly or taxes whatever. Then he meets his accountant and accountant says, ‘You owe the IRS forty thousand dollars in two weeks’. And he's like, ‘forty thousand dollars? I don't have four hundred dollars”. What do you think of that? Do you think it's an unethical scam when dentists hire other dentists as independent contractors?
Craig: There’s really a tough set of rules to be considered an independent contractor. And there's a lot of control issues that, I would say, most people that are working in a dental practice aren't going to meet that criteria. So they really are employees. and for the dentist himself there's liability there. That if the IRS comes back and says, ‘no, these people are deemed employees. Now you've got to come up with that seven point six five of payroll taxes, and anything else that's involved this… such as penalties. So, that's a tough one to pass.
Howard: Well, I think you should write an article, or a column, or a blog on that because I know… I've been doing this thirty years, I've met… about three different times where some dentist hired an associate but paid him as an independent contractor. Had no idea that this guy wasn’t paying his taxes for five, six, seven years and then when he finally got popped by the IRS they knew he didn't have the money. So they went to his employer and made him pay all the back taxes, fines, and penalties. And these guys had to go out and get a mortgage on their house and it's like, ‘Well, dude it was not right to begin with’.
Craig: Well Howard you just gave me a great idea. I'm in the middle of writing my third book which has to do with dentists and tax problems. And I'm going to add a chapter on that.
Howard: Well, thanks. That's because… and these young kids, I mean they come out of dental school, they don't know anything about setting aside a tax, savings account and working with a CPA and all that stuff… that's my next question. So, people that listen to podcasters, they're thirty and under. People that are old and have grandchildren like me. Do you have any grandchildren yet?
Craig: No. No. No. Not there yet.
Howard: Okay. So you're still… you’re still young. I got two grandkids.
Craig: Good.
Howard: A lot of these young kids they come out of dental school they got so much going on. They know they got to get disability insurance to get a job, but when should they get a CPA? Because most of the people you're talking to right now are now under thirty. And my shows mostly, probably like twenty percent are dental students and the other eighty percent are under thirty. When should they get a CPA after they graduate from dental school?
Craig: As soon as they start working. Actually before they start working. It doesn't have to be a very costly expense. Okay. And I like to tell people, ‘your CPA is really an income item not an expense item’. Because if you work with him and you do the proper planning he's going to save you money.
Howard: And now what if she's in Oklahoma and you're in New York City, do you take clients outside of New York City?
Craig: We have clients all over the country. Luckily, I have a network of people all over the country where we could brush up on the individual state rules but, yeah, we work with people all over the country.
Howard: So, you were going over that top ten. The first one is to plan and most young dentist they learn real fast that whenever they see that they actually have money piling up in their savings account that only means one thing. It's time to pay taxes. So, they don't have a plan. They just know that whenever they do have money in the savings account, it's all over to the IRS. So, when they come out of school they should go to craigcodyandcompany.com and you can help their planning, their accounting. What about my homies in Canada? You do Canada?
Craig: No, we don't do Canada. No, sorry.
Howard: And that's just one more reason those Canadians should move southward. Ninety percent of Canadians live within a hundred miles of the border so maybe this will be the last straw. They'll just move down ninety miles and they’ll just be in America. If we just raised our border a hundred miles we'd add a complete another California. Another thirty-eight million dollars and a huge economy. So what was on your ten? So go through the ten. What's two?
Craig: I would say poor communication. Which is kind of failing to plan but it's just not communicating. It's a two-way street. Doctor doesn't call you up and say, ‘how are you feeling today?’ Right. You need to communicate with them. So, that's number two.
Another thing we see, and this is really more in the practice owner side or when you're younger dentists, when they buy practices. It's amazing how many times we see where they bought this practice, and you're familiar with goodwill because you've been involved in dentistry for a long time. They have this goodwill on the books which is for the laymen out there. It's the difference between the assets you've purchased and the purchase price. And that gets amortized over fifteen years. And so many times we see it is just sitting there. Nobody's ever taken that expense which could be fifteen, twenty thousand dollars a year. Its amortization and then depreciation of leasehold improvements whether it was done right. And the good thing about that is when you find those errors you could actually go back and recalculate it and take it in one year.
Howard: Okay, one of the problems though is… how long have you been doing accounting? Because you were a police officer for what? thirty-three years?
Craig: Yeah. I wish. I retired as a New York City police lieutenant about seventeen years ago.
Howard: And how long were you with them?
Craig: Seventeen years.
Howard: Oh, you were with them seventeen years.
Craig: And I'm retired seventeen years.
Howard: Okay I see. So, you just used two words… I know… I know the kids don't know… they don't know the difference in depreciation and amortization. In fact, they see… they always see EBITDA. Earnings before interest, taxes, depreciation, amortization. Will you… before you keep going, I need to back up and do vocabulary words. What is amortization? What is depreciation? What is EBITDA?
Craig: Okay. So, depreciation is when you buy an asset like a piece of equipment. The government says you could deduct that either all at once or over a certain period of time. That's depreciation.
Amortization is very similar to depreciation. It's for that goodwill that when you buy a practice that there's actually nothing there to touch. Okay. But it's the difference between the assets you bought and what you paid. And that gets deducted, it's called amortized over fifteen years. And so often we see just sitting there nobody's ever amortized it.
And then the last was earning EBITDA. Earnings before interest depreciation and taxes, which… that we see more when somebody's going to sell a practice, alright. We look at net profit with the practices that we work with, and figure out ways where they could keep more of what they make. And maybe not necessarily increase the net profit, but there are things that they can be doing and deducting that than not. So, they're actually putting more cash in their pocket.
Howard: So EBITDA is E-B-I-T-D-A. Earnings before interest, tax, depreciation, amortization, is a measure of the company's operating performance essentially toward evaluating a company's performance without having to factor in financial decisions, accounting decisions, or tax environments. So, number one was the plan. Two was poor communication. Three was depreciation.
Craig: Amortization. That was an depreciation and amortization. Okay.
Howard: Was that three and four?
Craig: That was three and four.
Howard: So we're at five. What's five?
Craig: Five. Mistakes. Oh god. Missing a home office. Okay. Let's just say you're a young dentist. You're new in a practice. You own your practice, or you're being paid on a ten ninety-nine, which probably shouldn't be. And you're doing all your administrative work from home. Okay. The government says you could take a home office deduction. So let's just say that room that you use only for your business is ten percent of the square footage of your home. You can now write off ten percent of your home expenses such as the utilities, your maintenance, you can even do your real estate taxes and your mortgage interest. And people say, ‘well, that doesn't really help’.
It does help when it comes to alternative minimum tax. And the other thing that allows you to do is it allows you, if you have a gym in your home, to write that off as a home athletic facility. If you have a pool it allows you to write that pool off as a home athletic facility, as long as it's available for your employees and their families and if you are an employee, that's you. So, that's the home office. Home office also allows you to deduct the travel expense between your home and your primary place of employment or your multiple places of employment. So, those are things… and they all add up.
Howard: So probably if you're listing this and you're twenty-five to thirty and you're working for corporate dentistry or you're an associate in some office. They're always wondering in the back their head, ‘gosh. I'm paid a straight employee. If I owned the practice I'd have a lot more taxable things I could do. I'd have more deduction’. So if she's sitting in her car right now and she's thinking this question, ‘Craig, if I actually own my practice, how much more deductions would I get in my current situation where I'm an employee?’
Craig: Whole lot more. A whole lot more.
Howard: Will that be enough to make you swing from being an employee dentist, as an associate to being a dentist practice owner?
Craig: Most definitely.
Howard: Knowing what you know about the tax code.
Craig: Yes.
Howard: Would that swing you from being an employee to an owner?
Craig: Most definitely. And that's the reward the government gives you for going out there and taking those risks.
Howard: Right. So, you got ten. You've done five.
Craig: Another big one is choosing the wrong business entity. How are you operating? Did you just decide to open this business or buy this practice and went to your attorney and he said, ‘okay, form an LLC or form a corporation’. What thought went into it? And sometimes it can make a big difference as far as the taxes you pay whether you're an LLC, you're a sole proprietor. Okay. You're a corporation or an S corporation. And fortunately if you do choose the wrong entity, a lot of times there are opportunities to make what we call late elections in my world and change the way that entity itself is taxed. So that's a big one.
Howard: So who… who should make that decision? Is that… is that a CPA like you or is that a lawyer… who usually makes that decision?
Craig: Ultimately in the best… the best case scenario is have the business owner, the attorney, and the CPA have a conversation about that, and choose what works out best. Because obviously you want the liability protection but you also want the best tax… tax way to go.
Howard: Okay.
Craig: So fortunately we can make some changes there a lot of times, and make the correction without jumping through a whole lot of hoops.
Howard: Alright. So what’s seven, eight, nine and ten?
Craig: So we got… let's see. We have taken the wrong… wrong retirement plan or no retirement plan. So sometimes they're taking a… they’re using a SEP, sometimes they have a 401k, sometimes they have no plan at all. And these days it's a great way to attract good employees because they want a retirement plan. 401k’s are easy to set up and not going to cost you a lot of money. You can figure all that out in advance. And a young dentist can put away eighteen thousand dollars a year. So that's one.
Another thing, depending on the type of entity, there's something called a Medical Expense Reimbursement Plan that you can have. Where, depending on how you're set up, you could write off all those out-of-pocket medical expenses that normally are not deductible.
We have hiring your family. Okay. The court actually says… Supreme Court ruled you can hire somebody as young as seven years old to work in your business. Now, I'm a bit conservative, so I like to start at eleven or twelve. And let's just… let’s just say little Johnny… little Johnny's going to private high school and it's costing near five hundred dollars a month. So if you pay that out of your pocket you don't get any deduction for it, but if you have Johnny come in. And he works a couple hours on Saturday, maybe a couple hours during the week. You pay him. It goes into his bank account, you get a deduction for that. And then the school drafts his checking or savings account every month for the five hundred dollars. You just turned that expense into a deduction. Now, one kid is six thousand. Three kids is eighteen thousand.
Howard: I think the minimum wage law and they not working until 16. I think it's the most cruelest thing ever. I go back to my childhood. Everybody like my daddy owned a restaurant. I worked there since I was ten. My best friend John Leas worked there since he was ten. And now we're both dentists. And we thought school was boring, and we thought working at Sonic Drive-in evenings and weekends was the most fun of our life. But you're with adults. You’re with managers. You’re with employees. You’re with the customers. You're making change. And to sit there and… same thing if your dad was a dairy farmer he hired you and your buddies and they were baling hay.
And you always had jobs, and you always had income. And then those poor kids who, maybe they’re a single family, maybe it’s just your mom and she doesn't own her own business. And you come home from school and you're not allowed to work from age ten, eleven, twelve, thirteen, fourteen. So what do they do? They get bored, they get into trouble, they start smoking pot, whatever the hell… if you think it is absolutely criminal that a fourteen year old kid after high school got a job at Subway, you’re just… you're insane. I think the smartest business people that come out of dental school, and the dentists who do the most successful, their parents either owned a dental office, owned a farm, owned the business. The kids I worry about the most was the mom and dad were employees and they just… they walk out of school, and they don't have the first inkling of an idea the culture of what it means to own your own business. And to not want to share that with a kid is criminal.
Craig: Right. It's a great learning experience and I mean I think back to my time. I mean ten years old, where I was, you had a bicycle and you had a paper route. Okay. Now you wouldn't let your kid out at six o'clock in the morning on a bike riding around the corner. So times have changed and there are no jobs out there unfortunately for kids, so it's tough. But hiring your kids and hiring relatives is a great way to do it and you can make certain things that are not deductible. Well, you could actually turn them into deductible expenses.
Howard: What number was that? Was that eight?
Craig: That was probably… let's just say it was eight. Let's talk about… what we talked about missing car and truck expenses. Missing meals and entertainment. Are you taking people out? Are you entertaining them? Okay. That's fifty percent deductible. Or are you providing meals in office for your staff? If you're doing it under certain circumstances you can deduct the whole cost of the meals and entertainment.
There's another one. We'll go… we’ll go to a number eleven which isn't in my book. How about the ability to rent your home to your business for up to fourteen days a year and not have to pay income tax on that money. So your business writes off the expense and you don't have to pay income tax on that.
Howard: So basically if you're twenty-five and you just got out of dental school, you’re in dental school, what this basically means is… so let's say you have two credit cards. Let's say you have a Chase Visa card, a debit card and you have an American Express. If you pull money out of your… if you pull money out of your business and pay tax or you’re an associate and the money you get you pay taxes on. Well let's say the average person paid thirty-eight percent taxes. But if you use your American Express and this is a business expense, I'm going out to dinner because it's with clients, dentists, whatever. I use the American Express. I didn't have to… that money it's… basically everything is thirty-eight percent off.
Craig: (inaudible 21:41) for that.
Howard: So if you use your debit card you already paid thirty-eight percent on the money that you bought the dinner with. But if you use your American Express card it's thirty percent off if it's a business expense.
Craig: Correct.
Howard: Is that a succinct fair way to describe it?
Craig: Yes, half of it is a thirty-eight percent deduction because the government says you were going to eat anyway. But the people you're entertaining you weren't going to pay for their meals and you are. So, you get to deduct that and you're saving thirty-eight percent on that and this is the business owner. Unfortunately, it really doesn't work for the employee.
Howard: So what would you say if someone said what are the three biggest tax mistake dentists make that lose them thousands, what would you say?
Craig: Back to failing to plan, amortization, and depreciation. Not to beat a dead horse but that, and another one we didn't talk about is for the… we're talking about the dentist in practice. Setting up a management company to manage the different things that he has going on at different businesses. Let's just say you're in a forty percent or the thirty-three percent tax bracket Federally. You set up a management company and the spread between the first fifty thousand in net income and your forty-three percent is about twenty-eight percent, and you're saving fourteen thousand dollars a year.
Howard: Nice.
Craig: And then you use that money to invest in other pieces of real estate, or business, or just invest it in the market.
Howard: So this is what you're talking about where number one problem was they don't plan. They need to be proactive. They need to talk to their CPA and set up proactive tax plan strategies. As opposed to getting caught up in the news and finding out that your taxes are due April 15th, and you only got to this weekend. You got to set aside some time this weekend to hurry up and get your taxes done. Or you fly down to… or you run down to the corner… what is that H&R Block. I went to dental school in Kansas City, that's where H&R Block was from. And the founder that had this beautiful home out there and on the way to Johnson County but… yeah. So what you're saying is, if you're going to wait to the last minute to go to H&R Block and file your taxes. Then you're not going to have a lot of proactive strategy that you thought about in advance.
Craig: You're strictly going to be looking in the rearview mirror and the idea is to look forward and keep more of what you make.
Howard: Yeah. By the way, what would your… what would your tax advice be if… what would you say if she comes out of school and says, ‘look I'm five hundred thousand dollars in debt’. And you used to be a New York City police officer. How much debt would they have to have before, as a police officer, you recommend they just flee to Canada, or Brazil, or Australia, and just say adios.
Craig: I don't know if there's enough debt to make me flee the country.
Howard: So what's more stressful? Being a police officer being afraid of criminals or being afraid of the IRS?
Craig: I think if you ask the general person being afraid of the IRS. Nobody likes to get a letter from the IRS.
Howard: Yeah. So what was it like being a New York City police officer for seventeen years?
Craig: Oh, it was great. I had a great run. I made a lot of great friends. My son is actually a third-generation police officer right now, and I had a great run. It was a great experience. I learned to deal with the people of all walks of life. And it was a good seventeen years. It was time to move on but it was a good seventeen years.
Howard: So what was going on in your journey? I mean police officer to CPA. That's not a very common journey.
Craig: No.
Howard: I think you’re the only…
Craig: It’s that time…
Howard: One I know that went from police to CPA. How did that work out?
Craig: Most go from police to attorneys. Mine was a little different. When I was… when I first came on I was young right out of the college. I said if I could make fifty thousand dollars a year by the time I retire we’ll be set for life. Okay. I used to go back to college where my friends were and you know live for the weekend on ten dollars. So I was going to be… my goal was I was going to move up the ranks, become a chief and its civil service, and I had a way that I was promoted relatively early. I was a sergeant and I waited ten years to be promoted to actually to be able to take an exam to be promoted to lieutenant. And I kind of figured during that time I wanted to have more control over what I do in my life and my income.
So I went back to school and I got my degree and then when I retired I went to work for an international firm for a number of years, got some good experience, and slowly went out on my own.
Howard: Wow. So you say it's actually common for policemen to turn into lawyers.
Craig: Oh, it's very common. Very common.
Howard: Really?
Craig: At least… I come from a police department that had thirty-five thousand members.
Howard: Thirty-five thousand? Was that Manhattan, or Brooklyn, or Queens?
Craig: All of New York City. All five boroughs.
Howard: Okay. So that's the only time New York City comes into play.
Craig: Exactly.
Howard: Because it's the police department.
Craig: Yes.
Howard: And do you know where the word ‘cops’ comes from?
Craig: Copper. They use to have a copper badge.
Howard: That's right. And it's the emblem of the New York Yankees, right?
Craig: They have a NY. They have the NY.
Howard: Yeah. I learned that on Ellis Island that the original police officer's badge but the badge they showed it look like the Yankees logo.
Craig: Maybe. I don't think I've ever seen the original. It's been a long time since…
Howard: Well the one on Ellis Island, I mean I'm not a local expert, but it looked pretty much like the New York Yankees. And they were made out of copper so that's where the name come from.
Craig: Yeah.
Howard: I love word origination. So, yeah, but I got to tell you growing up in Kansas. Wichita, Kansas with tall those things, green silo… I'll never ever forget, my entire life, the first time I went to New York City. I was with a classmate of mine Craig Steichen. And if you grow up in Kansas the first time you see New York City that is the most shocking, I mean it took my breath away when I was looking out the window and I finally realized that that thing up there was a canyon of buildings and we went there. The funniest thing Craig and I… he’s a dentist in Albuquerque, and we went there. We threw her luggage on the bed, we were at the Sheraton in Manhattan, and we ran out outside. We started walking down the street and the next thing I said to Craig is, ‘Craig, I don't know why but my feet actually are hurting. I wonder what's going on’. And he goes, ‘Well dude it's three in the morning. We've been walking crazy for six hours. I mean that’s… you walk for six hours that's a marathon’.
Craig: Right.
Howard: And we could not believe it was three in the morning. I mean, that was that exciting. I mean, just next block, next block, next block. I mean, it was just God, Manhattan. It's just the coolest thing. And I also love this statistic. Did you know that if all seven and a half billion Earthlings lived at the same density as Manhattan we would all fit on New Zealand?
Craig: Wow. Wow. That's interesting.
Howard: So did you learn anything being a police officer that you applied to accounting?
Craig: Yeah, I learned how to communicate with people. Which was… it's all about communication and I learned how to communicate. I was lucky I did a lot of interesting things. I worked in impoverished area. I worked in midtown. And you learn you need to treat everybody right. And that comes into play when you're dealing with your employees. And you learn just how to communicate with people. So it was a great experience.
Howard: And what percent of everyone you ever arrested, at the end of the day it all had to do because they were drinking too much in Manhattan?
Craig: Probably not a whole lot. Okay.
Howard: Really? Really, not a whole lot?
Craig: Yeah. No, not a whole lot, no. Back in the day, which is probably when you were walking around midtown Manhattan, I had a foot-post and between 7th Avenue and 8th Avenue, there was six of us on one side of the street and it was six of us on the other side of the street. That's how crazy it was back in that time. Now we walk down Times Square and it's beautiful. But crime was rampant back in those days. But alcohol definitely fuels family disputes and people doing stupid things.
Howard: Because whenever you see those cop shows it seems like… it seems like almost all of them are drunk or drunkards. I mean it’s like most of the stuff that's on those cop TV shows isn't anything you'd ever do sober.
Craig: Right. And a lot of it is family disputes.
Howard: Yeah.
Craig: So that’s what you see on TV.
Howard: And what percent of the family disputes have alcohol involved?
Craig: Probably ninety-five percent of them.
Howard: Yeah. Yeah, I mean yeah. So I want to go back to terminology, because these kids have been saying algebra, geometry, trig, and the periodic table. What is the difference between a CPA and a CFO?
Craig: So a CFO was a Chief Financial Officer. Okay. Right? And that's when we actually offer that service to certain clients. You don't have to be a CPA to be a CFO. We offer that service because when we have a client that has a bigger practice, or multiple practices, or multiple businesses. Instead of hiring a CFO at some crazy number, he could hire us at a much reasonable number. With the advent of the internet, it's just like you're in a room next door and you could provide cost-effective really efficient services.
Howard: And how often should a dentist actually talk to their CPA?
Craig: At least monthly.
Howard: Really?
Craig: At least monthly.
Howard: And what percent of the dentist you think talk to the CPA monthly?
Craig: Less than five percent.
Howard: Yeah. But you really think once a month the dentist should call their CPA and say, ‘what up Craig?’
Craig: Whether… it does not have to be a phone call. Could be email back and forth. Okay. Some kind of communication. Yeah. Because there's all these things going on and you don't know what you don't know. People go and they do things, or they’re going to do things. And if you don't communicate with them, you don't know what they're doing. They may be doing it wrong and you help them do it the right way. So we have a staff attend and we communicate with all clients on a regular basis you have to.
Howard: My dad… I've so many amazing memories of my father but he used to always sing me a jingle. He had so many one-liners that he’d sing to me and he had this way of singing… (inaudible 32:00). My dad went to mass every single morning until the day he died but he cussed like a sailor. Anyways it was kind of a weird morality thing.
He’d always say, ‘the easiest dollar earned is a dollar and… the easiest dollar earned is a dollar saved. The second easiest dollar earned is a dollar taxes delayed. The hardest damn blankety-blank, blankety-blank, dollar you'll ever earn is a do another dollar in sales’. And so that the easiest dollar earned is a dollar expenses save, the second easiest dollar earned is dollar tax away, the hardest all you'll ever earn is to try and get another sell. So my dad, on one of my earliest memories of my father. I was working at his restaurant at Sonic Drive-in and I put four pickles on the hamburger and he walked by and he pickup this four hamburger these four pickles on and he threw the thing on the wall. He said, ‘Jiminy Christmas Howard, if you got to put four pickles on it you might as well just lose money on the… what did he say? You might as well give the thing away for free. He goes, ‘it's three pickles. It’s never four’, and then he was telling me that if we put on four pickles on every sandwich, our pickle costs would go up twenty-five percent. ‘We don't have that kind of marge’. I mean they were fanatics on cutting costs.
I mean when you're selling a hamburger, fry, and a coke, that's what dentist don't understand. I mean when McDonald's selling a hamburger, fry, and a coke, they going to make money off three bucks. But dentist doesn't even sell anything in his office that costs under twenty. I mean what’s the cheapest thing you could buy in a dental office? One x-ray, or one tooth, and then they’d still ding you for an exam. I mean dentists just don't know.
Like the average grocery store has a one percent profit margin and the average S&P 500 publicly traded in your town at Nasdaq and the New York stock exchange. The average is a five percent profit margin. And then you go into a dental office and this guy's supplies and lab is eighteen percent, and then the guy in the next building over is thirteen percent. The variance of just that one cost is five percent which is the average profit margin for the entire S&P 500.
I mean dentists not only do they not know their cost. They don't even know the beginning of cost cutting but the second thing after cost cutting is a dollar in taxes delayed. So when my dad was singing me that song, the easiest dollar earned is a dollar and expenses to save the second easiest dollar and the dollar in taxes delay. That's where you come in as a Certified Tax Coach, right? Are you… tell them what's the difference between a tax deduction and a tax delay.
Craig: Well, a tax deduction is something you get immediately. A tax delay such as the money you put into your retirement account. You put that money away today. You don't pay tax on it today. In thirty years when you take it out you start paying tax on it then. Okay. So that's what a tax delay is. So another thing you could do… equipment you might want to call tax delay. alright? Because you get to depreciate it, but probably retirement plans are one of the biggest tax delays.
Howard: So what do you think if something is… every once in a while you'll see a dentist on Dentaltown doing something like December 31st they’ll go buy like… they’ll go to Henry Schein which is in Amherst, New York. Is it Amherst? Yeah. Henry Schein. That's the largest dental company in…
Craig: Yeah.
Howard: Yeah, and Stan Bergman. They'll go to Henry Schein and say, ‘I'm going to buy all my supplies for next year today, and I want to pay for it on the 31st because I want to ding my overhead now to pay last taxes. Do any of your clients ever do crazy stuff like that? Or is that a little too outrageous? What are your thoughts of that?
Craig: Here's the thing. If you do that and you get caught, supplies you’re supposed to write off as you use them. So it's really inventory. So if you ever get audited and you have a fifty thousand dollar supply bill on December 30th, they're going to disallow that deduction. So there are other ways to go about it. With proper planning. Okay. What for… buy a piece of equipment if you need a piece of equipment, that's allowable. But the supplies doesn't pass. And I actually saw Bergman. He was the keynote speaker at my daughter's college graduation a few weeks ago and he was great.
Howard: Yeah. I love Stan. He’s an amazing man. Do you know what I love most of about Stan? Forget about Henry Schein. Forget about everything he's ever done. Twice in my life I've gone on a missionary dental trip. I'm out in the middle of nowhere. Jungle, four wheel drives, no roads, wondering if these people even know what they're doing. If we're going to be safe or whatever. And then all of a sudden, there's this beautiful dental office in the middle of nowhere, that looks just like the finest one in Manhattan. And you go in there and there's ten, twelve brand new chairs. Blah blah blah blah all donated by Henry Schein.
And I’ve got to tell you this funny story. I was in Tanzania and I was telling all these little beautiful children that my friend Stan, he's actually did this. He's the one who paid for all this, and I thought they were understanding so I said… so I pull out my iPhone and I put on video I said, ‘I want you all to tell my friend Stan thank you. So on three everybody say thank you’. And it’s posted on Youtube, I to go one, two, three, and these thirty Tanzanian children that were probably all under ten starts singing, ‘happy birthday to Stan, happy birthday’. So I thought, okay well that's close enough.
I don't speak a word in Tanzanian but they thought I was obviously saying, tell him happy birthday not say thank you. But Stan that's just one hell of a man. Both times I told him about that and he just smiled. I mean he does charity all day every day and didn't tell anybody about it. And he's originally from South Africa.
Craig: Yeah. It was a really interesting speech and I tell you that's the best one. That's the best one I've ever heard.
Howard: Yeah. So easiest dollar earned dollar expenses saved. Do you guide these guys on their expenses? I mean do you do enough dentists where you can sit there and say, ‘Hey, look. Harry has less expenses than you’. How many… how many… what percent of your practices dentist? How many dentists do you do? Do you do enough dentist actually give them some benchmark parameters?
Craig: Well we just started doing… we added six new dentist recently. So we have ten, and we're actually in the process of creating some benchmarks. So we could go back now to them and see where they compared to their peers, and where they should be able to cut some costs.
Howard: So you do ten dentists right now?
Craig: Right.
Howard: So after the show you should be at eleven?
Craig: Yes.
Howard: One of my homies better call you… because here's what I think about that, is the fact that in 1900 there were no specialty so the family doctor did you head to toe and we obviously know how well that went. And by 2000 there were 58 specialties. And just a dentist only, just dentist in the mouth, they had nine. And I tell people if your CPA only does one dentist. How… if you talk to your CPA and they hang up and they call a restaurant, a doughnut shop, and dairy farmer, how are they gonna add value? And you're doing ten, I would say it's a great inventory. If your CPA isn't doing at least ten dentist, how do they know what to compare you to?
Craig: Well that's where it comes in… the value added is there where you can say, ‘okay this is what…’ It's kind of like being a mastermind group. These are the expenses of the typical pediatric dentist, all right, which differ than the implant dentist and this is where you should be, this is where you are, this is where your overhead is, this is where it really should be. And gives you some guidance as how to get there. So we started doing… looking at the P&L's on a monthly basis, and now we're going to start comparing the P&L's to benchmarks on a quarterly basis.
Howard: Yeah. I think that would be the saddest job in the whole world that to be a pediatric dentist listening to kids scream and cry all day long.
Craig: They love it.
Howard: I know and you know what? I'll never forget I was on a mission… a dental trip and I was either Chiapas or… no it was Antioch. It was Antioch. It was about an hour north of… what’s that big New York City resort? Acapulco. It was an hour north of Acapulco and there was like twenty kids from A.T. Still and they line up for forever. They line up all night long waiting to get in there and these kids were just screaming and you saw all these doctors all stressed out of mind. And there's this one boy and he's just sitting there like just like, ‘Hi’, and he’s smiling.
And I watched him the whole time and it's like for a week this guy never was stressed with a crying child and I told him I said, ‘dude you don't know what I'm seeing here, but you got to be a pediatric dentist. Because this does not faze you. You were just hardwired at birth to be a pediatric dentist’. He goes, ‘Yeah, I like working with kids. It doesn't stress me’. And I'm like, ‘Well, everyone else is stressed out of their mind and you're just sitting here. You're either drunk, stoned, or should be a pediatric dentist’. And yeah, so what else should they know?
Craig: What else do they know? Watch your expenses. Okay. It's amazing how many times you see, and not just dentists, in any business owners. They’re not watching their expenses, and then money is disappearing. It's easy… and it sometimes it's legitimately disappearing because when cash is good that is flowing, you spend money on everything. All right. Save some money. Pay down the debt. Come up with a plan to pay down the debt. If you could pay faster, that's great.
But just if they know to communicate and they're working with somebody who will communicate with them, that's… they’re way ahead of the game. Like I said, most CPAs are good at putting the right numbers in the right boxes but it kind of ends there. You want to really communicate and see… get some value. Get some value. Otherwise (inaudible 42:29)
Howard: I want to ask… I want to ask you some common questions. One of the most common questions they ask on Dentaltown, under accounting and all that is should I lease or buy my car? That is a very common question.
Craig: So let’s just say you're going to be driving a reasonable amount of distance and you're not going to go over your mileage so and you're using it a hundred percent for business. Let's just say. So if you're going to buy a car, you get to depreciate it over a period of time and the first year’s depreciation is maxed out at about twenty-five hundred dollars.
If you lease that vehicle you're typically going to get a bigger deduction every year versus purchasing it, so… and if you're somebody like me, that doesn't know how to fix a car. And doesn't want to deal with fixing a car and you rather be in something new every three years. From a lifestyle perspective, you’re better off leasing, but you're gonna have a payment forever.
Howard: So, Dentaltown has fifty categories and by the way to you kids getting out of dental school, if you had told me thirty years ago when I got a dental school. Someday I'd have an iPhone in my pocket and there'd be this app called Dentaltown with a quarter-million dentist living in my pocket. I have to thought that was some scene out of Star Wars. But the categories like root canals, fillings, crowns. The one is finance and then you open finance it’s either equipment, acquisition and practice expansion, financing, patient finance plans, personal finance or taxes. So… so do you consider yourself more… as a CPA is that more personal finance or taxes?
Craig: It's a mixture of both because if you're able to keep more of what you make, you have more things that you could play with in your life. To save or invest in things, so it's a combination. Personal finance and or taxes.
Howard: What other questions, do you think, young dental students that just got out of school would want to know about taxes and personal finance?
Craig: We get a lot of questions. Should we pay down our student loans? Should we pay down our practice debt? How do we save for new equipment? What’s the best way to go about… we want to purchase another piece of equipment next year and it's gonna cost us a hundred and fifty thousand dollars? What's the best way to save for it? And if we save ninety thousand dollars this year we're going to have it in a bank but we have to pay tax on it. How do we… is there way to do it where we could get a deduction for that money?
So those are big questions we get from people that are already in business and they’re young but they're growing, and they want to do things the right way. That they’re not getting those answers from anyone else.
Howard: Okay, but if she's setting up a De Novo practice. She's already found a place, she's gonna rent two thousand square feet. She's looking all that stuff, but she started setting this up. Would you recommend Quicken? Would it be QuickBooks desktop? Would it be QuickBooks Online? What accounting package do you think she should go with?
Craig: So when we work with a client, we do all their… what I'll call write up work which is the accounting part of it. All right. I think a dentist is better off spending his or her time in their practice doing what they need to do. If they want to enter… we allow them to enter checks and stuff like that into our system. But my personal favorite is QuickBooks. I think QuickBooks Online is unfortunately… it's a horror show. It doesn't have the functionality that the regular QuickBooks has, and I don't think a dentist should be doing their own books.
Howard: I'm so glad you said that because when I hear people say, ‘Oh, Quicken Online, that's awesome’. I was like, ‘Okay, dude. You just basically told everyone in the room you have no idea what you're talking about’. I use… I have an MBA, I’ve been doing this thirty years. I have a two person, two bookkeepers but we use QuickBooks. I mean we use Peachtree.
Craig: Okay.
Howard: Do you have any clients who use Peachtree? What do you think about Peachtree?
Craig: I've used Peachtree. It's just… I don't think there's much of a big difference between QuickBooks and Peachtree. We don't have any clients on Peachtree. It’s been a long time since I've worked with Peachtree but honestly it's just a matter of being comfortable with it. I don't think there's a big difference but QuickBooks is the two hundred pound gorilla.
Howard: And Microsoft bought Great Plains accounting. Why do you think Microsoft bought Great Plains accounting and how would you compare Great Plains accounting to like QuickBooks?
Craig: Great Plains is I think there's a new name for it. Its way ahead of, I think, anything that most dental practices are going to need. Okay. Maybe if you have multiple offices and you want to be able to roll up all your financials into one. You’d use something like that but that's not typical practice software I would say.
Howard: Well but there’s… but twelve percent of the market is DSO’s.
Craig: Okay.
Howard: So there's a lot of guys listening to you right now that might have twelve offices.
Craig: I haven't come across anyone using Great Plains in the dental field. But it is… it's a big cumbersome piece of software and I just haven't come across anybody that uses it. We have a client that is in multiple countries that uses it. It's cool but I haven't seen a need for it.
Howard: Now the S&P 500, they all use… what is it? SAP accounting…
Craig: Yes.
Howard: Software out of Germany?
Craig: Yes.
Howard: So the fortune 500 uses the German SAP. The thing that I was always mad at the most about Bill Clinton. Forget all of his… I know you suppose to never talk about religion, sex, and politics but I mean when he blocked Microsoft buying into it. Because Bill Gates wanted it to be Word, Excel, PowerPoint and for a business you got to have the accounting and he tried to buy Intuit which owns Quicken and Bill Clinton said that was monopolistic behavior. And everybody blocked it. And I just thought, ‘Man, there’s all these small businesses would have been so nice if their Microsoft Office suite would have been merged with their accounting’.
And I just think how more small businesses would have known their numbers and been better businessman and avoided… there's sixty thousand small business bankruptcies a year. And I just thought that was overreaching of the Federal government not to let him innovate with that software package.
Craig: Yeah. Integration would be a wonderful thing. It helps any business run more efficiently.
Howard: Yeah. So is Great Plains still… you said it's not called Great Plains anymore?
Craig: It’s not called Great Plains. I'm trying to think of the name of it. Like I said we have a client, an international client, they're in multiple countries and they use it and we use it with them.
Howard: Oh, it's called… changed to Microsoft Dynamics.
Craig: Dynamics. Yeah. Dynamics.
Howard: Over a decade ago. And Microsoft Dynamics. So you think that's… so would you… would you say that SAP is for the Fortune 500. Quicken’s more for just personal family, and this Microsoft Dynamics maybe that's just for like middle market company. Maybe that's more fifty hundred million dollar. What would you…
Craig: Yeah. I would say definitely a bigger companies would be Microsoft Dynamics. Quicken has a couple different variations. They have their Enterprise version so they have some robust software and reporting capabilities. But your average dentist, even if he owns one or two practices, QuickBooks is fine. QuickBooks Online I would stay away from.
Howard: Why?
Craig: Well number one, if you ever want to move data from QuickBooks Online to regular QuickBooks up until at least last year you are unable to do it. You had to do it all manually and they own your data. I mean they say you don't own it but they own your data. It's all there’s so you have to get it out of there. And it doesn't have the robust features that regular QuickBooks has. Running a certain reports is not as easy. Maybe I'm a little bit old school but it I could do a lot more with regular QuickBooks or QuickBooks Accountant version than I could with QuickBooks Online but Intuit does want you to move to online. That's what they wish.
Howard: Okay. Then I want to ask you the scary part. I'm going to be honest I'm embarrassed to ask you this question, but it's true that's a big fear. A lot of dentists always are worried that if they don't do all this themselves, they let their office manager help them or they let you input the checks whatever. It's just going to set them up for embezzling. And that's why a lot of dentists say, ‘I don't want my receptionist entering the checks. I don't want her doing payroll. I got to do everything myself because whoever helps me is going to steal’.
Craig: Right. Well if you have somebody in your office that you trust. Okay. And it doesn't mean that people have check-writing privileges. Okay. So, we have access to a whole bunch of our clients’ bank accounts, but it's called Accountants Access. It's like read-only access. We can't write checks, we can't pay bills, all right. But, if you're working with a good CPA and you have somebody in your office that you trust, and you actually look at your numbers occasionally. Between your CPA and yourself, you should be able to spot things that are out of place. Okay. So embezzlement happens. Okay. But it typically happens when people aren't looking. You need to trust but verify.
Howard: What if one of my homies is listening to your right now and saying, ‘I'm an associate but if I called you up, do you help… is it pie in the sky to refinance all my student loans?’ A lot of them are driving around thinking I got nine different student loans going back from undergrad, different government programs. Sometimes they’ll post on Dentaltown, ‘should I go to the bank and get one loan and pay off all my student loans with one payment? Other people are saying you should refinance it. What's your thoughts on student loan refinance?
Craig: I would say look at what it's going to do to your rate, what’s it going to do to your overall interest cost over time and make the decision that way.
Howard: But do you… have you ever… if she called you would you work with her on that?
Craig: Oh, yeah. Yeah. We work with our clients on all sorts of finance needs. And so it's not just about putting the numbers in the boxes. Okay. It's a about making them more efficient and helping… give them the guidance that they need.
Howard: So how do you like to be contacted? Website, email, phone number?
Craig: Email, phone number, website. All of the above.
Howard: Give them out.
Craig: Yep. Okay. My phone number is 516-869-4051. Email is…
Howard: Say it again. Say it again.
Craig: 516…
Howard: 516…
Craig: 869…
Howard: 869…
Craig: 4051.
Howard: 4051.
Craig: My email… my email is craig@ccodycpa.com and the website is www craigcodyandcompany.com.
Howard: So I got to tell you…
Craig: And…
Howard: Okay. I got to tell you a funny story about Craig. So my best friend in dental school was Craig Steichen, that's the guy in Albuquerque that I went to New York City with the first time. And my first boy was Eric, 4 letters. And I said on the second boy, I told my ex, I wanted him to be named Craig. And she goes, ‘no, it's five letters. I want all my boys to be four letters’. It was Eric, Greg, Ryan, and Zach. So she changed Craig to Greg. So every time I say Greg… and Greg knows that, doesn’t he? So it's kind of funny when Craig's over here and Greg says, ‘Sorry Greg, but you're actually named after Craig but Craig was five letters so that's why you're a Greg.
And so you're at craigcodyandcompany.com and you're a craig@ccodycpa.com. And I'm just looking through this… God there's so many questions. I'm sitting here debating whether I should ask you these questions, or if you should just go to Dentaltown and like say… so on Dentaltown we got fifty categories. They start off with… well the first one at the top is my private groups because a lot of people don't like to ask questions in front of everyone in Dentaltown. So a private group what that is on Dentaltown is you can set up… anybody could set up their own private group, have all the functionality in Dentaltown but anybody wants to join a group has to get permission and then if you like them you can kick them out. There's just some people don't want to ask a question from a quarter-million people.
Then it's like anesthesiology assistants, CAD/CAM computers, on and, on and, on and, then endodontics. Then we go to finance. And finance is equipment acquisition, practice expansion financing. Next is patient finance plans then personal finance and then taxes. And there's just a gazillion conversations and questions there. Yeah. So, if you have questions for this you can email craig@ccodycpa. You can post them on Dentaltown and also… God, there's so many questions about… this one question this guy just posted said, ‘Well, what about QuickBooks Premier?’ Well, how would you answer that?
Craig: Oh, Quickbooks Premier is a version of QuickBooks. It's a good program.
Howard: If it's desktop?
Craig: Yeah.
Howard: But you don't like it on the cloud?
Craig: I don't. I don't like the online… the online version is not… you could have desktop version on the cloud, alright. But the online version is QuickBooks Online it doesn't have the same functionality.
Howard: And by the way, there's a big thread employee dentist versus independent contractor. So let's say you're twenty-five. You just walked out of school and you're getting a job as an associate. When people talk about associates, it's really easy to anchor that to associates at the thirty-five big corporate dental chains that have fifty or more locations. But the reality is ninety percent of all the associates just go work for some small dentists. So, you walked in and he says, ‘no, I'm going to pay as independent contractor’.
Well, then just pull out your damn smartphone, open up your Dentaltown app, go to finance or go to the search bar and type in independent contractor, and then sit there and to the dentist say, ‘look, read this thread. Dude, I mean it's not me. I mean I'm twenty-five. I just got out of dental school but it seems like all my homies say this is not true. This is not work. In fact, it's scary for you because if I work for you for three years never pay my taxes, the IRS found out that I didn't have a dime, they’d give you the bill’.
Craig: That is scary.
Howard: Yeah. That's really scary. My dad used to always say that he thought it was funny. He said… he said, ‘if you murdered someone you go to trial. There'd be a jury of people’. But he says, ‘Dude, when you go to the IRS court there's no jury. It's just you, the IRS judge, and you're going to lose”. Is that still true to this day or do they have juries now?
Craig: No, they don't have juries. They don’t have juries.
Howard: They don’t have juries.
Craig: They don’t have juries. At least I've never been to a jury. You don’t want to get… and you don't want to get to that point you. You don’t wanna get to that point.
Howard: Isn't that interesting that if you murder, or steal, or burned down somebody's house, there's going to be a jury of eleven. But when you deal with the government, it's going to be you and the IRS judge and she's not going to tell… she's not going to care that your cousin Eddie said it was tax deductible.
Craig: Right and you don't want to have to pay the cost that it's going to cost you to go to tax court.
Howard: Yeah. So, just remember gang. Everything is tax deductible until you go to tax court and then it's you and Judge Judy, the IRS agent and you're going to lose.
So, hey Craig. Seriously, buddy thank you so much for taking time out of your day to come on my show and talk to all my homies about all things CPA. I hope you get a client out of this. Craigcodyandcompany.com. And also seriously and bottom my heart, thank you so much for serving New York City, seventeen years on the street. I bet you had some scary times.
Craig: I had a lot of fun.
Howard: Mostly fun?
Craig: No.
Howard: What percent fun? What percent scary?
Craig: And how about the boredom part?
Howard: And boredom, yeah. That's what the pilots all tell me. They go flying for Southwest Airlines says ninety-nine percent boredom followed by one percent of sheer terror.
Craig: I'll say one thing. Saving somebody twenty or thirty thousand dollars in taxes is a lot more exciting than chasing a perp down the streets in New York City.
Howard: Right on. I agree with that. Okay, and I'm sorry, being a hundred percent Irish, I'm sorry for all the Irish drunks you had to put up with on the streets of Manhattan for all those years.
Craig: No problem.
Howard: Even though the Irish know they drink too much so I apologize on behalf of all Irishmen living in New York.
Craig: Apology accepted.
Howard: Have a great day, Craig.
Craig: Thank you very much for having me.
Craig: I’ve retired from the New York City Police Department after seventeen years. My days of a police officer chasing perps down the street it was adrenaline rush and I get the same rush when I'm able to save somebody significant tax dollars.
What I like best about our business is the fact that we're able to counsel people and help them realize their goals through tax planning. We became members of Certified Tax Coaching and Tax Coach. Oh, it's a great community to be part of I have a network of people throughout the country that I could tap into when different clients needs arise. It helps us keep our pulse on what's going on in the industry.
Outside of work and it's all about family for me. Relaxing, traveling, boating. We’re members of a boat club nearby and we're able to leave the office jump on a boat and go out look at the beautiful Manhattan skyline and just relax.
I like coming into work, I like interacting with all the staff. I like clients. I like interacting with our team. I like to help people keep more of what they make.