PODCAST TRANSCRIPT:

Ian Robertson  

So welcome back everyone to Inspector Toolbelt talk. Today we have back on with us Tom Kubiak, accountant extraordinaire. And to be on the show, he had a special request. He has been listening to our segment, if you haven’t heard it yet, it’s “Drinking With Jay”. And Tom contacted me or I contacted him, say, Hey, can you be on the show? Do an end of year tax, you know, episode with us. And he’s like, yes, as long as we can do a drinking episode like Jay,

Tom Kubiak  

I was jealous of Jay getting to do all the drinking, and I wanted to be involved.

Ian Robertson  

Well, I don’t, is this going to be like a theme for all of my guests now? It’s like, hey..

Tom Kubiak  

Maybe the new direction. You need to go with these shows?

Ian Robertson  

Just drinking episodes, because that’s where we get the best information, or at least the real information depending on how you look at it. 

Tom Kubiak  

True. 

Ian Robertson  

But I want to reintroduce you Tom, one of the smartest people I’ve ever met, Tom Kubiak. Also, he’s trying to be humble. Also, too, he owns one of the largest independently owned tax practices in New York State or the northeast, I don’t know, the world. And he just, he even deals with international tax stuff. He’s just, he knows his stuff. So he’s going to do a special episode. But I really want to get down to the real important issues here. Before we get into that, Tom, what are you drinking?

Tom Kubiak  

I am drinking a 15 year old single barrel, Balvenie. So it’s a, something I found on my, buried away behind a couple of other bottles. And we had some guests over on the weekend. And they, they chose it that they wanted to drink. And when I saw it, I’m like, oh, that looks really good. And I hadn’t even opened the bottle. So I opened it for them. And I, and now I’m trying it, so I’m looking forward to it.

Ian Robertson  

You said a Balvenie?

Tom Kubiak  

Balvenie yeah, 

Ian Robertson  

I’ve never heard of it. What’s, what’s it like?

Tom Kubiak  

It’s a, it’s a nice easy to drink single malt scotch, not peated. So it doesn’t have like the heavy smoke flavor that like a Lagavulin or Laphroaig would have. But it’s more commonly, and is easier to drink, but it’s 15 year old, so it’s going to be a little bit stronger. And it’s also got a lot of the the barrel character that that the age lends to a scotch. So..I’m looking forward to it. 

Ian Robertson  

So not that I’m encouraging anybody to break into your house and look in your basement. But if you ever looked in Tom’s basement, he’s got this amazing bar. And clients have always given him like bottles of stuff. So he’s got this like, he’s got a collection. And he actually has like a, like an Instagram thing where he makes mixed drinks and things like that. It’s really, really fun to watch your instafamous Tom. 

Tom Kubiak  

It’s hidden, so you won’t find it. 

Ian Robertson  

But I love watching those and seeing what comes up there. I took the polar opposite to you though. I’m always talking about Lagavulin. So I grabbed, I grabbed a glass of that. So I’ve been having a hard time finding it, like the 16 year Lagavulin is hard to find.

Tom Kubiak  

You know, my brother says the same thing. His wife, my sister-in-law loves Lagavulin 16. And they have a hard time finding it.

Ian Robertson  

Yeah, I have to find it in like someplace niche. Like, you go to a hardware store. You go to a liquor store. Yeah, really a great hardware store. You go into a liquor store, and you have to find it on like the back shelf. And the guy goes like, “oh, I forgot about that.” And so I’ll buy whatever’s there.

Tom Kubiak  

Yeah, it’s really popular. 

Ian Robertson  

Yeah, the 16 year especially, you can find the eight year out there. It’s just not the same. It almost tastes like like a Johnnie Walker Black Label. It’s just not the same yet.

Tom Kubiak  

16 is one of the like, best, consistently best rated scotches on the market.

Ian Robertson  

But it is heavily peated, it is like drinking campfire in the most awesome way.

Tom Kubiak  

You’ve always liked that. I’m not, I don’t like that. But I know you do.

Ian Robertson  

Oh man. Like most people, when they drink a peated scotch, they’re kind of like, oh my goodness, this is heavy. I’m like, that’s beginner level. Let’s do this. And I’m also, but this one’s an 11 year, is the Nick Offerman one. Okay, his are a really good scotches actually because it’s obviously a Lagavulin. And I’m drinking it out of my Mandalorian shot glass. Or whiskey glass, I should say. 

Tom Kubiak  

How can you go wrong with that? 

Ian Robertson  

I’m nerding it up on two levels. Ron Swanson liquor in a Mandalorian, Star Wars. 

Tom Kubiak  

Yeah. I love it. 

Ian Robertson  

So the best information always comes when we’re sitting around with a glass of scotch, and I thought this was a very appropriate podcast because I didn’t want it to get too close to the end of the year before we talked about end of year tax stuff. Because you get too close to the end of the year and then you’re scrambling and you’re thinking about it. So this will come out in just the right time. And I thought this was a good topic too because you and I were talking about this earlier, the bad advice that flops around out there. I was just thinking of a couple of examples like, “oh, just throw your logo on the side of your truck, and then, you know, deduct your truck payments each month.” Or, you know, “don’t hire someone to do your taxes”, or “don’t use accounting software to keep track of things”. 

Tom Kubiak  

Yeah. 

Ian Robertson  

I always think it’s funny that home inspectors are like, “Oh, don’t use an accountant, you can do that yourself”. I’m like, aren’t you always saying to everybody else, hey, don’t let your father-in-law come on the inspection, don’t try to do your own inspection, leave that to the professional. But hey, that’s, that’s just me, you have saved me more money than I would ever make saving. Not sure how you do it.

Tom Kubiak  

But it’s the honest truth, you know, hiring a professional, nine times out of 10 is going to be worth it. So, you know, there, there are times when you can do things yourself, and you’re, you’re a handyman, I like to do things myself, but there are times when it costs you to hire, to do it yourself. So you’re better off if you have a professional. And like some of those things that you mentioned, for instance, just slapping a sign on the side of your car and calling it a business expense, you know, aprofessional is going to tell you the risk of doing that. So you know, when you do that the IRS very, very rarely will accept 100% business use for a vehicle, especially if it’s a car or a vehicle looking at passengers. Same thing with, you know, doing your own taxes, there’s software programs out there, that will help you do it. But it doesn’t mean that that you’re going to make the right decision when you’re doing your tax return on those software. So those are examples of garbage in garbage out. So if you answer the questions the way you think they need to be answered, you’re gonna get a garbage tax return. And you know, the, that’s not going to be a good situation. Same thing with software, you know, you, you can just use a little piece of paper and write your income and expenses down on it or an Excel spreadsheet. But you know, this is where having an accounting software, especially as you’re doing a reasonable amount of business, it makes the job so much easier. So yeah, all, all good suggestions. And the other thing I would say is along lines with what what you were, the direction you were going, don’t just do something because one of your friends or a peer in your market told you to do it. So the worst advice comes from someone else who is not a professional. And we deal with that all the time with clients, they tell us “oh, so I heard that you can do this”, or “I heard that you can do that”. And there’s no basis for it. So you know, make sure that you have somebody you can bounce ideas off before you commit yourself and file a tax return with a position.

Ian Robertson  

Well, and from what I understand and correct me if I’m wrong, because I’m reading this in layman’s terms. It’s more dangerous now to try to do stuff on your own. Because number one, I guess, IRS hired like a billion more IRS agents to go out there and find money. And then didn’t they pass some new laws that basically target companies making under $200,000 a year? Small companies? 

Tom Kubiak  

Yeah, good question. So you’re exactly right. The new budget law includes money for the IRS to be able to hire additional agents to police tax fraud and tax. What they’re trying to do is close what’s called the tax gap, which is the difference between what is actually made and what is reported. And that’s a pretty big gap. So they’re trying to find ways to make sure people report their income. The other thing that happened is there are some additional reporting responsibilities for 2022 that have not been the case before. And if you sell anything on eBay, or use PayPal, and you see you likely have gotten an email from them saying, “hey, we’re going to have to give you a, what’s called a 1099-K, which is a report that, you know, so many transactions happened and many people are scared about that. But just like you said, when you, when you do your own taxes and you get a letter from the IRS, you’re going to be scared. Because you’re, you’re going to be fighting this behemoth with no one on your side. And the more resources the IRS has to send those letters, the more likely it is you’ll get the notice. And your, your listeners are the primary clients, the IRS, the primary taxpayers, the IRS wants to pay more attention to..small businesses, okay, well, small businesses that that either do their own returns or use a questionable preparer and those are the highest probability of finding a mistake. So it’s really low hanging fruit for the IRS. And you might think, well, “oh, someone has to touch your, the IRS only has so many agents”. And it’s so the percentage of someone having a return selected for audit is relatively low. But the reality is, the vast majority of audits are never looked at by a person. It’s a computer telling the IRS to mail a particular letter. But it’s the same angst that comes along with it in responding. So have, have somebody you know, on your side that can help you to deal with that when those eventual letters come.

Ian Robertson  

Yeah, and I’ve had, you know, things happen where IRS says, Hey, can you correct this? Or can you do that? To be honest with you, my head spins when I see it. So I’m glad that you’re there to say, okay, hang on, this is what we do. Here’s what you have, we’ll submit this. And it’s always been like, oh, okay, like, the IRS is like, oh, thank you. That was nice. You know, I’d rather have that than be on my own, like, oh, my gosh.

Tom Kubiak  

Sometimes even just figuring out what the letter means is a challenge. So yeah, those are, that’s very true.

Ian Robertson  

Okay, so that’s a real thing, then, because I keep seeing that in the news, you never really know how to disseminate the information or, or digest it rather, that’s a real thing, that they’re starting to target smaller businesses like ours now.

Tom Kubiak  

Yeah. So the position of the, of the government is that, oh, we’re not going to go after people who are small to medium taxpayers. But the reality of the situation is the IRS is increasing enforcement efforts, and that is going to catch every level of taxation. So it’s not that they’re targeting one particular, they’re just saying we’re trying to reduce fraud. And they’re, even though, you know, certain parts of the government may say, oh, this doesn’t mean we’re gonna come after you. It doesn’t make it, they’re not specifically excluding any group. Okay. So they’re not saying..overall, it’s just overall. So the number of audits are going to increase, the number of letters are going to increase. And that’s going to be true of whether you make 5,000 or whether you make 500,000. Now, one thing, they are saying is that, okay, new tax laws won’t create additional tax for people under certain incomes. They frequently say that, whether that’s really true or not, you know, depends on the individual circumstance. But as far as enforcement is concerned, their desire is to increase enforcement, and that’s going to be across the board.

Ian Robertson  

Okay, so that’s, so that’s intense. So it’s not just saying, hey, they’re targeting people under 200 $250,000 a year in business, they are just throwing you in the group. And we have more agents, more resources, more letters going out. And interestingly enough, I know, several home inspectors over the past couple of years that have gotten audited, gotten into big trouble with the IRS, because they’re like, oh, I had no idea I couldn’t, you know, deduct my Jetski. Yeah, like, right. Okay. Well..

Tom Kubiak  

Yeah, no. Even if it has a, you know, your your name logo on the side of it, it’s not gonna be an exception. The other thing to do, is not only the IRS, it’s also the states. So, you know, the, the state income tax agencies can audit you. And your, your listeners may likely know that in, in some states, very likely their services are sales taxable. So that’s another, you know, agency of the government that could potentially pay attention to their returns. So it’s all you know, location dependent. But having a good accountant is the right decision.

Ian Robertson  

So let me ask that, a home inspection is sales taxable in some states?

Tom Kubiak  

So it would depend upon the state, and I don’t know all the states offhand. I don’t believe it’s taxable in New York state. But services are taxable in a lot of states. So yeah, I would say that very likely, there is at least one or more likely, more states that, you know, it’s taxable.

Ian Robertson  

We’ll have to have that for a future podcast, because that’s always a big discussion among home inspectors, because everybody says, no, we’re not taxable. Then some people say, yeah, we are, and then there’s lots of conflicting information as to what’s going on, but.. 

Tom Kubiak  

It’s very state specific. So each state sets their own standards as to what is taxable and what’s not taxable. Right. And that’s true with with nonprofits, a lot of people think, oh, nonprofit is not, doesn’t have to pay sales tax. But that’s not true. In many states, in some states, it is like, for instance, New York where we live, nonprofits, churches, or charities don’t have to pay sales tax, but in California, they do have to pay sales tax. So you have to learn the rules of your particular state.

Ian Robertson  

Interesting. See, I always learn something. I think we should, I still think we should do that other podcast I was talking about. Tom explains things to Ian. And I think that’d be a good podcast where you just explain normal life things to me.

Tom Kubiak  

That would reduce your knowledge, if anything.

Ian Robertson  

No, I’m all for it. I’m already learning. Okay. So the only thing that I ever hear, or ever think about when it comes to end of year tax advice, is my favorite line. Do you need to spend some money? Because that’s, and you see it in all the forums, the home inspectors, and, you know, some guy’s like, hey, what do we need to do get ready for my taxes? Spend some money. I never really quite understood that. I’m like, why do I want to spend the money that I just made, if I don’t need to spend it? Is that real advice?

Tom Kubiak  

Yeah, it’s, it needs to be in context. Definitely. So that, that is very commonly given advice. And, you know, you’ll, you’ll often hear about people who are purchasing equipment the last week of the year, buying a truck, you know, trying to get their income down, so they don’t end up owing so much tax. And, you know, that is, that is one way to deal with, oh, wait, oh, what potentially could be a large tax bill at the end of the year, but the, but the reality of that decision is you are spending money. And you may not need to spend money or may not actually have the money to spend, and you can really make your financial situation worse. So, you know, an example of that, well, we should, I shouldn’t say, tax planning at the end of the year is a wise decision. It is a good time, right now, anytime between November 1 and probably the third week of December, that’s the time when you want to really see where you stand, what your income is for the year, what your likely expenses are going to be for the year, how much profit are you going to have, if you, if you’re using an accountant, a lot of accountants will run a sample tax return for you to give you an idea of what your liability is going to be, “have I paid in enough throughout the year so that I don’t have a huge bill come due in April”. And the reason you do that before the end of December is because you still have time to make some decisions. Most people don’t even consider this until they do their tax return. And you know, by then, you’re already in the next year. And you really can’t do much. There’s, there’s a few things you can do. They, they normally, they mostly involve retirement plans. But as far as reducing your profit, it’s impossible after you pass January 1. So it is definitely a good thing to do. Now, once you do that, and figure out where your profit stands, now you have the decision. Do I want to reduce my profit? Do I want to try to get the number to be lower? And most people say, yeah, definitely, I want my number to be lower. I don’t want to pay any tax. But they don’t realize that there’s consequences to doing that. And they vary from spending money to reduce your taxes, to making your return cause you to be ineligible for loans, or, you know, other things that you want to do next year. And that’s something that most people don’t even think about until they go to try to buy a house or buy a vehicle or, or do something. And now they’ve got tax returns that have their income artificially kept low. And they’re scrambling to try to close on a house or get some business financing.

Ian Robertson  

That actually is an interesting point. Because I actually knew someone that happened to, they went to go get a house and their wife had income. But their their tax return basically said it was almost zero, and it caused them a lot of problems. 

Tom Kubiak  

Yeah. With that we get, we have clients who frequently will come to us and say can you revise our return from the last couple of years to show more income? And we won’t, we’re like you know, you gave us the numbers, unless the numbers were not accurate. We’re not going to go back and revise them because you know, but, so what what has happened is they’ve let their short term desire for lower taxes affect their long term ability to be able to run their, their life. And those are not good decisions. And that’s where a good accountant will say, Okay, let’s think through this decision. Do we really want to, you know, keep your income that low? Or are you thinking of doing some, making a decision like buying a house or, or getting a home equity loan or refinancing something, without income on your tax return, you’re gonna have a really hard time to do that. And that’s true now more than it was even over the past few years, when we’ve had a little bit more flexible financing. Now as interest rates go up, the ability to be able to make those payments is going to be more important to the bank. And one of the ways they determine whether that’s possible is looking at your tax return.

Ian Robertson  

So let me run this by you. And let me see if I understand it. Because I’m just thinking about it. So say a home inspector makes $100,000. And after deductions, this is 70,000. So making your income lower after that point, might not be as beneficial. But now they had a banger year, and they’re $1,000 into the next tax bracket. And they’re gonna pay a higher percentage of their income. Now to spend $1,001 to get into the lower tax bracket. That would make sense, right or no? Does that make sense? 

Tom Kubiak  

Yeah, you got the right principle. So the principle is how much tax am I going to save if I spend $1,000? And the secondary question you can ask is what I’m spending the $1,000 on? Is it valuable enough to me that I would buy it at the cost of it minus the tax. So as an example, if you say, okay, I’m gonna, I’m thinking about buying a truck, and the truck is $50,000. If I buy the truck before December 31, that will save me $15,000 in tax. So now the truck is only costing me 35, 50 minus the 15 in tax. And if you can say, you know what, I need a new truck, and I would buy it for $35,000, then it’s a good decision. On the other hand, if you’re spending $50,000, just to save $15,000, that’s not a good decision. That’s losing money. So if you already have three trucks and don’t need another one, then why do you want to go out and spend $50,000, to save 15, you know, you’re better off paying the 15th and keeping the 35. So that’s the type of decision that you you know, you have to look at. And it’s not that, you know, buying things in December is not a bad idea, it’s a good idea. Especially if it’s things that you need. An example, that would be let’s say, you know, one of your listeners is looking at buying some sewer inspection video equipment, or infrared cameras, or, I don’t know, name off some of the things that would be high dollar items that they might..

Ian Robertson  

Lagavulin. 

Tom Kubiak  

Lagavulin 16. So if they say, you know, what I need, you know, a thermal imaging camera, and it will make my inspections more valuable, and I’m probably going to buy one in May anyway, because I see the direction that I’m going, and I got a lot of profit this year, then buying it before December 31 is not a bad idea. But if you say you know what, I’m going to buy a thermal imaging camera, I already have two, I’m never even going to take it out of the box. That doesn’t make any sense. Right, just to save the tax money.

Ian Robertson  

Okay, so I have a question for you. Since you were mentioning vehicles. This is just a side point. But there’s always a back and forth of, you know, how do you deduct your vehicles, I always did mileage. Personally, I never really bought the nicest, best and newest vehicle, because they always got trashed, I’m throwing ladders in the back of them. And you know, we live in an area where you’re in the city one day, and then you’re in the middle of nowhere the next and hanging off the side of a cliff. So I always did mileage, but I’ve seen a lot of guys do mileage, and then also deduct their vehicle payments, or try to deduct their entire vehicle and then do mileage. How does that work? 

Tom Kubiak  

Yeah, great question. And this is something we run into with people who do their own returns all the time. In fact, I just reviewed a set of returns for a client last week and they had this problem on their last year’s return. So the the IRS allows two options for deducting vehicle expenses. The first one is like you said, a per mile rate. So if if you drive a mile for business, they let you deduct a specific amount. Let’s say you know it changes every year so let’s say 55 cents. And every mile you drive for business you can deduct 55 cents. And at the end of the year that’s all you have to do is say I drove 10,000 miles, I get to take a deduction for $5,500. But any other expenses connected to the vehicle, I can’t deduct. So I can’t deduct my gas. I can’t deduct my insurance. I can’t deduct repairs to the vehicle. I can’t deduct oil changes, I can’t deduct car washes, I can’t deduct purchasing the vehicle. All those things are not deductible, because I’m taking the per mileage, you know, the per mile standard rate, and that includes all those expenses from the IRS perspective. The second option is you can take what’s called your actual expenses for owning the vehicle. And that means you take the cost of the vehicle, you take the gas, you take the insurance, you take the repairs, and maintenance, tires, oil changes, all those things. And you add those all up, and then you take that deduction, instead, you still have to prorate it, you still have to say, okay, I used it 75% for business and 25% for personal, and therefore all those expenses, I would multiply by that rate, but you get to take the actual expenses for running a vehicle. Now, where you make the decision is based upon one, how expensive is your vehicle to run. So if you’re, if you’re driving a car that gets 100 miles to the gallon, you’re going to want to take the mileage expense, because you’re not going to have enough actual expenses to offset the, you know, to be more than the 55 cents, and two, the number of miles that you drive. So if you drive 250 miles, well, you’re gonna want to take the actual expenses, because they’re likely going to be higher, because by the time you add your insurance, the cost of the vehicle, those two alone are going to be more than your actual mileage number. The problem is you can’t go back and forth, the IRS knows that you’re going to take the mileage number when you have a lot of miles and then you’re going to take the actual number, when you have a lot of actual expenses, they don’t let you do that. So you have to establish which one you’re going to take when you put the vehicle into use. And then stick with that going forward.

Ian Robertson  

That makes a lot of sense. I was, I was always in the spot where it just made sense to do the mileage. Drove a ton, decent vehicles so that we didn’t have to fix them a whole lot. And it was just, mileage was a no brainer for us. And that’s what we did.

Tom Kubiak  

Yeah. And so there’s an example of, if you’re, if you’re taking the act, the mileage, the standard mileage rate, and that’s what you’ve been using, buying a car at the end of the year is not going to help you because you can’t deduct the cost of the vehicle. So..and the other little technicality that comes along with purchasing a vehicle and deducting the cost is you, you don’t get to deduct the car payments. So if you, if you finance it, it’s not the car payment that’s the deductible, it’s the purchase that’s the deductible. So that’s an interesting thing that can help sometimes. So let’s say you are approaching the end of the year, and you have a significant profit that’s you know, valuable and you do need a vehicle. You could buy a vehicle, finance it and take the entire deduction in the year of your purchase, even though you haven’t even started paying for it yet. And you won’t pay for, pay for it for the next six years or however long your loan is. So that’s kind of, that’s a technicality that’s can sometimes work to the advantage of a small business owner.

Ian Robertson  

Okay, so weird thought that I just had. 

Tom Kubiak  

You never have weird thoughts. 

Ian Robertson  

No, never. It never happens. Maybe it’s my Mandalorian glasses, Lagavulin. But what happens when you, say December I go and I buy a $50,000 truck? And then come February. I go and I sell the truck?

Tom Kubiak  

Yeah, that’s a great, that’s a great question. And oftentimes not realized by individuals. So if you buy a vehicle and fully depreciate it, meaning you’re taking the cost and writing it off against your, your income, which is what, what we’re talking about trying to reduce your taxable income, and then you go and sell it or trade it in, at some point in the future, it doesn’t even have to be the next year, it can be a couple of years down the road, you’re going to have a profit that has to be reported at the time of sale, okay, so you can really hurt yourself the next year. And I’ve seen lots of clients where, you know, they make, buy a truck, drive it for a few years, beat it to death. And they go in and trade it in and buy another truck and they actually have to pay tax on the trade-in even though the car was worth very little. Because they wrote it all off. They they’ve lost the ability to, you know, to take it as a deduction.

Ian Robertson  

And I imagine that would be a red flag. 

Tom Kubiak  

Yeah, and many times that’s a financial problem because especially if you financed it in a year or two, you haven’t paid much on it, so many times you’re underwater, and you’re trading it in. And a lot of times rolling that loan into the next loan, and on top of that paying tax on the transaction. So again, you know, talk to somebody who knows what that all means and what the cost to you is going to be before you do it.

Ian Robertson  

Is there ever a point where the vehicle reaches that you don’t pay tax on it when you sell it? If you depreciated it,

Tom Kubiak  

No, if you get any value for it, if you fully depreciated it, and you get any value for it, when you trade it in, or when you sell it, you have to pay tax on that, because what, what’s called your basis is zero. So when you when you buy a vehicle, and it costs $50,000, your basis in it is $50,000. If you deduct that full 50,000, your basis is now zero. And so even if you sell it for $1,000, you have to pay tax on that policy.

Ian Robertson  

Interesting. I always wondered how that worked. Okay. So what happens if you give it to your cousin? 

Tom Kubiak  

You can do that. You can give it away. And he sells it and gives you the money? 

Ian Robertson  

I’m not, I’m not trying to work around the IRS. I’m just asking questions.

Tom Kubiak  

Yeah. So if you, if you give it away, you know, you’re, you’re giving away something with zero basis, then if technically, if he sells it, he has to take your basis and pay tax on the sale profit.

Ian Robertson  

Oh, so no matter what happened, no matter what, there’s still a, yeah, there’s still a base zero. And I say that, like I know what that means. But I know what you mean. So it’s gonna, it’s gonna come back to bite somebody at some point. 

Tom Kubiak  

Yeah, that’s right. 

Ian Robertson  

Okay. Wow, yikes. Okay.

Tom Kubiak  

So that all goes back to the, you know, the end of the year tax planning, a lot, a lot of people will make decisions based upon, I just gotta get my profit number to be lower. So I dont pay any tax. But they really hurt themselves in future years because they didn’t think through the decision.

Ian Robertson  

I will say, though, it does get kind of annoying, when you do start making more profit, and you get all excited. And there’s always an unexpected letter from the IRS, “oh, by the way, your payroll you need to now pay every other week instead of quarterly”, and then, you know, this, and then that, it’s like, oh, my gosh, you know, yeah.

Tom Kubiak  

And that’s one of the costs of making more money, you know, the added burden of taxation, and, you know, it’s, it’s the, we often say to our clients, like tax is the cost of success. So when you’re making money, and realistically being self employed, it doesn’t, you don’t have to make that much money and you start to feel a bite of tax back pretty quick.

Ian Robertson  

Oh, yeah. I remember when my wife and I were just starting out, barely making, barely making anything like, I was looking at my tax bill. I’m like, How is this even possible? How can they? How can they want that much? 

Tom Kubiak  

I know. Yeah, it’s true. Yeah, and the, you know, for a lot of your listeners who are self employed there, they’re likely, you know, since they don’t have a paycheck, they’re not contributing every week. And they and they have to, it falls upon them to set aside money for taxes, and sometimes you get behind the eight ball.

Ian Robertson  

Yeah. So all that being said, that was really interesting information about the vehicles. I never really knew about that. And that was the first time I had even thought about that. But what are some real world end of year tax things that we can actually do as home inspectors to put things together?

Tom Kubiak  

Yeah, great question. So the, you know, obviously, like we talked about purchasing equipment is something that should be on the table. So if there is equipment that you plan to buy anyway, or that you, you know, would fill, would create an ability for you to earn extra income or whatnot, you know, those are things that definitely would be advantageous. The second thing that a lot of people do is they look at expenses that they have anyway. And they front load those into the current tax year. So as an example, if you’re paying some marketing expenses, and you know, you know, I have an advertising cost, and it’s $100 a month, you could go to the advertising company and say, if I gave you five months in advance, would you give me a little bit of a discount? And many times they would, you know, and your, your clients or your listeners likely are what are called cash basis taxpayers, which means they get to take a deduction for something when they pay it. So if you, if you buy five months worth of advertising in December, you’re taking the deduction for that five months worth of advertising, and you would have been paying those expenses the next five months anyway. But front loading them into the current tax year helps you save a little bit. So that’s a, that’s a good thing. You can also look at your expenses that will come up in January, can you pay any of those bills sooner? Again, they’re all things that you’re going to have anyway, just pay them before December 31. So that you, you know, grab the tax deduction in the current year.

Ian Robertson  

If I could I just want to ask a question about that. Doesn’t that cannibalize your next year’s taxes? 

Tom Kubiak  

Yeah. So it’s a, it’s one of those short term benefits and long term potential problems. So you will create a little bit of a hole the next year, because you’ll have paid those expenses. But there’s what’s called the time value of money, which is where if I have $1 today, it’s more valuable than $1, 12 months from now. And if you say, if I can save a dollars worth of tax now, even though I may have to pay that dollar back next year, I’m ahead because I get the use of that money all along. 

Ian Robertson  

So it’s also like missed opportunity cost. Like if you have a yeah, you have a project and you’re like, I can make a lot of money on this. I need 10 grand to do it. Yeah, if you don’t have that 10 grand, it’s missed opportunity. So that’s the cost to you.

Tom Kubiak  

Very true. So that’s one thing that I would say to do. The other thing is, and I think we might have even touched on this in the last time we talked is, you know, think seriously about retirement plan. You know, small businesses, self employed individuals, we oftentimes don’t think about retirement. But that is one way to reduce your taxable income, and keep the money. You know, so if you if you, you know, take advantage of a retirement plan, even if it’s something as uncomplicated as a, as an IRA, if you’re, if you’re qualified to make an IRA contribution, you know, you put $5,000, for instance, in an IRA, that’s going to affect your taxable income and reduce your taxable income. And as a result of that, you’re going to pay less tax, but you’re still going to keep the $5,000, you know, you might not have immediate access to it, but it’s still your money. So, oftentimes, that’s more valuable than, you know, buying something you don’t need.

Ian Robertson  

Okay, so maybe you can or can’t answer this. But what would be a good retirement plan for an average home inspector to do? Because I’ve talked to you about those 100 times, and I always feel like I don’t qualify for anything at all, I’m, I’m always wondering where to put stuff. So how does that work?

Tom Kubiak  

So there are, each of the retirement plans that, you know, are possible, have benefits and limitations. So the the one that most people are familiar with is the IRA, an individual retirement account, and there, there are qualifications that have to happen, in order for you to even be able to make an IRA contribution, you have to have earned income, you have to have that earned income, on your return be below a certain a certain threshold, and you have to not participate in another retirement account. And if you can say that those three things happen, then you’re eligible to contribute to an IRA. And even if two of those things happen, like for instance, you, you have earned income and your income is under a certain threshold. Even if you are participating in another retirement plan, you can sometimes still make those retirement contributions. So that’s where you know, talking to a tax advisor will be helpful, because they can tell you what, you know what you would qualify for. But that’s the primary one that everybody thinks about, an IRA, there’s a another variety of that called a Roth IRA, which has some distinct tax advantages. It doesn’t help you save tax immediately. But it does help down the road reduce your income.

Ian Robertson  

It’s not taxable when you take money out of the Roth IRA when you retire, right?

Tom Kubiak  

That’s correct. Yeah. So it can be really powerful savings vehicle for when you have a long time to go. And then there are all kinds of plans that are available for small businesses. There’s a simple IRA, there’s a Keogh plan, there’s a self employed 401-K plan. Each one of these has advantages and disadvantages. And some of them allow you to to make really large contributions to, as much as a quarter of your income or up to about little over $50,000 you could contribute. So if you have a decent profit, and you’re proactive about it, you can you know, potentially fund these plans and reduce your income by quite a bit.

Ian Robertson  

You have to be pretty far-sighted for that, though.  

Tom Kubiak  

Yeah, a few of the plans need to be set up by certain dates. So as you get toward the end of the year, you may box yourself out of the plans that would offer the most benefit. But even an IRA, it can be funded anytime up until you file your tax return. So you have, even if you file just on time, normally April 15, you have up until then to put money in that account.

Ian Robertson  

Interesting. So it sounds like the most flexible. To me anyways, the most flexible way to hedge your bets, so to speak, when it comes to your taxes is retirement, because that has the most long term benefits and saves you money now without having to have money go out permanently, I’d rather put five grand in a retirement account than five grand in a tool that I don’t really need just to lower my taxes.

Tom Kubiak  

Definitely. Yeah, definitely. So as long as you, you know, and that’s where again, we sound like a broken record, but sitting down with a financial, with a tax advisor, can I make a retirement contribution? How much can I make? And what’s the tax benefit of me making it? And if you know, if you do it, right, and you may find that a tax advisor is gonna say, okay, you can make a tax contribution, but you know what, your wife works for a company that has a 401 K, and they’ll match for contribution, you really should be putting your money in there. Because you’re doubling your money, every dollar you put in turns into $2. So you know, it’s a holistic approach that needs to be considered. And a lot of people when they’re doing their own taxes with a tax software, there’s no way they’re gonna think of those things.

Ian Robertson  

Yeah, that makes sense. I mean, it’s kind of like, grabbing home inspection software without being a home inspector, you grab our software, never done a home inspection, does it have a checklist that you can kind of go through? Oh, I need to look at the heating unit now. Do you know what you’re looking at? Not really.

Tom Kubiak  

Well I got a series of Time Life books that talk about, you know, household improvements. There’s the one on plumbing, that makes me pretty qualified to review plumbing, I think.

Ian Robertson  

I say let’s do it. Let’s get some, get some K pipe and start running some new lines out to the street. Yeah, see what happens. 

Tom Kubiak  

Leave the professional stuff to the professionals. 

Ian Robertson  

So it’s a, I forget what they call it, they have some sort of fancy term for it. But basically, the cost of not using a professional is very high. And I learned that the hard way. I mean, you’ve helped me over the years. But it’s, I imagine it was probably a hard road. 

Tom Kubiak  

You’ve repaid the favor a few times.

Ian Robertson  

Well I imagine it was a little bit hard talking to me. I joked the last time we were talking on the podcast here that my brother came over to my house, he’s like, where do you keep your money, and I brought up this giant jar. So I’m good at making money, just not good at okay, what do I do with this now? I didn’t plan on this.

Tom Kubiak  

But you know, and that’s the that is the scenario of most business owners, like they’re good at doing what they do. But they’re not good at running a business, I think you’re good at running the business. But most business owners are not, like they, you know, you take the plumber or the, you know, the home inspector, he, he or she is really good at being a home inspector. But they might not be good at the marketing side of it, which is one of the reasons they, they, you know, team up with you, or they might not be good at the at the tax and accounting side of it, which is where they should really team up with a good accountant. Now there, there are in, in personal finance, everybody should have a good lawyer, and a good accountant. A financial advisor’s the next person that they might want to have, but I don’t even view that as necessary. Because with the way brokerage firms are now, Fidelity or Charles Schwab, they have, they will do everything for you, you don’t really need to have a financial advisor, but you really need to have a lawyer, and you need to have an accountant. And if you have those two, they’ll help you to make good decisions.

Ian Robertson  

I totally 100% agree with that, anyone who’s listening right now, I wished I had listened to more of Tom’s advice earlier on. And when I did, it was 1000 times better, and get a lawyer, get a tax advisor. It’ll work out a lot better for you. I have no skin in the game telling you that too. It’s, you know, I imagine most of our listeners are probably not in the capitol District of New York to say, hey, we’re marketing for Tom, it’s just good business. 

Tom Kubiak  

Yeah, yeah. 

Ian Robertson  

Get a tax advisor. And if you are in the Capital District, Hi, my competition. Go see Tom, he does a great job. He does several home inspection companies in the area. With as much work as you do, I’m sure you’re probably trying to cut down your client base.

Tom Kubiak  

Yeah, we haven’t been taking new clients in a while, but you’re listeners if they, if they need something, I’m happy to help them.

Ian Robertson  

Thank you. Very cool. Well, I’m starting to run out of Lagavulin here. I don’t know how you’re doing on..

Tom Kubiak  

I’ve been talking so much. I still got three quarters of the glass.

Ian Robertson  

Oh really? Oh Okay, well, maybe afterwards we can we can finish our glass here. But you know, Tom, awesome having you. Always great information.

Tom Kubiak  

Thank you.

Ian Robertson  

I always learned something. And thank you for being on the show.

Tom Kubiak  

No, thanks, thanks for inviting me. And thanks. Thanks for giving me an opportunity to talk and I love being able to share things with people. So we appreciate the opportunity.

Ian Robertson  

All right, we’ll have you on again then. Thanks. 

Tom Kubiak  

Sounds good.

Outro: On behalf of myself, Ian, and the entire ITB team, thank you for listening to this episode of inspector toolbelt talk. We also love hearing your feedback, so please drop us a line at [email protected].

If you’re enjoying the conversation, don’t forget to hit the subscribe button. Our podcast is available on all major podcast platforms. For more information on our services and our brand-new inspection app, please visit our website at Inspectortoolbelt.com.