Learn Cash Flow Management

Episode 61: Learn Cash Flow Management, with Craig Cody

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Learn Cash Flow Management — Gain insights, implement strategies, and optimize your financial success. Learn Cash Flow Management now!  

Learn cash flow managementOn this episode of Sell with Authority, I am excited to welcome guest expert Craig Cody. He is the Founder and CEO of Craig Cody & Company. Craig and his team are renowned tax strategists who help business owners maximize their tax savings legally and effectively.

And in full transparency, Craig is our tax strategist here at Predictive. He and his team deliver off-the-charts results for us and all their clients.

Learn cash flow management to ensure that your business operates smoothly and efficiently, maximizing financial resources and minimizing unnecessary expenses. We’ll dive into the world of proactive tax strategies, discussing the common financial concerns, pain points, and major issues business owners face. We aim to equip you with the knowledge to keep more of what you earn and implement a proactive tax strategy that aligns with IRS guidelines.

My conversation with Craig is crucial because all your hard work and dedication mean little if you pay more taxes than necessary. Craig’s insights will help you design 2023 in a way that ensures your efforts truly pay off for you and your family.

What you will gain in this episode is about to learn cash flow management:

  • Insights on how to learn cash flow management and the tools Craig recommends for creating big impacts right away
  • Why documentation is key
  • What the Augusta Rule states how to take advantage of it
  • Advantages of Safe Harbor 401 K plan and learn cash flow management
  • Details about Craig’s upcoming informative webinar, What is Keeping Agency Owners Up at Night: Tools for Managing Cash Flow



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Learn Cash Flow Management: Full Episode Transcript


Welcome to the Sell with Authority podcast. I’m Stephen Woessner, CEO of Predictive ROI, and my team and I created this podcast specifically for you. So if you’re an agency owner or a strategic consultant, and you’re looking to grow a thriving, profitable business that can weather the constant change that seems to be our world’s reality, well, then you’re in the right place. Do you want proven strategies for attracting a steady stream of well-prepared RightFit clients into your sales pipeline? Yep. We’re gonna cover that. You wanna learn how to step away from the sea of competitors, so you actually stand out and own the ground you’re standing on. Yeah. We’re gonna cover that too. Do you want to future-proof your business so you can navigate the next challenges that you know are going to come your way? Well, absolutely. We will help you there as well.


I promise you each episode of this podcast will contain valuable insights and tangible examples of best practices, not theory, from thought leaders, experts, and owners who have done exactly what you’re working hard to do. So I want you to think practical and tactical, never any fluff. Each of our guests has built a position of authority and then monetized that position by claiming the ground, growing their audience, nurturing leads, and, yes, converting sales. But all the while, they did it by being helpful. So every time someone from their audience turned around there, they were with a helpful answer to an important question. So their prospects never ever felt like they were a prospect. I also promise you every strategy that we discuss and every tool we recommend will be shared in full transparency in each episode. So you can plant your flag, claim your ground, and fill your sales pipeline with a steady stream of right-fit clients who, again, were never, ever made to feel like one of your prospects.


Read this blog post by Craig Cody to learn cash flow management: How Managing Money Is Different than a Financial Strategy


Learn Cash Flow Management: Craig Cody’s Introduction


Okay. So I am super excited for you to meet our very special guest expert today, Craig Cody. So, if you’re meeting Craig for the first time, he is the founder and CEO of Craig Cody and Company. Craig and his team are brilliant, like underscore underlying bold, the word brilliant tax strategists, and full transparency because we always do full transparency here. Craig is our tax strategist here at Predictive, and the results that he and his team deliver for us and for their other clients are amazing. I asked Craig to join me today on the podcast so we could talk through proactive tax strategies, and even more specifically, I wanted to get his perspective from being on the front lines with owners just like you and me regarding some of the biggest issues, some of the biggest pain points, and some of the biggest financial concerns that he sees owners wrestle with over and over again.


Okay, but why did I think this conversation was important to have in front of you in full transparency? Because all the work, all the long nights, all the weekends, the blood, the sweat, the tears that you and your team invest into building your authority position and then scaling your shop, all of it is for Naugh as the owner, as you as the owner, don’t keep more of what you make, and instead, you pay more in taxes than you legally need to pay. You need a proactive tax strategy that not only ensures you keep more of what you make but also a tax strategy that is backed up by IRS publications. I will tell you that when I share some of the deals, I go to conferences and workshops all the time, and many times, they’re financial-related workshops.


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Learn Cash Flow Management: Legitimate Approaches to Keep More of What You Earn


Want to learn cash flow management? And I will tell you, when I share some of the details regarding the specific strategies that Craig and his team have built into predictive, almost 100% of the time, I’m asked how, what we’re doing, how in the world that that’s legal because the assumption is what that, that that can’t be legal. And, of course, it is legal. Rest assured, everything that Craig and I discussed today is backed up by research backed up by case law-backed IRS documentation. I promise you no shenanigans. I also promise you that taking and applying what Craig shares during this conversation will help you design 2023 in such a way that all of your hard work pays off for you and your family. And that, my friends, is a worthy conversation for us to have, don’t you think? Okay. So, without further ado, welcome to the Sell with Authority podcast, Craig.


Stephen, thank you very much for having me. That was a great introduction.  I would say the only thing I want to add to that is that we are a CPA firm, so we are licensed. There’s a little bit more credence behind what we do, and you’re correct. When we do a tax plan for someone, all the strategies are backed with the code that says you can do them. Mm. So, unfortunately, most CPAs are more concerned with putting the right number in the box before looking at strategies to help you keep up with what you make.


So why do you think that’s the case?


Oh, I think there are a lot of reasons. It’s kind of the way it’s always been done. You know, a little bit of the typical CPAs. We’d like to be locked in the back room without a pocket protector and not have to deal with anyone all day. We just have to work on our own stuff and go home at the end of the day. But I think when you see people that are working hard and struggling, and they’re worried about cash flow, they’re worried about making payroll when they have really good years, they’re worried about, okay, now I have this tax bill. You know, you tend to. At least, we’ve always looked at it. Well, okay, what can we do a little bit differently? That’s within the law. That can maybe make a few different changes to things that we’re doing and wind up getting more tax deductions and keeping more money.


Yeah. I’m still blown away by this. It was probably three years ago now when you and I did; we recorded an encore interview for, at the time, our Onward Nation podcast. And I remember you sharing this story, and this might be kind of a good way to kick this off because it’ll sort of attack that mindset right away. But you shared this story about a client who, I may get the numbers wrong, so correct me if I do, but it was like a $300,000 investment in a backyard pool or something like that. And you had figured out a way legally, of course, in order to depreciate that over x number of years. And so that became a great tax strategy. And I remember listening to that going, oh my gosh, what? So correct me with the numbers here ’cause I’m sure I kind of messed that up. But that might be a good way to sort of like establish some mindset or expectations for this conversation.


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Learn Cash Flow Management: Addressing Cash Flow Concerns and Optimizing Tax Strategies


Yes. and the numbers are close.  not everybody bills a 300-plus backyard pool, but you know, there is something in the tax code that allows you to have an athletic facility. And if you have an office, you have a home athletic facility, just like IBM has a big complex in their complex. So as, as long as you have that facility available to your employees and you make sure you have it available to your employees, and most of them aren’t gonna wanna come and hang out with you on a Sunday. Right. But there are ways to legally write that off. Does it take some planning? Yes. Is it worth planning? Definitely. and that’s just one strategy, right?


How to learn cash flow management? Yeah. It’s amazing. It’s amazing. So let’s kind of peel back the curtain and talk about some of these things, like recurring issues, pain points, and the stuff that you often see. And then we’re gonna go into maybe some of your, I don’t, I don’t know if favorite tax strategies if that’s the right way to say it, but, but maybe some things that would be helpful sort of takeaways for our, our audience to maybe either start implementing or start asking questions around for their, CPA to give them,  you know, some, some, some insight or, or, or guidance or whatever. But, so if you were to think of some of the biggest issues, the biggest pain points, the biggest financial concerns that you see over and over and over again with owners, what might be one, two, or three of those things?


Yeah, I think cash flow. Okay. We’re always worried about making payroll, having enough cash to make payroll and taxes, and having enough money to pay all taxes. And if we’re able to reduce our tax liability, we’re reducing our expenses. If we reduce our expenses, we increase our profit. Alright? And we keep more of that money in our pockets. If there are ways to get legal deductions and move money from one business to our pocket and get a deduction for it on one side and not have to pick it up as income on the other, that would be even better. Now, there are things that you have to do, and you have to make sure you document right. So, just like everything else in life, nothing is simple. We all have to work for it. But it’s not that; it’s not rocket science. we can all do that. So I think those two things really do cash flow. I know recently you had somebody else on the podcast, and they were talking about a tool for cashflow, and you know, everybody wants to know, okay, am I looking out two weeks, four weeks, six months? You know, how can we make sure we can pay everybody? This is one way to increase that cash flow.


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Learn Cash Flow Management: Low-Hanging Fruit for Immediate Impact


Learn cash flow management — Okay. So when you’re talking about some of the paying more in tax, and you started like you’re, you’re getting really close to sharing a specific example there, which, which I love because I think that those are some real tangible examples, that we should cover. What, what might be some of those tools that you, that you like maybe your, your go-tos first because they, they create some, some big impact right away


What I’ll call the low-hanging fruit. Okay. Alright. So we have the home office. Okay. Most of us, especially post-pandemic, are spending at least 15 hours a week working outta our home office. Okay. That unlocks a whole deduction that we’re allowed to take. The other thing that I see, especially when I’ll have a CPA tell me, well, that’s a red flag, or it’s gonna create an audit risk or something like that. And which is totally unfounded. The other thing is that they’re typically writing off the owner’s vehicle. Now, when you have a home office, if you’re traveling to another office, you no longer have a commute, so you’re increasing the business. You see your vehicle. So you’re kind of killing two birds with one stone. You’re getting another deduction. Right. And that’s really not decreasing the owner’s discretionary income because the money is coming back to you, and you’re also making other things that you’re probably doing.


You’re putting them on better footing if somebody was looking, because now you’re increasing the use the business use of that vehicle. So the home office is, is, and if you have a home office, you could have a home athletic facility. It doesn’t have to be a $300,000 outdoor facility. It could be a home gym, or it could be the Peloton, depending on what you have. I mean, we see people where they have, they’ve built YouTube studios in their garage. you know, all that kind of stuff. And then you take that square footage of your office and your studio, and you add that up, and maybe it’s 20% of the total square footage of your home, and now all of a sudden your rent, you’re running off 20% of your electric bill, 20% of your real estate taxes, your maintenance and all those kind of things.


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Learn Cash Flow Management: Understanding Tax Strategies


Alright. So, it just all adds up. So we have the home office we’ve talked about,  the home athletic facility. We have the common Augusta rule. Yep. Which is where you’re allowed to rent your home to your business. And you can only do that for 14 days a year and not claim it as income. And that is the accounting lore that comes out of the Augusta tournament down in Georgia, where they wanted people to be incentivized to rent their homes to the tournament players. So it’s typically a two-week process. So you rent your home for $20,000 for two weeks, and guess what? You don’t have to pay tax on that, so you’re moving money from your business to your pocket.


Okay. So these three are amazing low-hanging fruit, and I want to do a deeper dive into each of these three to really peel back some additional layers. I will also share how you’ve helped predictive in these ways. I’m okay with sharing that in full transparency. But before we get there, you mentioned a red flag, and you mentioned unfounded. So talk a little bit more about like the assumption that this is somehow going to create audit risk.  so tell us a little bit more about why you use the word like red flag unfounded, so we have a little bit more context there.


Yeah. So I use red flag and unfounded because it’s unfounded. There’s no data to suggest that somebody doing something is gonna create an audit risk. What happens is I think people come into the industry, the code changes, we talk about things, and somebody says, oh, the home office is that’s a red flag. You can’t do it. and it just carries a vote. There’s no backing to it. In fact, it’s probably almost 10 years ago that the IRS came out with an FA safe harbor in the home office. 


And what does that mean? Is it a safe harbor?


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Learn Cash Flow Management: Understanding the Truth Behind Red Flags


Learn cash flow management — Basically means they’re saying if you, if, if you deduct up to a certain amount, we’re not even gonna look at it or contest it. You’re within that limitation. So, a safe harbor, think of our fours, okay? So when we do three or 4% max to the right, that’s safe so that you know that the owner can put as much money as he’s legally allowed to away, even if none of the employees put money away, it’s considered a safe harbor. So this allows for this.


That’s funny. I didn’t know that the same applies to the home office. I’m familiar with the 401k piece because you’ve taught me that before, but I didn’t realize that the home office was given that designation.


Two different sections, two different sections of the code and different sections of the code have their own safe harbor, what the IRS may consider safe harbor, what they came out with, and they said, we’re not even gonna look at this. Okay, if you’re at this amount, we’re not even gonna look at this. So we’re typically gonna be much higher than that amount, but if it was a red flag, why would the IRS have a safe harbor?


Right. Well, that’s a fair point. So then if somebody in our audience, if their CPA says, you know what, that’s gonna raise a red flag, is a legitimate pushback to say, show me the data that it says. 


Oh, most definitely. I mean, you’re paying for the expertise, share the expertise.


Yeah. And so I think what we’re hearing from you is that they won’t be able to share it or show you the data because it doesn’t exist.




Wow. This is what a highly propagated urban legend is.


Correct. You know? Okay. I’ve been doing this for a long time, so I imagine that I would have some data to show what I’m saying if, indeed, what I was saying was untrue.


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Learn Cash Flow Management: How Home Athletic Facilities Can Save You Thousands


How to learn cash flow management? Yeah. Okay. So I’m gonna, I’m gonna peel back first the home athletic facility because that tends to be the most shocking example. When I share that with somebody that I might meet in a workshop, financial workshop, or whatever, I certainly don’t go spouting this off to, like, where it’s not relevant to somebody or bragging about it, but it’s relevant for this conversation, it’s relevant for those conversations. Now, I may get the numbers wrong, but I’m just gonna share sort of my recollection of it. So, if what I share is not accurate, please correct it. It is so accurate. But when my wife and I were building our house four years ago, and we were talking alongside Craig, how do we structure this in such a way that when we build a hot tub room inside the house, that would fit into the coverage of home athletic facility?


And so when we were actually designing the house, and then when it was time to actually do our first sort of filing, if you will, of being inside the home, you gave me a worksheet, and it was like not just the cost to the tub, but the construction cost to the room and all of that. At the time, it totaled almost a hundred thousand dollars. That is now what I just looked at the other day, and the number’s a little bit less because it’s been depreciated, but I think it’s still $89,000 on our balance sheet. And that’s the athletic facility, which is largely comprised of the hot tub. And then I think there’s a certain chunk of that, and I don’t know what that chunk is. I know that you do, but there’s a certain chunk that gets depreciated every year and then that helps us from a tax perspective. Okay. I’m sure I said a lot of things wrong, so please correct me, but this is a significant thing to take advantage of.


Correct. And your numbers are correct. It’s you, you’re depreciating that over 15 years and we have to remember reasonable or necessary. Okay? Okay. And what makes what you do less reasonable and less necessary than what a big Fortune 500 company does. Okay. If you wanna provide that benefit to your employees and their families, and you’re also an employee, that includes you and your families, and it’s open to your employees also. Why is that not reasonable? And we’re talking about a hundred thousand dollars; you’re talking about what, $8,000 a year in deduction? Now we talk about the operating expenses. Right? So it all adds up now. You add in some gym equipment, some weights, and stuff like that. And you get a nice little number there.


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Learn Cash Flow Management: The Key to Maximizing Tax Benefits for Home Facilities


Yeah. And right across the hall, to your point, right across the hall from that room, is a gym that we have here in our house, which is right down the hall from my office. And so now when we’re thinking about, so, and maybe this will go into the home office piece of your calculation, but we’re thinking about the office, the studio that I’m in right now, we’ve got, across the hall, we’ve got,  the, the, the hot tub and the bathroom and all of that kind of stuff. And then across the hall from that, there’s then the workout room with weights and treadmill and that kind of stuff. And that all gets wrapped up in that, I think, if I’ve understood the strategy correctly.


Correct. And you know, it’s all part of your home’s square footage, so you can’t figure out how much electricity it costs to run your hot tub. Okay. But if it takes up 5% of your space, okay. Then you’re gonna write off 5% of that utility bill for that space. And the key here, though, is documentation. Okay. Documentation is the key.


Okay. Alright. So tell us about that then.


Well, if you don’t document what you’re doing right, and you don’t have the backup for those numbers, have something to say about how you calculated this. If you do get a notice or somebody has questions about that, you don’t wanna be scrambling and trying to back into a number. You wanna have all the documentation upfront. It’s the same as when you’re renting your home; you want to have that documentation in the file. So if we need it, I can’t tell you how many people come to me with, yeah, I’m doing the Augusta rule, I’m doing this, I’m doing that. Can I see a lease? I don’t have one. Okay. So is somebody else gonna rent you their house or a meeting room and not give you a lease? Some kind of an agreement? Right? Of course not. So, how can you think you can do that without the same documentation?


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Learn Cash Flow Management: Understanding the Augusta Rule


She’s making sure you document. And that’s part of the reason when we’re working with people, we’re meeting with them on a monthly basis to make sure as we talk about these things, it’s gonna be documented, and we have some backup for that. And certain things, obviously, we need to see, and we keep them in the file. So it’s not an issue if it occurs. Right. It’s an issue if you all of a sudden get a notice and have to deal with it. I don’t have any of this stuff; it’s from two and a half years ago. Yeah. Okay. How did I figure out that number? You know, you don’t wanna be in that position. Okay. So it’s being proactive.


So that makes me think, okay, that initial worksheet that I filled out, and then every year you ask me to do an update, and then that goes along with the IRS publications, the publication, excuse me, that says we can do this. So that feels like pretty solid documentation that if there ever were a question, there it is. Right. In full transparency.


Now how do, how do they refute that? It’s a lot easier to refute the person who says, well, I don’t have anything, but here’s, here’s a copy of the check that I wrote. You know, what is that? That’s, that’s nothing. Because if you rented a room at the Rich Dalton, you’re gonna have a contract.


Right. Okay. So, let’s talk a little bit more about the Augusta rule. I kind of understand the documentation, but there are probably a couple of specific things with respect to the Augusta rule. So first, a little bit more about what the rule states and how somebody takes advantage of that. You mentioned $20,000 a couple of weeks ago. So, some additional context and guidance there. Sure. That would be awesome.


So the code,  code, I think it’s two 80 h allows you to rent your home to anybody you want for up to 14 days a year. Okay. Not pay tax on any income. So if you do 14, you’re fine. If you do 15, it’s all taxable. So you don’t,


Okay. If you did 13, you left a day on the table that you could have taken advantage of, but if you did 15, you avoided the whole thing.


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Learn Cash Flow Management: Maximizing Deductions and Avoiding Tax Pitfalls


Correct. Okay. And I can’t tell you how many times I see that happen where it’s, they don’t do 13 or whatever they do, and you know, it’s, they show it as a deduction on the business, and then you look at their personal return, and they’re picking up as income on the business. Right. So basically, that doesn’t help. Alright. So you want it as a deduction, but you don’t wanna have to show it as income. Okay. So what we typically do is we issue a 10 99 for rent and we show the 10 99 for rent on your personal return. Okay. So nobody’s hiding anything here. It’s right out in the open, and then we’re showing it as a deduction on the two 80 HI. I believe it’s for the same amount. And so it is next to zero. So we have a trail, and if anyone wants to look at it’s there.


The key is making sure you have a reasonable rent. Okay. And what is reasonable? Well, a good way to see what is reasonable is to see what the cost is. You know, my car, my house looks like the Ritz Carlton 15 a day for a meeting room and 25 food and beverage. So, if I’m spending, it depends on what I come up with as my number. Alright. And I have the backup for that. Now I have a client that had a brownstone in Brooklyn and somebody asked me once, what’s a brownstone? Okay. So a brownstone is like a three or four story building that were probably built way back, I don’t even know when they were built. Okay.  They’re typically in older neighborhoods and cities, and this is like a $2 million building. She used to rent it to movie studios, and she used to get 5,000 a day. Wow.


Okay. So if she’s not taking five, she’s taking a lower number. You know, how could somebody say, well, that’s not how, how’d you come up with that number? Right. You know, so obviously, the value of the house comes into play. You know, are you a look overlooking the Pacific Coast what would something like that cost you to rent? Not necessarily what it’s gonna cost you on Airbnb, right? But if you went to go get a similar meeting room, what’s that gonna cost? You have that documentation and know what it’s gonna be. Okay. Have documentation of the meetings you have. The key is also that we’ll see people. Yeah, well, we entertain clients here. Oh, guess what? Entertainment is not deductible.


So, if you do it and use it for entertainment, you risk losing the deduction. Okay. And then I would not do it for entertainment, but you can do it for staff meetings, you can do it for the board of directors meetings, there are a lot of different things you can use it for. You could use it for your outside advisor meetings. It all depends. But you want to document what you’re doing, and you want to have a lease.


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Learn Cash Flow Management: How a Home Office Can Change Everything


So let’s go back to the car piece as it relates to when you were talking about the home office and low-hanging fruit. ’cause I got a little bit confused there, and I wanna make sure I better understand that. So, how did the car fit into a home office?


So what we’ll do is we’ll see somebody that is leasing a vehicle, let’s just say, okay, let’s just say they’re riding off $500 a month. Okay? And, they don’t really do a lot of travel to clients. So what is the real business use of the car? If you’re traveling from your home to your office every day, and that’s 50 miles, and then once in a while, you’ll go see a client, or maybe you’ll go to the post office or something. So the predominant usage there is personal use. Okay. So how do you write that off if it’s all personal, but now let’s, and we see people the accountants are fine to take that deduction. Now we have a home office. Okay. So now we no longer have a commute as we’re going from one office to another office.


So we’ve just made all that personal travel into business travel. So, going from one mile a day per business and 50 a day personal, we went to 50 a day business, and then that occasional trip to wherever else we go is business. So we’ve converted a huge chunk of what we use that vehicle for to business purposes, which comes into play when we’re depreciating it or we’re writing off a piece of our lease payment. And let’s face it, very few people use their vehicle hundred percent for business purposes. Okay. You know, I would say very, very rare is that,


Okay, so this is funny because you’ve done that with my car, and just now hearing you say that because it’s a lease through predictive, as you well know, but hearing you say that, I’m like, oh, so that’s how he did that.


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Learn Cash Flow Management: More Strategies for Business Owners


Right. You know, the code says you’re allowed to do that, but when we get pushback from a CPA, I’m like, well, you’re riding the vehicle off already, and they’re not doing anything. Okay. Now we’ve actually made that much more solid as far as the de of that vehicle. So that’s just something that arises out of having that home office.


Wow. Okay. You’ve given us three really amazing pieces of low-hanging fruit. Number one is the home office, and then you just added in the additional context with respect to the car. So it’s kind of like one and one a. Then there’s the home athletic facility, which was awesome. And then there’s the Augusta rule. Is there anything else that you might consider to be low-hanging fruit?


You have a four-one K. Okay. You have a spouse. Is she or he working somewhere else? Are they working for you? Are they working in the home? Are they doing work for the business? Not getting paid, you know. Oh, okay. They’re not, okay. So maybe they’re doing some kind of work for the business. We see that all the time. Yeah. We’re just not, okay, well, let’s put ’em on a payroll for about 2320 $4,000, and let’s dump 20,000 into the 401k. Alright. So now we’ve moved more money into our retirement, which is gonna put us in a much better position when we go to sell our business in the future. We’re not; we have money saved. This is, it’s not all about just what we get from this. So we’re in a much better position to negotiate.


And we’re getting a tax deduction for putting more money away that we would normally not be getting.


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Learn Cash Flow Management: Maximizing Tax Savings


Okay. So let’s go back through that piece there too because that’s, that’s a little bit of mind shift here is, so, okay, so let’s say a spouse isn’t a 40-hour work, excuse me, a 40-hour a week, sort of W2 of the business. But I think what you’re saying is let’s find a creative way to essentially have that person either work part-time or whatever it is, but they’re gonna get 23 to $24,000. So why that number and how many hours would they have to be putting in?


So salary always has to be reasonable.


So it’s kind of like beauty is in the eye of the whole. Okay, you’re not gonna pay them a million dollars. Alright. But the IRS really doesn’t care what you pay somebody if you think about it because, you know, they’re still getting tax, that paying tax on that money.


The business may get a deduction, but the owner is now just gonna have a million-dollar W-2 that he didn’t have before. So it kind of evens out. But we do want the salary to be reasonable. Gotcha. So, and maybe that person is just your you go home, and you bounce ideas off of that person, and you know that person, if you wanted to bounce ideas off of me every night, it’s gonna cost you a lot of money. Right? Okay. So you go home, and you bounce your ideas off, off of your partner, and you say, you know what, we, we should be paying you for this, and I’m gonna pay you thousand a month for this. And so that’s 24 grand a year, and we’re gonna max out our 401k, which this year it’s about 20, I think it’s 2120, okay. And that difference is gonna cover the tax that’s due on your salary. So we just got another 20-something deduction for the business. Right. And we put 20 something into our retirement savings for our partner.


Amazing. So the $24,000, the person who received that as compensation, is going to be on a W-2, right?


But the W-2 is gonna say roughly 20 taxable, the amount is gonna say 20, but the taxable amount is gonna be about 2,500.


Oh. Because of the 401k contribution,


Of course, you get a deduction for the 401K contribution.


Holy bananas.


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Learn Cash Flow Management: Unlocking Retirement Wealth


And you know, let’s just say you’re really young, and you want to do a Roth. Now you’re putting money in, you’re not getting a tax deduction, but you’re doubling up on your savings.


This is always a good thing because let’s just say you’re in a 25% tax bracket—there really is no 25% bracket. But when you add in different states, etc. If you’re getting a deduction of $20,000, you’re saving $5,000 in tax.


So, going back to the safe harbor piece, and because you mentioned Safe Harbor as it relates to 401k, what is the safe harbor limit for 401k now?


So what is the safe harbor? What is the safe harbor designed to do? Is it designed so Stephen doesn’t start a 401k? Okay? None of his employees are putting money into the 401k, but Stephen’s doing, let’s just pick a number, 25,000 a year 401k.




So it’s really only benefiting the owner. Okay. So what, what the code section basically says is if you do that, and we’ve had people come to us, you know what, I put this money away and they sent me, they said I to 18 it back because I didn’t pass safely. Do you put 3% of everybody’s salary, or do you make a contribution for them into a 401k? Okay? That’s considered a safe harvest. So you can put as much money as as you want.


Oh. So, as the owner, there’s no limit to my contribution.


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Learn Cash Flow Management: Maximizing Retirement Savings


Into the form. No, you’re still limited on whatever the maximum amount you can put away. Oh, okay. Alright. But if you don’t do safe harbor and nobody else contributes, the government says, well, you put too much money away. Ah. Because in comparison to everybody else. So you gotta take that back. So instead of putting 20 away, you’re only getting a deduction for three. So here’s your check for 17,000. Alright? So Safe Harbor says if you do this for your employees, you’re allowed to contribute to the maximum four limitations. And there are two safe harbors, and there are basically 3% of everybody who works for you. Okay. Or you can do the other one, which goes up to about 4% for those that contribute to a four. Oh. And there’s testing involved in that. And you know, there are people that are really much better at explaining that and doing that than I, but that’s another way, if you are a business owner, to get more of a deduction because especially when I see people making a lot of money, and they don’t have a four one K because they don’t, oh, it’s gonna cost me 3%.


Well, guess what? It’s costing you 37% of all this money. So how much is your savings on 27,000? I think if you’re over 50 this year, year’s $30,000.


So $30,000 is the maximum contribution per person. So then, and my number may not be exactly right, but ballpark 30 grand for 2023. Does that extend to an owner’s spouse? Could the owner also contribute $30,000 for their spouse?


No, but the spouse who gets paid on a W2 can put 30,000 of their money away.


Got it.


So it’s only four fours. They are all for employees. If a spouse or partner is an employee, they get to do the same thing.


Okay, which is why you’re suggesting right. That is why you’re suggesting putting them on the payroll, then.




Most often, they are doing work in the business.


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Learn Cash Flow Management: Strategies and Tools for Financial Management


So smart. Okay. I know that we need to come in for a landing and that our time is running short, but before we go, before we close out and say goodbye, two things. One, would you please share with our audience how they can learn from you more on your January 14th or, excuse me, January, June 14th session, June 14th, not January, June 14th? Then, the best way that they can reach out and connect with you is by Telling us a little bit more about the June 14th session.


Sure. On June 14th, we are having a webinar, and you’re all welcome to join. We’ll put a link, hopefully Sure. Give you a link, and you’ll put in show notes.  and it’s gonna be tools for managing your cash flow. So what happens is we get to a point where maybe Excel is a little bit too rudimentary or too hard to keep up, and there are tools out there that people can use to manage their cash flow. Now, like everything else, it’s garbage in, garbage out. So if your books are up to date, it’s a great tool. Okay? Right. If your books are a month behind, it’s not a great tool. So you, your books need to be updated. So we’re gonna look at some tools and discuss cash flow and ways to work with cash flow. And then as far as reaching out to us, our website is Craig and Company and that’s spelled, our office number is 6 5 1 and extension one will put you right to my personal assistant. Edina. We’ll be more than happy to speak with you. And obviously, we have our progressive agency podcasters out there, and we do a lot of things. We’re on LinkedIn, feel free to connect with us on LinkedIn. And I would say use this as a springboard to communicate with your CPA and ask the questions; this is what I wanna do, and hopefully, you don’t get that glazed over the law.


Well, and it’s, and it’s interesting you say that because, like, I’ve been in Money Matters workshops at the Agency Management Institute in, drew, our, our mutual friend teaches the, the Money Matters workshop every year. And when he’s going through these tax strategies and in mentioning you and so forth during those,  sections of the workshop, inevitably there are at least one, two, maybe three people in the room who will say, yeah, I’ve talked to my CPA, or yeah, I’ve talked to my bookkeeper about that stuff, and they say that I can’t do it because of this, that, and the other reason the red flag, that kind of stuff or whatever. And then Drew’s like, yeah, sounds like you need a different CPA, and you need to talk to Craig.


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Learn Cash Flow Management: Practical Strategies for Business Growth


Right. You know, and we’ll have people that we’ll talk to, and they’ll come back a year later, and they’ll say, you know what? I just wrote the government a big check. I had one guy say, I just bought the government a house. Yeah. Okay. You know, I need to walk away from the person telling me I can’t do it. You know, not telling me why I can’t do it. He’s telling me I can’t do it. Tell me why.


Show me the data. Right. If it’s going to be a red flag, then show me the data.


Show me the code that says I can’t do it. What?


This is amazing. Okay, everyone, no matter how many notes you took or how often you go back and re-listen to Craig’s words of wisdom, which I sure hope that you do. The key is you have to take these low-hanging fruit, take these opportunities that he described in detail and referenced some of the IRS documentation, take it and put it into practice inside your business, and you will accelerate your results. And more importantly, you’ll keep more of what you make. And Craig, we all have the same 86,400 seconds in a day. And I am grateful, for your generosity and sharing your smarts to come onto the show, to be our mentor and guide to help us raise the bar and our business to the next level. Thank you so much, my friend. Oh, you’re quite welcome. Thank you very much for having me.

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The Sell with Authority Podcast is for agency owners, business coaches, and strategic consultants who are looking to grow a thriving, profitable business that can weather the constant change that seems to be our world’s reality.

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