#27: The Tax Savings Most Business Owners Overlook

Is your business leaving money on the table—or are you ready to claim what’s yours?
In this episode of Brewing Business with Brady, host Mason sits down with Jacob Wood, JD, Regional Director at Capstan Tax Strategies, to break down the powerful—but often overlooked—specialty tax incentives available to business owners.

They cover:

➡️ Why your CPA might not be maximizing credits like R&D and cost segregation
➡️ What qualifies as “applied research” (it’s not just for scientists!)
➡️ How real estate owners can save thousands with accelerated depreciation
➡️ The costly mistake of waiting too long to build a tax strategy
➡️ How AI is helping (but not replacing) decision-making in tax planning

Connect with Jacob: https://www.linkedin.com/in/jacob-prentis-wood-7b206431/
 Website: https://www.capstantax.com/

Connect with Mason: https://www.linkedin.com/in/masonbrady/

Visit BradyCFO: https://www.bradycfo.com/

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Have a business growth question you'd like Mason to cover in an upcoming episode? Email: info@bradycfo.com

Transcript

Mason Brady (00:01.55)
Well, hi everybody. Welcome back to another episode of Brewing Business with Brady. Today's guest is Jacob Wood. Thanks for joining us, Jacob.

Jacob (00:09.102)
Yeah, thank you, Mason. Always a pleasure to chat with you and excited to be on the podcast.

Mason Brady (00:13.26)
Yeah, we are, I feel like I've said this to a couple guests so far, but I feel like you're another one of my, yeah, you're one of my bearded brothers that you have trimmed it recently, but you're one of my bearded brothers. That's one of the first things we called out is the beards when we first got to know each other. So, yeah.

Jacob (00:17.222)
My favorite guest.

Jacob (00:23.685)
I did.

Jacob (00:29.562)
People love beards. I do a lot of education for, you know, there'll be a thousand people on a webinar or something. And if I comment on beards, I'm like, guys want it longer or shorter? People are like, you know, people like the tax law, but they stay for the beards.

Mason Brady (00:42.764)
They do. it's a, it's a, it makes everybody feel warm and fuzzy just like it does on our face. Right. Yeah. Awesome. well, yeah, I'm really grateful to have you here because, you know, this is, this is a topic we're going to talk about specialty tax incentives, right? And, this is a topic that you and I have worked together with some clients where, ultimately we've achieved either some deductions, some tax deductions, or, you know, we we've pursued tax credits.

Jacob (00:46.766)
It does. Yeah, nobody doesn't like a guy with a beard. That's exactly it.

Mason Brady (01:12.728)
That are very specialty in nature, but are very powerful. very, very powerful for, you know, clients and the clients that we've worked with, but really for our audience to understand that there are specialty tax incentives that your normal CPA, your local CPA firm, may not really specialize in. may not offer as a service. they usually work with a firm like capstan where Jacob works, where, that specializes in these particular items and.

it's just, these are really powerful tools and vehicles to save a lot of cash on taxes for businesses to reinvest back in their businesses. I mean, I think, you know, there's still a nature of our tax code is written to incent incentivize small business creation and growth. And, you know, what, what we're going to dive into today speaks a bit to that. so I'm just really excited to have you here, Jacob, to really elaborate and provide some perspective for that.

Two, I know you're not a boring tax guy, so this is gonna be good that you, I know you're gonna add some flavor to it, right? So, yeah. Awesome,

Jacob (02:10.416)
There you go, yeah. I hope so, yeah. I've got my dark French roast. That was my required drink, so I'm ready to go.

Mason Brady (02:19.586)
There we go. Yeah, that the key thing is that we all joined this podcast with a with our favorite go to beverage. So glad you have your French roast. Did you did you just brew it recently or is a little cold from earlier? Okay.

Jacob (02:29.604)
I did just make it, so I did a French press out in my office, which is how I like my coffee. You can make it strong and then you've got a whole French press thing to drink.

Mason Brady (02:41.518)
Fair enough. I love a good French press. I hate cleaning a French press. I hate cleaning one.

Jacob (02:46.417)
yeah, you gotta do it right away. You gotta get your hand in there, get the grounds. I mean it's, know, yeah you don't wanna clog up your drain, so. It does make your trash smell great though. So there is a silver lining there.

Mason Brady (02:51.234)
Yep. No, I agree. Nope. Yep. No, I, yeah. It smells great. It probably keeps away animals that I find like here in Houston. I don't know if you're experiencing this is totally off topic, but like, like I'm originally from California, right? And I'd never seen this problem before, but on the highways here in Houston, like there's a lot of dead possums on the road. And I feel like, yeah, you know, you got to be careful with your trash, which is

Jacob (03:06.424)
Sure.

Jacob (03:16.329)
yeah.

Mason Brady (03:19.478)
know, how long you keep it out there, make sure it's getting dumped regularly that you don't miss the trash guy. Cause yeah, they'll get in there. And so I'm hopeful that the coffee grounds would potentially keep them away a little bit.

Jacob (03:28.826)
I think so, yeah, we've never had that problem at our house, but I definitely, see possums, raccoons, all sorts of things. You know, there's a lot out there in Texas. In California, you I've had some people that say, hey, I'm moving to California because I don't like mosquitoes. people that don't live in Texas may not understand why that actually does make some sense.

Mason Brady (03:48.994)
Yes. Fair enough. Yes. That's funny because we went on a family trip. My wife is from Chile. She's down, you know, her family lives down in South America and it gets no hotter in Santiago, Chile, where her hurt my in-laws live. It gets no hotter than 90 degrees. Right. And that can be warm, but with no humidity, it's like you can actually sit outside and enjoy the breeze and it's nice. like, yeah, we just can't do this in Houston. Right. You just physically can't do this.

Jacob (04:14.468)
No, you know, we work with a lot of architect clients and it's always funny because the western states that are dry, what I always say is the architects over there, like in California, are like, hey, what we're gonna do is we're gonna shade this, we're gonna daylight it, we're gonna get a nice cross breeze in, we're gonna open it up, we're gonna open up the space. In Texas, it's like, all right.

we're gonna put triple pane glass, we're gonna put an armed guard that's gonna guard against humidity, we're gonna lock everything down, we wanna keep all the outside out. It's like, it's totally, interestingly from an R &D tax perspective, both can qualify, but very different considerations and solutions depending on your humidity and climate.

Mason Brady (04:34.537)
HVAC.

Mason Brady (04:40.014)
Yep. Yep.

Mason Brady (04:51.406)
Yes. Yes, yes, lot more HVAC, lot more HVAC.

Jacob (04:56.569)
Yeah, exactly. We're going to upsize this 10 tons more than we need. So there you go.

Mason Brady (05:01.006)
Nope. yeah, I'm interested to understand, you know, for fun here, I know that we're both fathers, right? That I'm a father of three or a father of four. But, you know, tax code is one of those things that's very difficult to wrangle as much as kids are difficult to wrangle. But what's your opinion? What's worse, wrangling for kids or wrangling and trying to understand changing tax codes?

Jacob (05:12.549)
Yep.

Jacob (05:19.216)
Sure.

Jacob (05:23.966)
yeah, no, it's, I mean, definitely seek, as I recommend people seek help on special incentives, I seek help from my wife frequently, who stays at home and does a little combo homeschool thing with the kids, and she's the real master. I just kind of stay in my lane and wrangle them as needed, but she's the real maestro there. So I would actually say the kids are probably harder than the tax code. Absolutely.

Mason Brady (05:47.95)
fair enough. Yeah, it takes two right that you can do tax go by yourself, but it takes two on the kids. Takes the village. I don't know if it takes a village for taxes, but it takes a village for kids, right? Yeah. Totally. Um, well, yeah, you know, know, as we mentioned, we're going to dive in here. Um, you you specialize in R and D tax credits, cost segregation, 179 D deductions.

Jacob (05:53.134)
Yep, yeah definitely.

It definitely does. Yeah, one lone guy can do your taxes, but you need a village for the kids, 100%.

Mason Brady (06:14.702)
You know, those are some terms that are pretty elusive to people like what in the world do those mean? Can you kind of give us a specialty tax incentives 101 that kind of covers for our audience? Like what in the world do these things mean? Like what what conceptually are these things?

Jacob (06:18.63)
people.

Jacob (06:30.415)
Yeah, absolutely. And you know, there's a whole umbrella of different kind of tax incentives or tax questions that you can get into, right? And so we cover some of the main ones that apply to a lot of companies, but there's other things out there. There's like international tax issues. There's, you know, kind of all sorts of things. And you kind of have to look at these on the spectrum of like how novel is the question or how repeatable is it, right? We do in our consulting practice a lot more of these kind of repeatable things that apply to a lot of people.

There are even more special things where like you want to get a private letter ruling on your specific very niche tax thing. So it's definitely not that. What we're looking at is mainly real estate incentives and technology and innovation incentives. And the reason that Capstan focuses on those and that those are our business is that they touch so many companies. Those are the two most incentivized areas of the tax code are people creating, building, making, designing things.

That's kind of the innovation side, which would be R &D tax credits. The other piece of it's real estate. Real estate is 20 % of GDP. It touches a myriad of things. pretty much every company is either innovating or they own some property, right? And so that's why we look at these. Now why does your CPA not do them even though they apply to a lot of people? Most of the time, CPA firms, unless you can do five, 10, 15 million dollars of business in one of these incentives,

you really can't make a viable business, because it's just too specialized for that. So if you're a 50 person CPA firm, there's no chance you have enough clients to actually need this. You may have some good opportunities there, but you're not gonna have enough to make it a standalone business. And it really has to be viewed as a standalone kind of business unit. It's not like an add-on. There's a lot of things in the tax code that if you're CPA or CFO, you can kind of go and check the box. I call this like check the

incentives where it's like, we do it? You know, yes, we checked the box and we get it. Things like an R &D tax credit take some specialized analysis, interviews, data science, there's a whole slew of regulations and court cases on them. And so that basically requires somebody to go through and analyze and have a systemic process that they can follow. And so that's why, you know, that's where the industry exists and that's mainly what we do.

Mason Brady (08:57.922)
mean, to put it into tangible terms like, you know, R &D tax credit report for a client, what would you say the average size is in total pages?

Jacob (09:07.044)
Yeah, mean, in total pages, like, if you've got a statistical sample data, you've got,

know, interviews, documents, I mean, it may be something like 100 pages, 150 pages. Now, not all of that is like drafting. Some of that could be documentation. It could be photos and screenshots and notes and stuff like that. Or it could be the statistical sample analysis to actually do the analysis. Because if you're looking at a company that has 20 business units and 30,000, you know, potential R &D activity projects a year, you have to use data and data science to go through that. You can't individually review.

all those projects. So there's a whole methodology to it. But yeah, it's a fairly robust process for sure.

Mason Brady (09:43.192)
Yep. Totally.

No, yeah. mean, we've been through some of these, they're powerful. like you said, it just in terms of capacity planning, right, that, you know, it's not like everybody just has on staff, you know, somebody to punch out 100 page report, even though it may be a variety of photos, etc. But, you know, when I when you're talking about, you know, getting regular tax filings done and meeting tax deadlines and, you know, filling out 1040s and all this stuff.

Jacob (10:03.494)
Absolutely.

Mason Brady (10:12.306)
Do you really have people on staff just ready to pump out multiple 100 page reports at moments notice and probably not, right?

Jacob (10:16.61)
Exactly, yeah. And even like, you know, for example, like on the cost segregation side, I know we're gonna talk a little bit about technology in the future, but you know, we've really tried to integrate technology to support the analysis, but.

For example, like the average cost segregation engineer at your typical company, other provider or maybe at a CPA firm, gets at most maybe like 50 reports out a year, like 50 properties. So one a week, they're drafting a report, they're going out and doing it, and it's maybe because they're doing other things as well, like they're not just doing that. Our average person will do 100 to 170 reports per year. And the reason they're able to do that is through technology, but also that specialization, right?

that you do the more you learn and if you're constantly improving you can do it more efficiently. I mean that's why as a consulting model it's a fantastic business. It's a great thing to add on. But you if you've got something, you bought a piece of property, you developed a new product, you know there's something that falls within this. This is why it's so good to work with a specialist because you can get it done faster, less expensive and with less risk than you could otherwise if you did it internally.

Mason Brady (11:27.564)
I mean, a part of it too, is, mean, if you're going to take advantage of these sizable credits, you got to have proof. If you get audited that, you know, why do you feel that you should be allowed to take this credit? You know, right. And there has to be some substantial proof to back up the reasoning for taking the credit that, you know, tax code wants you to take the credit if it applies, but if it doesn't apply, it's fraud. Right. And, so it's, it's critical. I, you know, for.

Jacob (11:43.216)
Mm-hmm.

Jacob (11:51.738)
Yep.

Mason Brady (11:54.646)
For layman's terms here, I want to dive into some of this just a bit here, you know, at a high level, cost segregation. So for our audience, if they've never heard the word cost segregation before, what are we talking about?

Jacob (11:59.047)
Yeah, absolutely.

Jacob (12:06.052)
Yeah, so cost segregation, what I love about it is it's a fancy term, so it sounds like all cool, but really what it is, is it is matching.

tax treatment of a building property improvement to reality. So what the tax code says is by default, every property is going to be 27 and a half or 39 year depreciation. Meaning, you spend a million dollars, you take 1 39th of a million dollars, and every year you get a little bit of depreciation because that asset, you can't just write it off, right? It's a depreciable asset, so you have to depreciate it over a number of years. Everything goes into that by default.

What people said about 25, 30 years ago when this industry was starting to get formed is several savvy attorneys, CPAs and so on, and property owners frankly started saying, you know, I bought an MRI machine and it's not gonna last 39 years. And there was a case called Hospital Corp of America.

And basically a hospital said, hey, we've got all sorts of stuff in our building, in our hospital that is not gonna last the life of this building. And so we wanna depreciate it faster. you know, IRS basically said, hey, no, we've just got this one category, you can't do that. The court actually looked at it for like 75 pages. They literally went through, they're like, what about the elevator? What about the elevator shaft? What about the escalators? What about the structural supports in this room? What about the HVAC system? They literally went through each

element of the building and they said, is it reasonable that this thing is gonna last 39 years or is it going to fall apart, right? I always say if you go into a, like you're looking for a home, right, and you walk into the home and you know kinda get that like, maybe it's a little musty, the lighting's bad and you're like, oh, this place needs to be updated. All that stuff you're looking at depreciated faster than the structure that you're standing in. And so,

Jacob (13:59.911)
what cost segregation does, it allows you to accelerate the depreciation of items if that matches what happens in reality to those items. But remember, incentives and credits are always the burdens on the taxpayer to prove that they are owed them, right? And so what you have to do is you have to have an affirmative study that says this stuff is being pulled out from the default because of X, Y, and Z. And so, again, what you're doing is basically from a depreciation

standpoint, you are front-loading those deductions. So you're getting the same amount over time, but you're getting them all today. So would you rather have a $10,000 tax savings today or in 40 years? Right?

Mason Brady (14:41.518)
today. Yeah, I have no idea that I'm gonna own the property 40 years from now.

Jacob (14:44.615)
Some people refer to this as the interest-free loan from the government, because in effect, if you sold the property in 40 years, you'd have to pay back the tax savings, but you're paying back at the exact same amount you took that savings at 40 years earlier. And so the whole value of this strategy is really the compound interest on the money you save.

So anyway, very interesting but very powerful. You know, we've had people save a million dollars and they hold the building for 10 years. Well, how much money can you make on a million dollars in 10 years? Maybe another two million. So that's a big value for companies.

Mason Brady (15:19.854)
I, you know, we consider it a lot with our clients that, know, they have a primary business, but obviously they, they want to build some net wealth and, know, and, they would like, you know, investing in real estate in a separate subsidiary is certainly a good alternative and a, instead of leasing an office, maybe they buy it and lease it back to themselves, right? they would have paid the lease expense anyways. so might as well just lease it back to yourself, but

Jacob (15:40.272)
Mm-hmm.

Sure.

Mason Brady (15:44.78)
get the property and, you know, do a cost seg study on it and, you know, depreciate it out. And, know, it practically helps finance that down payment, right. that it makes it a heck of a lot easier. And so, yeah, you know, these are powerful things. I think real quick too. so we talked about cost segregations, R and D tax credit. mean, R and D, you know, standing research and development. you know, I think the assumption of many can be, well,

Jacob (15:53.766)
Absolutely.

Jacob (16:00.294)
Mm-hmm.

Mason Brady (16:11.65)
you know, is my company really doing R &D? Like, I'm not pharmaceuticals. I'm not, I'm not a software technology company. is R &D really apply to me. And I think the surprising answer is, yeah, I definitely can. And so I love for you to explain more on that.

Jacob (16:14.832)
sure.

Jacob (16:26.49)
Yeah, the real trick with R &D and kind of the thing to think about is that there's two types of R It really shouldn't be called the R &D credit, should be called the applied research credit. And the reason is that there's kind of this concept of basic research, which is like university research, right? The US has always been one of the top countries in the world for the last like 70 years in primary research. Go to Harvard, they're doing great research. It's in a lab setting, right? Where we have really dropped the ball and why this credit got enacted about 40 years ago was

Applied research so you look at a company like Samsung in like the 70s or whatnot You know they came out with microwaves that were a tenth the price of American microwaves They worked better. They had better, you know maintenance plans and they could pump them out like like crazy, right? And so the US developed all the microwave technology But didn't actually put it in a saleable product that people could use So that's what the whole point of the credit is is this applied research as a result the standard is really not that you're coming up with like

like new wavelengths or new atoms that you've discovered and things. It's really that you're taking these technical principles and you're applying them in something that's a new or improved business component, which would be like a product or a process or something like that. That's the piece people miss. Everybody thinks about...

The lab coats, there's actually a court case out there that humorously enough says it's not just test tubes and lab coats. It could be applied engineering or things like that. So it's kind of a funny snippet to bring out. Because people think about somebody with a beaker and they're tight trading something. It could be that, but it could also be taking that and putting it into a McDonald's Happy Meal toy that people aren't gonna choke on and is gonna last for five years and doesn't leach chemicals and can be manufactured efficiently and all those.

sorts of things. So you really need to look at what is the applied research of a company and it really could apply to any industry. It could be, I've mentioned products, but software is a huge one. Manufacturing, engineering, other scientific pursuits, pharmaceuticals, food and beverage. You know, we do like liquor and wine clients. So there's a really big, big variety that you can find in the R &D credit.

Mason Brady (18:38.382)
So I'm interested, though, because again, I want to really make sure that we have a good idea of that definition of applied, the word applied. I'm thinking we've had on here, and we work with folks in the agribusiness space. And one of the prime examples is new variety development. I worked a lot in fresh produce and fruits and veg and a new apple variety or new blueberry variety.

Jacob (18:45.06)
Yeah.

Jacob (18:57.072)
Sure.

Mason Brady (19:06.274)
Who gets to claim the R &D credit? Is it the nursery that breeds and creates the variety and brings it to market? Is it the farmer that actually takes the variety and plants it? Who gets the applied part of that?

Jacob (19:12.486)
Mm-hmm.

Jacob (19:21.538)
Absolutely. So one way to think about this would be that there's a finished product, which is the new variety, right? The other way to think about it, which is actually more of the tax code is that it's a series of processes and steps in a value chain. Each step, if you are engaging in a technical process of development, you can qualify. So for example, the geneticist coming up with something or somebody breeding, could qualify, but also somebody maximizing the yield and harvesting kind of at the farmer level could qualify.

The thing to remember for R &D, not only is it applied, but it is process based. So what you are getting is a percentage back. It's something like, let's call it five to 15 % of your qualifying dollars spent back in the form of a credit. So if you spent $100,000 developing something, you might get a five to $20,000 credit, depending on the federal and state incentives you can claim. There's a federal and their state incentives. But we focus in on the process that people are following. So is it an eval...

process, are they trying to make some kind of an improvement? The standard is very broad. is that you have to be creating something that is new or improved.

Mason Brady (20:30.638)
Got it. Got it.

Jacob (20:30.875)
And that's it. And so there's a whole lot of inclusions and exclusions. But if what you are doing, so you can focus on the quality, the productivity of land, you can focus on, you in agribusiness, there's a whole lot of considerations. What I always tell people is that it really gets down to more what your mindset and how you solve problems than what you're literally doing. So you talk about a farmer, I was just looking at an aquaculture client yesterday. And, you know, they're doing farming of shrimp and, you know, different

aquaculture kind of products. And I was like, all right, this is either gonna be one of two things. Either they're just gonna be doing it, and there's gonna be no process, they're just gonna kinda be following a process, and that's it, or they're gonna be incredibly scientific. Well, they sent us like a 30 page PowerPoint of all of their R &D kind of activities, and they're like, do we qualify? They had like tables and charts, and they're measuring things, and they're looking at yield maximization, and number of, you know,

you know number of offspring of the different type of aquaculture kind of like animals that they were creating and I was just I just started laughing I was like I think this gonna be a pretty good claim because clearly They're keeping a good process and some documentation But they're but they're following in an investigative process and and that could be in any area Yep

Mason Brady (21:51.758)
Got it. Got it. No, this is good background that I think gives. Yeah.

Jacob (21:54.629)
I can talk all day on this, whenever you want to move on other incentives, just point me in the direction and I'm there.

Mason Brady (22:00.376)
Fair enough. So I would love to understand because I mean, we're honing in on the detail of where these things apply. But what are some of the biggest misconceptions that business owners have when it comes to these types of specialty tax incentives?

Jacob (22:12.836)
Yep, absolutely. I think some of the big ones is just people tend to not make a decision, right? So it's a decision by default. And that's the most dangerous thing. So if you think you're doing anything. Now, on the innovation side, if you create or make anything, if you have a technologist, a software developer, a product.

developer, if you do manufacturing, like if you do anything in the wheelhouse of potential innovation and development, you should have an affirmative plan on whether you are claiming something or not. On the real estate side, if you own, develop, renovate any real estate, you should be looking at the cost segregation. And also, we didn't mention it as much, but there are a lot of energy incentives as well, and we can talk about those later, but those kind of are another bolt on to the real estate strategy. But if you have anything like

close to these, you should get educated and take an affirmative plan. Because not making a plan can get you into trouble. We've had companies where there's all these special nuances. There's one actually for startups on the R &D credit where you can offset your payroll tax before you have income tax profitability. So let's say you're a startup, software startup, you got five to 10 people, a million dollars a year in spend, and you're developing an app. Well, you're three years away from profitability.

And so you say, you know what, I don't need any tax savings because I don't pay tax. Well, the problem with that is there's a special rule that says in your first five years of any type of revenue, but maybe even pre-profit, you can offset your payroll tax, so your FICA tax obligation as an employer. It basically makes the credit refundable. The trick is that the whole point of this, it's very lucrative, it's very expensive for the government, they want you to do it in those years. So you have to claim it in the

that you spend the money. So you can't go back at year seven and go, what can I get on payroll offset? As a result, I've had literally millions of dollars of clients. I've had one where somebody was like, we put this off for a couple of years. We're a technologist that does AI printing and such for manufacturing groups, and we make boxes, and we do all this cool stuff. We're at year six, now we think we're gonna pay tax in the next couple of years, we wanna look at this. And I was like, you guys basically

Mason Brady (24:09.411)
Yeah.

Jacob (24:34.585)
basically threw away like $700,000. And you talk to somebody that's trying to get funding, you know, it's expensive to get debt or equity funding as a startup, and to be able to get that cash flow for free could be another couple months, a year of runway for that company. And it's a painful conversation when you're like, well, you could still claim a credit, but you're not gonna get it for this.

Mason Brady (24:39.17)
Yep.

Jacob (24:57.155)
Again, my overall point is just whatever the strategy, you wanna have an affirmative strategy. Either we're claiming something now or we're not, but we're educated on what the rules are and we're setting a plan for the future, right? Because if you do anything in these wheelhouses, something eventually will apply to you.

Mason Brady (25:13.986)
Yep. Makes sense. so yeah, to that point, I, I'm interested to understand, you brought up a client example that was using AI. I'd love to start asking this question more because it is becoming more of a reality of AI's influence in business. Right. But, how do you see AI and automation transforming tax strategy and financial planning? It was, it was interesting. I, I, like, I was at a talk and w know, there was an economist that basically said like, yeah, like

Jacob (25:35.27)
Sure.

Mason Brady (25:42.542)
you're a legal assistant, go find another job now. Right? Like, you know, or, you know, if, if you're looking up, you know, legal cases, like that's your job, your legal assistant, like, go find another job now. Right. But I'm, I'm gonna stress and understand because especially within tax, like, it's a lot of written code, right. And there, it's a lot to read through to understand to sift through. So yeah, what do you see in this space?

Jacob (25:45.092)
Hahaha

Jacob (25:52.55)
Sure.

Jacob (26:03.814)
Sure.

Jacob (26:07.672)
Yeah, absolutely. I think it is interesting and I'm piloting several AI things right now myself, so I'm kind of seeing what they're doing. It's just a hot topic. I would say in the broad scope of things, this is near and to my heart because in the R &D world, anytime there's a technology C-shift or C-change, we see it, right? So internet of things, these will lead to entirely new R &D areas. So HVAC.

is a very interesting example in the sense that 40 years ago it was all like pneumatic, it was kind of like manual controls, you just put the stuff on the wall and then it just kind of, you you hoped that the system was balanced, right, for an HVAC setup. Now, you can program, you can control, you can zone things, and so the companies that used to install that equipment did not qualify for an R &D credit. Now, they do, because they have software developers. Like, there's no such thing as just an HVAC controls company, now they're a technology.

company. So whenever you see AI or you see any kind of a new thing come out, from our subject matter we see it in our clients and that can lead to qualification for R &D. In our business, how we do our business, I think that the tricky thing is that the value add in the secret sauce is all in the analysis.

where people have really tried to, I think a lot of the money has gone into automating the analysis side of things instead of automating the data and task side of things. And I'm just a proponent of, you know, the IRS comes out with new cases all the time, there's regulations. You can summarize this stuff and that's a big value add from like an AI perspective. But in terms of making the judgment call on it, you definitely don't wanna automate that stuff. Because you wanna have, you you don't want it to be like a do-safe.

You don't actually know what's going on and what decisions you're making there. So I think to the extent that you can automate the manual side of things, the amalgamation, the formatting, that kind of thing, this is very powerful for the industry and people doing things in the financial legal services. I think whenever you get to the actual analysis, you wanna have a human check on that.

Jacob (28:21.99)
And I think certainly some aspects of it, right? So like I began my career as an attorney. I'm a licensed attorney in Texas I then got into tax consulting and kind of grew that part of my career But the part of my job that I do now is a lot of like education business development its strategy It's kind of looking at the nuances and then applying them to the business settings That stuff is pretty hard to automate right because nobody's gonna buy from a robot now if I want to use that to get what the strategies are and then I

explain them and kind of weigh them and balance them, that will make me more efficient. But I think there is kind of a limit and you have to figure out what is the shape of that limit for any tasks that you're doing.

Mason Brady (29:03.48)
Yep, fair. I'm interested.

Jacob (29:05.85)
You probably see some similar stuff in what you're doing, right?

Mason Brady (29:08.77)
Yeah, I mean, I just, again, I think it's an automation of tasks, but the final judgment call, still it's a manual process, right? That, I don't trust, you know, a financial analysis put together by AI yet. I haven't seen one that I look at, and especially within small businesses, I could see that, I could see AI being used amongst public company reports because there's a level of standardization. because once you get that big,

Jacob (29:36.176)
Sure.

Mason Brady (29:38.136)
the level of standardization in your accounting practices and getting audited by the big CPA firms. And you're talking about four to five major CPA firms, you know, have consistency in their audit practices and their expectations. And therefore what's being put out in regards to, you know, company, public company reports that because of that standardization, an AMI model can look at things similarly, but you know, it's even for us like

Jacob (29:53.818)
Mm-hmm.

Mason Brady (30:04.802)
You know, I love a good industry benchmark report for small businesses, but when they start trying to do a common size analysis of the financials and they say, yeah, on average businesses in this industry have 60 % gross profit. I'm like, that can be all over the place with every business. like with small businesses, especially simply as a result of their accounting competency and the quality of their financial records. Like how can you say that?

Jacob (30:12.783)
Sure.

Jacob (30:23.75)
You

Mason Brady (30:33.72)
gross profits are consistently 60%. Like that may be what they report, but that may be because they're not posting things in the right place. Right. and, so it's, I, I think it's really tough to analyze that very well. So like, you know, you need a level of judgment in that, right. Of actually, you know, determining is this right or not? That, is the data of the quality of the data that we're looking at now?

Jacob (30:41.594)
Mmm, sure.

Mason Brady (30:58.914)
I think AI can help supplement that. again, I would agree with you the judgment call on it is still not there, right? So

Jacob (31:04.58)
Yeah, and I think from a personal standpoint where I see it most useful, all these things came out a year two ago where it was like, we're gonna AI your notes, right? So it's all these note takers logging under your meetings and they're summarizing stuff. And I was like, you know what, I can take notes fine while I'm talking. And actually the notes help me, because then I go back to the notes. So I need something real time where I'm and I'm summarizing the key points. I'm not writing what the person's saying, right? Where I think it's been really valuable, I've seen some tools and I've piloted

some of them where it takes the notes.

and then it sends you an email that says like, this correct? You can kind of edit it. And then what it'll do is it'll automatically go into your email, draft a follow up, it'll put the bullet points that you kind of agreed on, and then you just review it and hit send. That's something where to me is a blend of the analysis, like your judgment call, but also automating kind of the tasks and the things that are being done. And I think as these things get more sophisticated, that thing's not gonna be just drafting an email, it's gonna be updating the CRM, it's gonna be putting notes for the...

it's gonna be setting tasks. And so then me doing what I do best, right? Because I make the most money when I'm talking to people on the phone, right? And I'm actually explaining and we're strategizing and we're weighing objectives and I'm helping them plan. I don't make as much money to put it in those terms when I'm typing a follow-up email, right? I mean, it's necessary.

but it's not a huge value add. So if I could be in the driver's seat of phone calls and things like that more often and be in front of people and connecting with them, but then those other parts are kind of all automated and I'm making decisions, that's a big success and that's gonna drive efficiencies in the market. So probably similar to some other industries, but that's kind of the way I see it from where it is right now.

Mason Brady (32:48.206)
I

Mason Brady (32:51.82)
Agreed that, mean, I think it just still comes back as you were saying that I was thinking of an example. It still just comes back to though the management level judgment decisions have to be made. I just still see struggle around it. And I'm thinking about, you know, we've been in board meetings and we've actually had legal advice to not use the note taker because

Um, at that point, everything mentioned is on record, right? Um, and it's like, I don't know if you really want that when, yeah, you are talking about an employer, this or this or that. And it's like, I mean, you want to operate your company in a transparent way and an honest and integrity filled way. But at the same point in time, um, you know, don't know that we want a recording of our entire, of all of our, our judgment conversations that, especially in today's world, where I think most business owners would argue that

Jacob (33:19.92)
yeah, I know.

Mason Brady (33:44.014)
Maybe this is the California in me that I need to leave back behind but the political correctness with everything right that it's like, I can't say this but yet everybody in the room knows it right, you know

Jacob (33:48.027)
Sure.

Jacob (33:52.999)
Everybody knows you're talking. There's actually a great, I don't know you're a fan of Black Mirror, but there's a great episode, and I think it's called The Entire History of You, and it's a world where people have a chip in their eye that can basically remember everything. And so, a guy goes and talks to his wife, and then later she's going back, or maybe he's going back, and he's like.

Mason Brady (34:05.166)
Cool.

Jacob (34:14.566)
you know, was this person really paying attention? What were they looking at? He's like zooming in on the phone. He's like, she was looking at something else. And then he's like second guessing it. So there's certainly a dystopian element to it. And I'm a big fan of dystopias. So, or at least exploring them and reading about them, right? And it's probably my favorite sci-fi genre. But I don't know that I necessarily want to live in one. That could be the title of the podcast. I don't want to live in a dystopia.

Mason Brady (34:29.102)
Yes.

Mason Brady (34:37.634)
I agree.

Jacob (34:43.958)
Hahaha!

Mason Brady (34:45.265)
Well, I think you know after November, you know Some people may have voted a particular direction. They feel like they're living in dystopia. Maybe but I you know Are tariffs happening are they not I don't know yeah, I Mean it came out the press secretary, you know, she said hey campaign promises made that you know, we're going to

Jacob (34:56.12)
It's more of a chaos-topia, I would say. It's like... Pick your topia. I don't know what's happening anymore.

Mason Brady (35:10.848)
Implement some tax changes in regards to not taxing tips not taxing over time different, you know incentives fair funny enough around you know Sporting stadiums, know and stuff like that but for the business owner You know, are you seeing anything coming down the pipeline that business owners should be aware of because all of this? Seems like this is out of their purview right that you know somebody tips on you know, our taxes on tips and over time at least income taxes that

Jacob (35:34.278)
Sure.

Mason Brady (35:40.462)
I mean, that's not applicable here. So for, you know, a smaller mid-market business owner, is there anything that you see that, yeah, we need to be paying attention to this?

Jacob (35:49.639)
Well, I can tell you as a service provider myself, I'm going to be accepting tips on all future engagements if those things are non-taxable. So speaking of a dystopia, we may end up with some bizarre rules and things as a result of that. But yeah, exactly. I worked like two hours and it was just overtime and it was all tips. There you go, right? I want to see that K1. But I think there are some big things.

Mason Brady (35:55.786)
Right. Yeah.

Mason Brady (36:01.986)
Yes, yeah. lot more overtime on everybody's time card now. Yeah.

Jacob (36:18.17)
You know, it's interesting because since the administration currently was in power four years ago, they passed the Tax Cuts and Jobs Act, had a lot of...

you know, things in it was very expensive, but also built a bunch of ticking time bombs in it. Like for R &D, there's this thing called 174 amortization that you have to do. And it basically just changed some of the numbers around. It wasn't very popular, spiked tax rates for people in the short term. It's gonna be very popular for the administration to extend or fix some of those things that were part of the TCJA. So I think that's probably the most likely thing because, you know, what administration doesn't want to create an

Mason Brady (36:52.366)
Yep. Yep.

Jacob (36:55.843)
issue and then become the hero that solves that issue that was their own issue.

Mason Brady (36:59.81)
Yeah. And did they time that? Yeah.

Jacob (37:02.146)
It's kind of, yeah, you're like, I don't know. was, you know, I don't want to get too Illuminati, but yeah, there was definitely some, there's definitely some benefit of the fact that they're now picking up these pieces. The other thing is the Inflation Reduction Act, the IRA passed into the Biden administration actually also had some very good, had some kind of wonky, but had some very good things related to energy projects. So a lot of energy projects had to do, they said, hey, you can get more deduction if you want to be energy efficient, great. But then kind of the union lobby got in there and basically

Mason Brady (37:07.604)
Ha ha ha!

Jacob (37:31.993)
basically made this thing called the prevailing wage rate requirement. So if you're gonna take an energy deduction, right, we're doing an energy efficiency project, we have to also pay prevailing wages. Now, it's not wrong to pay prevailing wages, but it greatly increases the complexity of the projects. And really, what I've seen is it's not much of an incentive, it's just kinda you either pay it you don't. Like if you're in San Francisco, you're paying a prevailing wage because it's just a high wage area. If you're in Houston, Texas, you're probably not, unless you're in a union. And so as an incentive, it's kinda

Mason Brady (37:45.644)
Yes, it does. Yeah.

Mason Brady (37:54.37)
Yeah. Yep.

Jacob (38:02.056)
it's not quite valuable enough to really move the needle. Now, Trump administration has basically said they don't like these prevailing wage rates, they are too complex, and it's mixing too many incentives, which is a fair point. So if those go away, I think what you'll actually see is it's gonna be a simplification of many of the IRA's positions. And so you're gonna see more people be able to claim production tax credits,

Mason Brady (38:23.246)
Got it. Got it.

Jacob (38:29.568)
know, development tax credits, investment tax credits, 170.90 energy credits, I'm sorry, deductions. And so that would be a very positive thing. So I would say your general business owner, what...

the reforms that they would put in are gonna do is it's gonna make it less expensive to do R &D. It's gonna make it less expensive to do capital investment or energy investment projects. Those are the main things. So if you're gonna spend some money to develop, to purchase, to build, that kind of thing, those are the types of activities that are gonna be protected and incentivized if with the tax reform.

Mason Brady (39:06.424)
Good. No. Yeah. Great. so yeah, we're, we're kind of coming to the end of the episode here, Jacob. So what we like to do, we're introducing these, this kind of new concept where we do some rapid fire fun questions to, yeah, have some fun with. this is actually what goes on LinkedIn, right? These are what makes up the video shorts. so yeah. What is the most tax tax nerd thing you do in your daily life? Like, you know, I've seen engineers create, budget spreadsheets for vacations, you know,

Jacob (39:11.78)
Yeah.

Jacob (39:18.424)
sure.

I've got it, yeah, boy. I'll be on it.

Mason Brady (39:35.618)
like tracking every purchase, but what's the most tax nerd thing that you do in your daily life?

Jacob (39:40.135)
aside from talking about it all the time, I would say to be in an industry and to really love it and to share it, you actually have to do it. This is my number one business principle is you have to become the thing you wanna be. You can't fake it, you have to actually do it. And so I read tax policy stuff all the time. I'm in Wall Street Journal. In fact, I'll be in a conversation with somebody and I'll know that they read the Wall Street Journal that week because they'll be quoting the tax stuff and I'm like...

Mason Brady (39:42.658)
Yes.

Mason Brady (39:54.37)
Yeah.

Jacob (40:09.046)
yeah, I read that article. But I'm like, they're not saying they read an article, they're just talking about something. But I'm like, that was some good analysis. Yeah, was so, you economist. So if you wanna get better knowledgeable about this kind of stuff, there's a lot of good technical analysis that happens in major newspapers and trade journals and things. And that's the thing that I do, I love those things. I read them in like my spare time.

Mason Brady (40:12.888)
Yeah, verbatim,

Mason Brady (40:32.911)
Fair enough. Okay, that is very tax nerdy. I don't think that

Jacob (40:35.993)
I also did propose when I got married not actually signing the paperwork because I did our tax calculations and I found out that we actually were gonna be better off if we didn't formally get married. That was quashed by my mother-in-law. It was a very unpopular opinion with the proletariat, so we did not end up doing that.

Mason Brady (40:49.6)
Yeah.

Mason Brady (40:56.202)
Yeah, that's fair. That is very tax nerdy. Great way to start an in-law relationship. Yeah.

Jacob (41:05.414)
Yeah, exactly. was like, what if we just don't do this when we do a common law or something? Yeah, was like, nope. Not part of the strategy that was approved.

Mason Brady (41:12.27)
If you weren't in tax strategy, what career would you have?

Jacob (41:17.274)
You know, it's funny, when I went to college, I was pre-med, and I, you know, it's funny because I loved emergency medicine as a boy scout, all this stuff, and I took a Kaplan, you know, like a two hour questionnaire, and it was like, what should you go into? And it was like, you should go into consulting, law, and...

what was it, and in sales, right? And I was like, nah, I'm going to med school. you know, flash forward like a year or two and I basically ended up on that track anyway, because I feel like I was good at it. So I think if I was not in tax, I'd probably still be in some area of law or sales. I mean, what I love being is a technical expert who gets to kind of talk with people. My son...

Mason Brady (41:40.334)
Dang.

Mason Brady (41:44.514)
Yep. Yep.

Jacob (41:57.319)
loves to listen in on calls and so if he's around, he's kind of homeschooled so he's got some time, he will sit in and just listen and he said one day, said, I want to do what you do when I grow up and I was like, okay, well what's that? And he goes, you have a lot of friends and you talk on the phone with them all the time. And I was like, you know what, take that if it wasn't tax, I think I would be doing that in some other area. I was like, that's a great way to say it.

Mason Brady (42:14.51)
Yeah. That's a solid job. Yeah. Fair enough. job that yeah, he understands it well. So great. Like go through many years of schooling through technical hard, hard knock schooling and then talk on the phone. Well, Yeah. Well, thank you, Jacob. That really appreciate having you on the show that

Jacob (42:32.068)
Yeah, exactly, right? Good to hang out. A lot of good lunches.

Mason Brady (42:40.558)
Where can listeners connect with you, learn more about you, capstan, tax strategies, where can they figure out more about you?

Jacob (42:48.065)
Absolutely. So I am on, I'm on LinkedIn. So you can search for Jacob P Wood at Capstan Tax.

and I do a lot of posting, a lot of liking, some funny comments, I like dad jokes, I like beard jokes, so you can see me there. Also our website, capstantax.com, we just got a ton of good resources on there, we put out blogs and podcasts and stuff, so if you wanna get connected, can actually subscribe to our newsletter, and we do, when there's updates and stuff, we try to be the first people out there to give you some insights as well, but yeah, would love to connect with folks.

Mason Brady (43:21.07)
Awesome. Well, what's some final words of wisdom for business, business owners looking to maximize tax savings in 2025? What would you leave them with here?

Jacob (43:30.907)
Yeah, again, I would say you want to have an affirmative plan whether you do something or not. You want to be educated on it. And so for us, we love forming good relationships. We love to be engaged with somebody from a consultative approach long before there's a project. So I would say have somebody in your corner that knows about these incentives that can educate you so when it's time to make a decision, you already have a plan in place. So I would say make an affirmative decision whether you do something or not. You want to have a plan in place.

Mason Brady (43:59.468)
Awesome. Great. Yeah. Thank you, Jacob. Thanks for joining us today. Awesome, man. Thank you. So from here, I, yeah, I, I can ask you to exit. You'll check out, but this was great that you did a great job and, yeah, this was fun. So from here, you would exit and then I'm to do the intro and then, Cindy will be in touch in regards to, all of the assets. Yeah. No, this is good.

Jacob (44:01.636)
Yeah, excellent. Thanks for having me, Mason.

Jacob (44:20.103)
I love it. Thanks so much for having me, man. It's, and I will make it to one of your pickleball things one of these days. And I love the pictures of it and would love to see it at Pro Visor, so.

Mason Brady (44:30.542)
Yes, absolutely brother. So I'll see you in March. Yep. See you brother.

Mason Brady (44:38.402)
All right, Cindy, so let's do this. Okay. Let me, I kind have to think through this a bit.

Okay. Hi everyone. Welcome to another episode of brewing business with Brady. So as a mid market, as a midsize business owner, are you questioning, I paying too much in taxes? The reality is you might be. and the thing is, is that what you're doing in your business may need to be studied and evaluated to determine whether you could get some tax savings, but these aren't

You know, check of the box types of tax savings. These are tax savings that require significant study that really requires significant understanding of your business model, what you're doing, et cetera. But especially if you're implementing coming up with new processes, designs for how things work, product services, if you're buying real estate, if you are doing green energy projects, if you are.

trying to do energy efficient improvements, et cetera, you may be eligible for a lot more than you understand. And that's really where specialty tax incentive firms come into play. Many of these firms are staffed by CPAs, but this isn't your regular CPA firm, right? That the firm that you go to to get your corporate taxes done and your personal taxes,

they likely aren't experts in some of these very, very specialized tax incentives that are meant to incentivize real estate investment and, new process design and applied research and implementation of new products, services, processes within your business that, you know, the U S government wants to incentivize you as a business owner to come up with novel creative ideas that ultimately will make American services and products better.

Mason Brady (46:38.382)
than the rest of world, right? The tax code is written that way, but some of these tax programs incentives are a bit elusive to the average business owner. And so I'm really excited for today's guest. His name is Jacob Wood. He works at capstan and he is an expert and just a great individual, a very lively individual, not what you usually find in tax experts, but you know, Jacob is a great guy that is going to give a lot of knowledge in regards to specialty tax incentives. This is the stuff that

really works well if you're a business owner that this isn't necessarily for your personal taxes. This is for things related to your business. So this is a perfect episode for business owners, especially of midsize businesses that are looking to understand, can I be saving some money that I can have additional cashflow that, that would otherwise get paid to uncle Sam that I can reinvest in something else in my business. if that's you listening, thanks everybody.