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January

Laying the Groundwork for Your 2018 Tax Return

 

The Tax Cuts and Jobs Act (TCJA) made many changes to tax breaks for individuals. Let’s look at some specific areas to review as you lay the groundwork for filing your 2018 return.

Personal exemptions

For 2018 through 2025, the TCJA suspends personal exemptions. This will substantially increase taxable income for large families. However, enhancements to the standard deduction and child credit, combined with lower tax rates, might mitigate this increase.

Standard deduction

Taxpayers can choose to itemize certain deductions on Schedule A or take the standard deduction based on their filing status instead. Itemizing deductions when the total will be larger than the standard deduction saves tax, but it makes filing more complicated.

The TCJA nearly doubles the standard deduction for 2018 to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers. (These amounts will be adjusted for inflation for 2019 through 2025.)

 

For some taxpayers, the increased standard deduction could compensate for the elimination of the exemptions, and perhaps even provide some additional tax savings. But for those with many dependents or who itemize deductions, these changes might result in a higher tax bill — depending in part on the extent to which they can benefit from enhancements to the child credit.

Child credit

Credits can be more powerful than exemptions and deductions because they reduce taxes dollar-for-dollar, rather than just reducing the amount of income subject to tax. For 2018 through 2025, the TCJA doubles the child credit to $2,000 per child under age 17.

 

The new law also makes the child credit available to more families than in the past. For 2018 through 2025, the credit doesn’t begin to phase out until adjusted gross income exceeds $400,000 for joint filers or $200,000 for all other filers, compared with the 2017 phaseout thresholds of $110,000 for joint filers, $75,000 for singles and heads of households, and $55,000 for marrieds filing separately. The TCJA also includes, for 2018 through 2025, a $500 tax credit for qualifying dependents other than qualifying children.

Assessing the impact

Many factors will influence the impact of the TCJA on your tax liability for 2018 and beyond. For help assessing the impact on your situation, contact us.

 

 

 

Installment Sales: A Viable Option for Transferring Assets

Are you considering transferring real estate, a family business or other assets you expect to appreciate dramatically in the future? If so, an installment sale may be a viable option. Its benefits include the ability to freeze asset values for estate tax purposes and remove future appreciation from your taxable estate.

Giving away vs. selling

From an estate planning perspective, if you have a taxable estate it’s usually more advantageous to give property to your children than to sell it to them. By gifting the asset you’ll be depleting your estate and thereby reducing potential estate tax liability, whereas in a sale the proceeds generally will be included in your taxable estate.

 

But an installment sale may be desirable if you’ve already used up your $11.18 million (for 2018) lifetime gift tax exemption or if your cash flow needs preclude you from giving the property away outright. When you sell property at fair market value to your children or other loved ones rather than gifting it, you avoid gift taxes on the transfer and freeze the property’s value for estate tax purposes as of the sale date. All future appreciation benefits the buyer and won’t be included in your taxable estate.

 

Because the transaction is structured as a sale rather than a gift, your buyer must have the financial resources to buy the property. But by using an installment note, the buyer can make the payments over time. Ideally, the purchased property will generate enough income to fund these payments.

Advantages and disadvantages

An advantage of an installment sale is that it gives you the flexibility to design a payment schedule that corresponds with the property’s cash flow, as well as with your and your buyer’s financial needs. You can arrange for the payments to increase or decrease over time, or even provide for interest-only payments with an end-of-term balloon payment of the principal.

 

One disadvantage of an installment sale over strategies that involve gifted property is that you’ll be subject to tax on any capital gains you recognize from the sale. Fortunately, you can spread this tax liability over the term of the installment note. As of this writing, the long-term capital gains rates are 0%, 15% or 20%, depending on the amount of your net long-term capital gains plus your ordinary income.

 

Also, you’ll have to charge interest on the note and pay ordinary income tax on the interest payments. IRS guidelines provide for a minimum rate of interest that must be paid on the note. On the bright side, any capital gains and ordinary income tax you pay further reduces the size of your taxable estate.

Simple technique, big benefits

An installment sale is an approach worth exploring for business owners, real estate investors and others who have gathered high-value assets. It can help keep a family-owned business in the family or otherwise play an important role in your estate plan.

 

Bear in mind, however, that this simple technique isn’t right for everyone. Our firm can review your situation and help you determine whether an installment sale is a wise move for you.

 

 

A Tax Cuts and Jobs Act checklist for 2019

By Mark Luscombe

 

The Tax Cuts and Jobs Act brought about many changes for the 2019 tax return filing season. There are so many changes that there was concern about possible delays to the start of the filing season as the Internal Revenue Service works to update software, forms, instructions, and publications with restricted resources. The IRS has still expressed optimism that the filing season will start on time. The new postcard Form 1040 may look simplified at first glance, but a look at the new schedules accompanying the form will soon disabuse you of that notion. 

The following is a checklist of changes to watch out and prepare for this filing season.

 

The increase in the standard deduction likely means that many more taxpayers will be better off with the standard deduction in 2018. That will mean simplification for many more taxpayers, but they still may not be happy if they did not know about it and did not prepare for the loss of itemized deductions during 2018.

Medical expense deduction

The threshold for the medical expense deduction is lowered to 7.5 percent of adjusted gross income for regular tax and Alternative Minimum Tax purposes. It reverts back to 10 percent in 2019.

The SALT cap

The state and local tax deduction is capped at $10,000. This includes both state income or sales taxes and property taxes. State efforts to do workarounds for the limit through state charitable contributions with state income tax credits may not work due to IRS proposed regulations limiting the charitable deduction to the extent of any state or local tax credits. This also impacts pre-existing state charitable contribution programs. If the taxpayer can allocate part of the SALT to a business, that portion escapes the cap.

Casualty loss

There is no casualty loss deduction unless for a federally declared disaster. The taxpayer is required to include the FEMA number and the location of property when the claiming loss deduction.

Charitable contributions

The deduction limit is increased to 60 percent of AGI. There is no deduction if the contribution secures athletic event seating rights. Taxpayers will need contemporaneous substantiation for any contribution of $250 or more, even if the charity has reported contribution to IRS.

Mortgage interest deduction

Be careful of any mortgage modification that included cash out, even if just for closing costs – it may result in loss of the grandfathered $1 million debt limit and become a $750,000 debt limit. No home equity interest deduction can be claimed unless the taxpayer can document the expenses to buy, build or improve the home.

Miscellaneous itemized deductions

The deduction for miscellaneous itemized deductions subject to the 2 percent of AGI floor was repealed through 2025, including unreimbursed employee business expenses, investment expenses, tax preparation fees, and hobby expenses.

The 20 percent deduction for owners of pass-through businesses

The deduction is claimed on the new Line 9 on the draft Form 1040. There is a need to determine qualified business income, and taxpayers may also need to determine if theirs is a specified service trade or business, if there are W-2 wages, and the unadjusted basis of qualified property immediately after acquisition. For owners of partnerships and S corporations, business information should be provided in Box 20 of Form K-1.

The Child Tax Credit

To claim the increased child tax credit in 2018, taxpayers will need Social Security numbers for every qualifying child.

Qualifying relative credit

There is a new $500 deduction for a qualifying relative. The taxpayer ID number is sufficient for this credit, which can apply to a child that does not qualify for the CTC.

Moving expenses

The deduction and exclusion are gone for everyone -- except members of the Armed Forces.

The Kiddie Tax

The Kiddie Tax is now taxed at the estate and trust tax rates, rather than the parents’ tax rate.

The Alternative Minimum Tax

The increase in the AMT exclusion amounts and lower regular tax rates will likely mean that fewer middle-income taxpayers will be caught by the AMT, but more higher-income taxpayers will be caught.

Carried interests

There is a new three-year holding period for carried interests to obtain long-term capital gain treatment.

The Affordable Care Act

The individual mandate is still required for 2018 -- it expires for 2019

BUSINESS CHANGES: Business expensing

There are higher expensing limits for capital purchases under Code Sec. 179 and bonus depreciation (currently 100 percent). Be careful, however – higher expensing is likely to reduce the 20 percent deduction for owners of pass-through businesses.

Business interest

There are new limits on deducting business interest based on a 30 percent of AGI limit, unless the business is under $25 million in average gross receipts.

Under $25 million in average gross receipts

Also, if the business is under $25 million in average gross receipts, it can use the cash method of accounting, has no requirement for inventories, and is exempt from the UNICAP rules. The taxpayer may need to file a Form 3115 for a change of accounting method.

NOL

There is no carryback of net operating losses to prior years unless for farming and certain insurance companies.

Entertainment and meal expenses

There is no deduction for entertainment expenses. The 50 percent deduction for meal expenses survives if the taxpayer can identify the meal expense separately from the entertainment expense.

Sexual harassment settlements

There is no deduction for sexual harassment or abuse settlements if the settlement includes a non-disclosure agreement.

Paid family and medical leave

There is a new credit for paid family and medical leave.

Transportation exclusions

Many transportation fringe benefit exclusions have been eliminated.

Sale of partnership interests

If there has been a sale of a partnership interest, partners and partnerships should check certification requirements that there is no foreign interest involved in the sale to avoid a 10 percent withholding requirement.

Attorney advanced litigation costs

There is no longer a current deduction for litigation costs advanced by an attorney.

Out-of-state sellers

Many states have implemented the Supreme Court’s Wayfair decision requiring out-of-state sellers to collect sales tax.

FOR TAX PREPARERS: Head of household filing status

Return preparer due diligence has been expanded to include head of household filing status on Form 8867.

Tax return preparation fees

The miscellaneous itemized deduction for tax return preparation fees is no longer available through 2025.

INTERNATIONAL TAXES

The changes in the international tax area are extensive and complicated, involving a shift from a world-wide tax system to a quasi-territorial tax system. It involves a new transition tax on unrepatriated foreign earnings (also applied for 2017), a tax on global intangible low-taxed income, a tax to counteract base erosion and abuse, and a deduction for foreign-derived intangible income. There are also many related changes to the foreign tax credit.

UNCERTAINTIES: Expired provisions

More than 30 tax breaks have expired for 2018 and have not yet been extended by Congress. They include many energy-related provisions and specific industry provisions. For individuals, they include the tuition and fees deduction, the mortgage insurance premium deduction, and the forgiveness of mortgage debt exclusion.

Qualified improvement property

For leasehold improvement property, retail improvement property, and restaurant property (referred to as Qualified Improvement Property under the Tax Cuts and Jobs Act), Congress apparently intended to qualify the property for immediate expensing but instead required 30-year depreciation, compared to 15-year depreciation required in the past. Congress is working on a technical correction, but it has not yet passed. The IRS is uncertain that it has authority to act given the clear statutory language. There are many other technical corrections also awaiting congressional action.

Regulations

The lack of final regulations on many changes in the Tax Cuts and Jobs Act has left taxpayers with many unanswered questions on the details of these provisions.

 

 

Trump's tax cuts have boosted bottom lines, but not much else

By Matt Townsend and Brandon Kochkodin

 

Critics of President Donald Trump’s tax law centerpiece -- slashing the corporate rate -- argued the savings wouldn’t spur big companies to expand dramatically. One year later, some key metrics show they were right.

 

For companies in the Standard & Poor’s 500 Index, the profits they’ve made from sales this year through September -- after accounting for production costs but before paying taxes -- have been flat. But their net profit margins -- which include the tax savings -- have continued to climb. If they were spending more to hire workers and build U.S. factories, those net margins would be lower.

 

Before the pitchforks come out, put yourself in the shoes of a chief executive officer of a major company. The economy is in the ninth year of an expansion that’s already one of the longest in U.S. history, and in 2018 you get a big pile of money dropped in your lap. Does expanding make sense when you’re already worried about this being the top of the economic cycle?

 

For the average CEO, it didn’t. America’s biggest companies instead chose to protect their profits by using their tax savings to offset risings costs, including for labor, transportation and imports caught up in Trump’s trade disputes. While they may be politically unpopular after the president and GOP leaders promised their tax law would unleash expansion in the U.S., analysts see those moves as prudent.

 

“They have been criticized for not investing in America, but you don’t want them to make unproductive investments at the top of the cycle,” said Tim Drayson, head of economics for Legal & General Investment Management, a money manager. The tax overhaul was a “one-off boost to earnings, whereas politicians were selling it as transformational.”

 

A slogan like “Tax cuts to save the bottom line” wouldn’t win over many voters. But that’s exactly what corporations did with the billions of dollars they received after the Republican tax law cut the corporate rate to 21 percent from 35 percent. And that helped to push the average net margin for S&P 500 firms to its highest level since at least 1990, according to data compiled by Bloomberg.

 

The benefits of the tax cuts “have gone straight to the bottom line, as we had anticipated,” Maneesh Deshpande, Barclays Plc’s head of U.S. equity and global derivatives strategy, said in a research note last month. This came at the expense of spending more on items like capital expenditures and wages, Deshpande said.

 

The Trump administration continues to defend its tax law and the associated economic benefits. During a call with reporters on Wednesday celebrating the one-year anniversary of the overhaul, Council of Economic Advisers Chairman Kevin Hassett said capital spending was on track to contribute 1 percent to economic growth this year and survey data shows companies’ spending plans over the next six months to a year are “very strong.”


S&P decline

Companies have also been spending on buybacks -- another way to puff up earnings. S&P 500 companies boosted buybacks during the first three quarters of the year by 49 percent to $577.9 billion compared to a year ago. Still, as a percentage of market value, the purchases are in line with previous years.

 

The overall effect of companies protecting profits and doing buybacks helped to drive the S&P 500 to a record high in early September, only for it to sell off amid trade tensions and recession worries. Now the index is headed for its biggest annual decline since the 2008 financial crisis.

 

Expecting companies to unleash spending just because they got a tax cut isn’t how businesses operate, despite what they might tout in press releases. They generally invest based on market conditions, not goodwill or national pride. They expand when they see growth coming and pull back when demand wanes. Within the S&P 500, cash flows are surging, but a lower percentage of that money is being spent on capital expenditures.

 

Take General Motors Co.’s response to market realities. The automaker’s plan to close U.S. factories and cut 14,000 jobs was driven by declining sales of some models and the decision to protect margins by maintaining operations in Mexico’s cheaper labor market. The automaker’s income tax expense was $366 million in the third quarter on $2.6 billion of profit, which equals a tax rate of 11.9 percent. GM has invested $22 billion in the U.S. since 2010, said spokesman Tom Henderson, who declined to provide additional comment.

 

Companies are also trying to use the tax cuts to gloss over disappointing results. After a weak third quarter, AT&T Inc. CEO Randall Stephenson tried to re-focus investors away from an unexpected loss of subscribers to big gains in cash flow, which he said would mean more money for shareholder dividends and paying down debt.

 

“If you look at the cash flows for the quarter, I feel really good about the results,” Stephenson said on Oct. 24.

 

What Stephenson might not feel so good about: If AT&T’s tax rate had remained the same, it would have paid $2.3 billion more in taxes through September of this year. That would have reduced its 20 percent gain in free cash flow to just a 1 percent increase.

 

Meanwhile, this year AT&T has boosted buybacks by 25 percent, and has also said it will spend about $22 billion on capital expenditures, which as a percentage of sales would be lower than each of the past five years. Part of the decline may be the result of acquiring a business that had fewer investment needs. An AT&T spokeswoman declined to comment.


‘Better to wait’

At home-improvement retailer Lowe’s Cos., operating margin narrowed by 20 percent this year -- but by saving $671 million in taxes, the retailer was able to boost its net margin by 5 percent. At the same time, it canceled capital projects, shuttered weak-performing stores and laid off workers -- all part of new CEO Marvin Ellison’s plan to increase profits after an activist investor pushed out his predecessor for lackluster results.

 

Still, the retailer said it plans to boost capital spending by about 30 percent next year. A Lowe’s spokeswoman declined to comment.

 

Beyond companies in the S&P 500 Index, other surveys show capital expenditures have been disappointing. Nonresidential business investment rose 2.5 percent in the third quarter, the smallest increase since the final three months of 2016. While such spending picked up in early 2018 after plodding along for years, a string of weak reports raises questions about the outlook.

 

For economist Drayson, this all goes back to the timing of the tax cuts.

 

“From a pure economy basis, it would have been better to wait until the next downturn before doing this,” Drayson said.

 

 

 

The continuing evolution of cloud accounting software

By Ted Needleman

 

Like many things, accounting performed on computers has come a long way in the last 50 years, especially recently. While many firms and clients are still using desktops, an increasing number are using those PCs to connect with applications and storage located elsewhere. And the exact location of this “elsewhere” has become less important than knowing that the companies offering these services are respectable, responsible, stable and affordable. Today, more and more firms and their clients are moving from in-house to the cloud, and this trend shows no signs of slowing down. As in past years, we’ve turned to the vendors of cloud accounting solutions for answers and insights.


Where are we going?

One of the first questions we had for the surveyed vendors was where they thought the application was going in the immediate future — the next two or so years.

 

Toward greater productivity and requiring less human interaction was an answer that we received from many of our respondents. “Over the next few years, we’re going to see more and more aspects of automation, machine learning and AI incorporated into cloud accounting systems. First, we’ll see developments rapidly shortening, and ultimately eliminating the need for going through a monthly close,” said Taylor Macdonald, senior vice president of channel sales for Sage Intacct. “Looking further down the line, we’ll see AI-enabled processes giving customers greater insight into their data, such as a continuous audit.”

 

Ben Richmond, vice president of business growth at Xero, saw change happening in three interrelated areas, starting wtih increasing automation of the processes. “While there is lots of hype, there is also tangible evidence that this new technology can positively change the way accountants, bookkeepers and small businesses work,” he said.

 

Richmond also foresees greater collaboration between accounting platforms and financial institutions: “Banks are increasingly looking to partner with innovative financial technology companies in order to meet customer expectations. Small businesses face persistent challenges accessing capital, getting paid on time, and accessing their data. Banks are increasingly receptive to working with tech companies to accelerate innovation and deliver new solutions to these age-old problems.”

 

He predicts more focus on solving the end-to-end needs of accountants: “As automation technology becomes increasingly prevalent, and data is shared more seamlessly between the core products and services that small business uses, cloud platforms will look to build the final mile of the journey by delivering end-to-end practice management solutions for accounting firms. These solutions will allow firms to fully digitize their practices. Even firms who continue to focus on traditional compliance work will have the opportunity to benefit from the cloud.”

 

Prashant Ganti, the head of product marketing for Zoho Books, agreed about the collaboration between accounting and financial institutions. He also saw cloud accounting gaining traction in the developing world because of technology-driven compliance being introduced by various governments. Factors such as online tax filing, mandatory record-keeping, and e-invoicing are playing a major role in the adoption of cloud software.

 

“The ability to easily conduct business on a global basis while simultaneously being able to transact business on a local level will be very important as organizations look for growth internationally,” is also an important area where cloud accounting will grow according to Tom Kelly, senior director of marketing and management at Oracle NetSuite.

 

Acumatica CFO Nigel LeGresley added, “We see continued momentum as still more companies move to the cloud, of course, and while cloud accounting will be dependent on the speed and completeness of that transition, some changes are already quite evident: simpler, more intuitive user interfaces, the importance of mobility, and the use of machine learning to reduce human error and repetitive manual tasks. Automated and customizable workflows will be critical as the accounting function responds to the increased speed required by a digital business.”

 

Christina Wiseman, product manager of centralized services and transitions at Thomson Reuters, sees increased functionality and productivity in other areas. “Many existing features will be more heavily used, such as the digitization of previously paper items, electronic notifications, and time clock features. We will start to see more user-friendly deployment of such features and see them used more broadly. For example, taking notifications beyond document sharing and more integrated in workflow. We’ll see much more e-commerce capabilities, in areas such as online bill payment, and merchant solutions. We’ve seen data entry reduced by integration — we’ll see more elimination of data entry by technology such as bank feeds and receipt recognition.”Positive impacts of technology for accounting professionals


Speaking of features

We asked our vendor respondents what features they are being asked to add.

 

“Today’s accountants want a one-stop shop to service all their clients and manage all their employees across their entire firm,” according to Ariege Misherghi, global leader of the accountant segment, small business self-employed group at Intuit. “We’re also finding that accountants are increasingly leveraging third-party apps to serve their clients and want the ability to easily recommend and integrate apps on behalf of their clients.”

 

Intuit is currently developing new features that will provide even more functionality, she said: “These include Project Profitability — an integration, coming soon, that connects QuickBooks Online, TSheets by QuickBooks and QuickBooks Online Payroll.” Another example, currently under development, is the integration of email with QuickBooks Online Accountant, utilizing AI and natural-language processing.

 

Sage’s McDonald noted, “Reporting and analytics are a huge focus for many of our customers. They are always looking for ways to streamline the standard reporting processes, while also gaining the ability to dig deeper into their financial data.”

 

Multi-entity reporting and multi-entity accounting are features that AccountingSuite customers are asking for, according to co-founder and COO Kurt Kunselman, along with customization of the product and the ability to work offline.

 

“Our currently most widely used features are workflow automation for bill payment, alerts, customized financials, performance analysis, and dashboards. The common features that customers are asking for are dashboards for mobile devices and customizable text notifications. AccountantsWorld is working on implementing those,” said the company’s vice president of marketing, Div Bhansali.

 

Acumatica’s LeGresly added, “We’re always receiving customer feedback and suggestions about dashboards, reporting, and analytics of ever-increasing sophistication. It seems the appetite for those features is insatiable. Our mobile app is very popular with customers and very complete, and yet we still get requests to improve it even further. Finally, again, integrations and automated workflows are in constant demand.”

 

“Customers are looking for increased user-friendly application of features that may already exist within applications and for more seamless workstreams between their applications,” said Thomson Reuters’ Wiseman. “What does that look like? Mobile apps, online bill payment, bank feeds, easy-to-understand metrics ... and notifications of required actions.”


Taking off vertically

Vendors also expect to experience significant growth in offering vertical solutions in the cloud. “It has always been a focus for Sage Intacct to not just engage with vertical markets, but micro-vertical markets. By zeroing in on a particular micro-vertical, we are able to consistently meet the needs of companies in that category,” Macdonald commented.

 

According to Oracle NetSuite’s Kelly, targeting verticals is and will continue to be a focus for the company: “NetSuite started by focusing on industries where companies were broadly similar. As we have moved forward, we now provide offerings for key verticals. We are going more in depth within verticals, or what we call micro-verticals, narrower categories with more specific needs.”

 

Not every vendor we surveyed believes that vertical applications will experience explosive growth. According to Xero’s Richmond, “I do not believe that this will be a major area of focus for the major cloud accounting platform companies. That’s because one of the core benefits of building a platform — as opposed to a specific set of products or services — is that customers have the ability to integrate the vertical-specific applications of their choice. In other words, cloud platforms can serve the broadest possible number of customers by ensuring the core platform meets needs across all verticals, as opposed to delivering a tailored experience for a specific set of industries.”


Can’t we all just work together?

We asked our vendors how they saw cloud accounting developing in terms of working with other applications.

 

Thomson Reuters’ Wiseman told us, “One of the benefits of the cloud is the promise of integrating previously disparate systems. As firms fully embrace cloud accounting, they’ll see integration growing in two ways. First, as they re-evaluate their current systems, they will look at cloud offerings with the expectation that they can combine many of their previously separate functions within applications that handle multiple functions ... . Second, APIs will continue to grow, allowing previously separated software to work together more efficiently.”

 

“There are a couple different ways cloud accounting can integrate with other apps,” Zoho’s Ganti said. “The ‘Zoho way’ is to develop software wherein all business applications and the accounting solution are part of the same bundle. This integration is out of the box, and businesses can just log in and get started. Zoho also works with all external vendors even though we provide a full suite ourselves. The other way is for the accounting system to work within an ecosystem. In this case, the user has to purchase the individual applications and set up the integrations.”

 

“There are two forces at work here,” said Oracle NetSuite’s Kelly. “In the case of true accounting, like revenue recognition or fixed assets, I expect to see these capabilities be part of the core of cloud-based accounting systems. Operationally, for example, a mobile workforce like plumbing or other services that are performed at the customers’ place of business, I expect best-of-breed applications to continue to grow. That said, it will be important to ensure customers are connected to key applications in the markets that they serve or are seeking to serve.”


Working on the blockchain gang

Asked the direction accounting technology will take in the next five or so years, one frequent answer from vendors was that it would incorporate blockchain. “We’re confident blockchain will have a major impact on accounting in the years ahead, but the reality is that it is virtually impossible to predict whether that impact will be felt within the next couple of years, or across a longer time frame,” Bhansali said.

 

Oracle NetSuite’s Kelly also doesn’t see that quick of an incorporation. “Blockchain is beginning to have an impact, but I do not see it happening as quickly and pervasively as AI,” he said. “Artificial intelligence and machine learning will have a big impact on accounting and finance, and cloud accounting suites must offer this functionality. Many bookkeeping tasks are already being impacted by AI, such as accounts payable and automated data entry and soon payroll, taxation and auditing will be performed by AI.”

 

AccountingSuite’s Kunselman views blockchain as increasingly important, but just one area where cloud accounting will move. “Blockchain accounting and supply chain will become add-ons for many of these cloud applications. The model will be cloud accounting with ‘sync’ function, a desktop app, a mobile app that looks the same, and the ability to move to private cloud and on-premise in a smooth process for growth purposes. Also, users will be able to back up their account to a digital backup hardware tool such as a USB drive or whatever the next generation is out there. Also, to take it up a notch, cloud accounting will be able to connect with 3D printers for advanced small businesses. Lastly, we will finally get to the collaborative supply chain as the security protocols for applications are enhanced.”

 

Zoho’s Ganti also had a few thoughts on the topic: “Cloud accounting will move to mid-markets and enterprises. In a few key emerging markets, ‘cloud’ will no longer be a buzzword. Conversational interfaces and machine learning are going to change the way we do accounting. Businesses that have their cloud accounting unified with other systems will realize operational efficiencies. And accounting and banking will start converging. Cloud accounting will be a key success factor in the SME finance business.”

 

Xero’s Richmond, meanwhile, sees cloud accounting becoming ever more mainstream: “I believe that one of the big trends we will see over the coming years is consolidation across the industry as cloud accounting becomes the default way practices are run. We’ll increasingly see traditional firms looking to partner with, or acquire, upstart cloud-based firms. On the one hand, this will be a defensive move. Traditional firms will understand that they are no longer the default destination for talent because cloud tools provide a much lower barrier to entry, making it possible for an ambitious accountant to start a new practice with little more than a laptop. On the other hand, it will be a proactive move, as firms see that adopting cloud tools is essential to their long-term success.”

 

Oracle NetSuite’s Kelly echoed some of these sentiments: “At some point the word ‘cloud’ will be removed from ‘cloud accounting.’ As more and more organizations holistically embrace the cloud there will no longer be a distinction of on-premise versus cloud — the result will be cloud-only!”

 

 

 

 

Treasury and IRS try to reassure taxpayers about shutdown

By Michael Cohn

 

Treasury Secretary Steven Mnuchin attempted to salve worries about the federal government’s partial shutdown amid concerns about a tanking stock market and the start of tax season.

 

“We continue to see strong economic growth in the U.S. economy with robust activity from consumers and business,” Mnuchin said in a statement Sunday. “With the government shutdown, Treasury will have critical employees to maintain its core operations at Fiscal Services, IRS and other critical functions within the department.”

 

The Treasury Department said Mnuchin had conducted a series of calls Sunday with the CEOs of the nation’s six largest banks, and they confirmed they had ample liquidity available for lending to both the consumer and business markets and all other market operations. The bank leaders also confirmed to the Treasury that they have not experienced any clearance or margin issues and that the markets continue to function properly. Nevertheless, the statement led to fresh concerns among many investors Monday morning as stock indexes continued to decline.

 

During an IRS Security Summit press conference on December 12 before the shutdown, Kenneth C. Corbin, the commissioner of the IRS’s Wage and Investment division, said the agency is still planning to open the filing season on time, although an official start date has not yet been announced as the IRS continues to adjust its systems to handle the new tax law and new tax forms.

 

“The IRS is making great progress moving towards the opening of the filing season,” said Corbin, in answer to questions from reporters about the threat of a government shutdown. “Each year, we test our programming and make sure we have the right guidance and instructions ready to go for a successful launch of the filing season. We are on track to be able to do that between January and February, and of course as soon as we have completed all of our testing, we’ll come out with a formal announcement for the opening of the filing season.”

 

With regard to the government shutdown, Corbin added, “The IRS is positioned along with Treasury to have the right personnel and staff available for us to continue with our on-time plans to be able to deliver and open the filing season, so right now we are tracking very well to have another successful filing season in 2019 as we did in 2018.”

 

Bloomberg News noted that the IRS typically issues refunds within 21 days of a tax return being filed. “If the shutdown were to extend into the filing season, or another one were to occur, refunds would be delayed, according to the agency’s shutdown plan,” wrote Laura Davison of Bloomberg News last week before the shutdown occurred. “Requests for disaster relief for victims of hurricanes or wildfires would continue to be processed, but audits would be paused.”

 

“There is a plan in place in the event that there is a loss,” said Corbin during the press conference. “That plan will have our critical staff available and ready to continue to plan for the filing season. We have flexibility within that plan, that if there are testing or other issues that may come up that we’re able to call and bring back necessary staff to make sure that they are available and able to address and open the filing season on time for 2019.”

 

The IRS's contingency plans in the event of a government shutdown were updated on Nov. 29, 2018 and can be found here.

 

 

 

The independent contractor filing blues

By Roger Russell

 

The acceleration of the due date for filing independent contractor forms with the Internal Revenue Service has put pressure on small businesses and their tax preparers.

 

Independent contractor forms, along with W-2s, are now due to the IRS by Jan. 31, 2019. The date was moved up by the PATH Act, which also moved the filing deadline for W-2s to the earlier date. The earlier date helps the IRS more efficiently verify income that individuals report on their tax returns and helps prevent fraud.

 

“States tend to follow the federal government,” said Todd Waletzki, president of the payroll division of BenefitMall, a large payroll company and the largest general agency helping brokers provide insurance benefits for small businesses.

 

“We are seeing filing deadlines being compressed, and it compels us to keep our clients informed of accelerating deadlines and help them close out year-end taxes in a timely manner,” he said. “We file employment tax returns, such as Form 921, and provide packages to our clients and their CPAs to help them file their business returns.”

 

“There used to be separate due dates, one for the payee form on January 31, and one for the IRS version due on February 28,” said Vincent O’Brien, of Vincent J. O’Brien CPA PC.

 

The earlier due date only applies if Box 7 on Form 1099-MISC is checked, according to O’Brien.

“If you have a 1099-MISC with other information, then it won’t be due on the earlier date,” he said. “That time frame compresses tax season a lot. But if you’re reporting anything other than Box 7, non-employee compensation, then the end-of-February due date still applies.”

 

“And it goes beyond that. If you pay someone other than a corporation, you are required to send them a Form 1099 for payment for their services if it amounts to more than $600,” he continued. “That would include someone like a plumber or electrician that comes to the office. If they’re organized as a corporation such as ‘Acme Plumbing Inc.,’ it wouldn’t be necessary to complete Form 1099-MISC for them, but if they’re organized as a sole proprietor you have to send the form. There are severe penalties if you don’t.”

 

The same holds true for clients of an accounting firm, O’Brien noted. “If the accounting firm is organized as a partnership or an LLC but is not incorporated, the accounting firm’s clients are supposed to send the firm a 1099 if their payments to the firm amounted to more than $600 in the aggregate during the year.”


The thorniest of issues

The classification of a worker as an independent contractor rather than a worker can be exceedingly complex, and depends on the facts and circumstances of each case. The determination is based on whether the person for whom the services are performed has the right to control how the worker performs the services.

 

“An employee is technically controlled by the employer, managing what they do, how they do it, and when they do it,” said BenefitMall’s Waletzki. “However, an independent contractor may be told what project is needed and when it’s due, but they are in control of the way they go about it.”

 

Both of these statuses have pros and cons, according to Waletzki. “Some advantages of hiring employees include the fact that the hourly wage is usually less, the employee is routinely available to work 30-plus hours a week, and can require less training. Disadvantages of hiring employees include the cost of providing benefits, consistently scheduled payment, and increased payroll paperwork.”

 

“With an independent contractor, overall cost can be less and employers are provided more flexibility when it comes to replacement and assignment,” Waletzki said. “Additionally, the independent contractor handles licensing and permits. However, some of the disadvantages include less control over the individual. Since the independent contractor’s time is their own, they can say no to a project, and have no sense of loyalty.”

 

Employers who mislabel their workers as employees escape the obligation of paying minimum wages, overtime, payroll taxes, worker’s compensation, unemployment, Social Security, health benefits, paid leave, and retirement benefits. Workers themselves benefit by being classified as independent contractors by being able to deduct certain business expenses that are not available to employees, the ability to set up their own retirement plans, and the fact that they are not subject to withholding.

 

But there are serious consequences to misclassification of a worker as an independent contractor. If the worker is determined by the IRS to be an employee, the business is liable for the taxes it neglected to withhold, in addition to the employee’s share, plus interest and penalties.

 

The filing of Form 1099-MISC helps employers protect the status of a worker as an independent contractor, according to Waletzki.

 

“Employers provide one copy to the contractor and another to the IRS. The independent contractors use the forms to keep track of their own income for tax purposes,” he said. “Since they self-pay FICA taxes, employers do not deduct any payroll taxes from contractor pay.”

The IRS has kept a close eye on this issue in the past several years, Waletzki noted.

 

“Employees tend to be more expensive than independent contractors, since the employer must withhold federal income tax and FICA taxes on the wages of the employee, pay state taxes and any benefit premiums,” he said. “None of these taxes apply to independent contractors, so employers have a financial enticement to prefer them. But they should know that misclassifying workers is bound to bring hefty penalties and fines.”

 

And it’s easy for a business or accountant to make a mistake because there is no bright-line test. The IRS has used both a 20-factor test based on common law principles, which it has condensed into a three-part test focusing on behavioral control, financial control, and the relationship of the parties. States may follow the federal tests or have their own more restrictive rules.

 

Recently, the California Supreme Court adopted a new three-part test to make the determination under California’s wage orders, which regulate wages, hours and working conditions, Waletzki said.

 

This new “ABC” test requires a company to establish three factors to classify a worker as an independent contractor:

 

  1. The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

B. The worker performs work that is outside the usual course of the hiring entity’s business; and,

C. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

 

“Prior to the ABC test, the Borello analysis was the primary consideration in determining if an employment relationship existed,” Waletzki said. “This analysis focused on whether the company has the right to control the manner and means in which the worker performs tasks and completes projects.”

 

And for those that are unsure whether certain workers are employees or independent contractors, the IRS is happy to help.

 

The request to have the IRS make the determination can be made by a firm or a worker, and is submitted on Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and income Tax Withholding.”

 

 

 

U.S. cash repatriation plunges 50%, defying Trump's tax forecast

By Laura Davison and Shobhana Chandra

 

The amount of offshore cash corporations are bringing back to the U.S. dropped sharply for a second straight quarter, falling short of the trillions of dollars President Donald Trump had promised would result from his tax overhaul.

 

Companies repatriated $92.7 billion in the July-September period, the lowest amount this year and down almost 50 percent from the previous quarter, according to data released Wednesday by the Commerce Department. U.S. corporations repatriated $294.9 billion in the first three months of 2018 and $183.7 billion in the second quarter.

 

The latest quarter’s total compares with $55.1 billion from the same period a year earlier -- before the tax law took effect. The tax overhaul signed into law by Trump last December gave companies incentives to bring money back to the U.S. by lowering the tax rate on repatriated profits.

 

The new rules set a one-time rate of 15.5 percent on cash and 8 percent on non-cash or illiquid assets. Companies pay the "deemed" tax whether or not they actually bring the assets back. Previously, firms had to pay the old 35 percent corporate rate, but only if they brought the money back to the U.S.

 

Trump has said, without specifying his source, that he expects more than $4 trillion to return to the U.S., which will help to create jobs and more investment.

 

The repatriation figures were part of a quarterly report on the current-account deficit, which widened to $124.8 billion in the July-September period from $101.2 billion. The gap is considered the broadest measure of international trade because it includes income payments and government transfers.

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The amount of cash accumulated offshore is probably closer to $2.5 trillion than $4 trillion, according to Gordon Gray, the director of fiscal policy at American Action Forum. Gray said he thought the high repatriation amounts in the first two quarters aren’t likely to be repeated -- but the levels going forward will ultimately still be greater than before the tax law.

 

Even though companies are less restricted in moving their offshore profits under the U.S. tax overhaul, corporations, in aggregate, are choosing to keep earnings in their foreign subsidiaries, a team of Morgan Stanley analysts led by Todd Castagno said in a note earlier this month.

 

“The sharp drop and trend trajectory is surprising -- and may require analysts and investors to rethink their near-term capital deployment and return expectations,” the note said.

 

It’s still unclear whether any money that is being repatriated is being used for capital expenditures, according to Kyle Pomerleau, an economist at the right-leaning Tax Foundation.

 

“A company could get an extra couple of billion from overseas, but that doesn’t change their willingness to invest the cash,” Pomerleau said. “Most analysts -- myself included -- assumed that repatriation would provide no boost in investment to begin with.”

 

The new repatriation tax has been a source of pain for some multinationals that overpaid what they owe -- a common tactic companies use to avoid penalties for paying too little. Companies, which can opt to pay the levy over eight years, had been expecting a refund for the excess amounts.

 

The Internal Revenue Service said in August that it won’t rebate any such overpayments and would only credit them to future repatriation taxes, not apply them toward other taxes due, such as corporate income. The House Rules Committee is considering a tax bill this week that would include a technical fix to the law clarifying that corporations can get refunds for the overpayments.

 

 

 

IRS issues guidance on excess business loss limitations and NOLs

By Jeff Stimpson

 

The IRS has issued guidance on excess business loss limitations and net operating losses following changes post-reform.

 

The Tax Cuts and Jobs Act modified existing tax law by limiting losses from all types of business for non-corporate taxpayers. An excess business loss is the amount by which the total deductions from all trades or businesses exceed a taxpayer’s total gross income and gains from those trades or businesses, plus $250,000 ($500,000 for a joint return).

 

Excess business losses that are disallowed are treated as a net operating loss carryover to the following taxable year. More information is available here.

 

The TCJA also modified net operating loss rules. Most taxpayers no longer have the option to carry back a NOL; for most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. Exceptions apply to certain farming losses and NOLs of insurance companies other than a life insurance company.

 

For losses arising in taxable years beginning after Dec. 31, 2017, the new law limits the NOL deduction to 80% of taxable income. More on NOL guidance is available here.

 

 

 

IRS posts shorter Form 1040 and schedules for next tax season

By Michael Cohn

 

The Internal Revenue Service has released the redesigned Form 1040, along with six related tax schedules, for next tax season after changes under the Tax Cuts and Jobs Act promised to simplify the tax preparation process.

 

While the new form is not quite postcard size, as originally promised by the Republicans in Congress who pushed through the new tax law at the end of 2017, it is considerably shorter than last year’s Form 1040. However, the size is deceiving because there are six related schedules that may or may not need to be filed along with the Form 1040, depending on the taxpayer’s circumstances. A draft version of the Form 1040 and the six schedules was posted in late June (see IRS and Treasury preview postcard-size Form 1040). After soliciting comments on the new forms and schedules, the final versions were posted this month on IRS.gov.

 

Schedule 1, Additional Income and Adjustments to Income, is for taxpayers who have to report additional income, such as capital gains, unemployment compensation, prize or award money, or gambling winnings, or who have any deductions to claim, such as student loan interest deduction, educator expenses or self-employment taxes.

 

Schedule 2, Tax, is for those who are subject to the alternative minimum tax or need to make an excess advance premium tax credit repayment.

 

Schedule 3, Nonrefundable Credits, is for taxpayers who can claim a nonrefundable credit besides the child tax credit or the credit for other dependents, such as the foreign tax credit, education credits or the general business credit.

 

Schedule 4, Other Taxes, is for taxpayers who owe other taxes, such as self-employment tax, household employment taxes, additional tax on individual retirement accounts or other qualified retirement plans and tax-favored accounts.

 

Schedule 5, Other Payments and Refundable Credits, is for taxpayers who can claim a refundable credit aside from the Earned Income Tax Credit, the American Opportunity Tax Credit or the Additional Child Tax Credit. They may also have other payments, such as an amount paid with a request for an extension to file, or they want to report excess social security tax withheld.

 

Schedule 6, Foreign Address and Third Party Designee, is for taxpayers who have a foreign address or a third-party designee other than their paid tax preparer.

The IRS has not yet announced the start of filing season when the tax forms can actually be submitted, and it will probably depend on when the partial government shutdown finally ends since the Treasury Department and the IRS are among the affected agencies (see Treasury and IRS try to reassure taxpayers about shutdown).

 

 

 

Year-end tax-planning discussions change after new tax law

By Michael Cohn

 

 

The traditional year-end tax-planning discussion that CPAs have with their clients has been upended thanks to the Tax Cuts and Jobs Act.

 

“The whole discussion agenda is different now because of the new law,” said Tim Speiss, partner-in-charge of the Personal Wealth Advisors Group at EisnerAmper in New York. “As someone that’s been a CPA for 35 years, it’s kind of odd. State income tax deductions were something that have always been a huge thing you would talk to clients about before the end of the year. You’d say, ‘Make sure you pay this before December 31 even though it’s not due until January 15.’ That’s off the table now. Yet, actually, I think the discussions now are more sophisticated. You’re talking about charity, you’re talking about estate planning, you’re talking about other things, which I think is helpful.”

 

According to EisnerAmper models, anyone earning more than $300,000 in annual gross income won’t have a much different net tax cost compared to before the legislation. One of the subjects Speiss has been discussing with wealthy clients is the use of non-grantor trusts. The law allows individuals using non-grantor trusts to itemize deductions that are no longer available to individuals. EisnerAmper has done studies and engagements to help family office clients restructure their family office trusts so they’re not subject to the 2 percent itemized deduction limitations on tax preparation fees, investment management fees and unreimbursed employee expenses.

 

“The context is rather simple,” Speiss explained. “Because non-grantor trusts, compared to grantor trusts, don’t flow though S corporations or partnerships, they don’t flow through income and deductions to individuals, and because of that, non-grantor trusts are unburdened by many of the itemized deduction limitations, 2 percent specifically, that individuals are subject to. We’ve done a number of studies for clients where we believe there are opportunities to be able to take deductions within non-grantor trusts. A closed entity like a C corporation is able to take deductions in non-grantor trusts that aren’t subject to the new limitations of the 2017 tax act that apply to individuals. That would include the types of trust expenses that are paid in connection with certain asset management functions, investment functions and investment business management functions. They could be deducted by a non-grantor trust and under the new act could not be deducted by individuals. We believe that non-grantor trusts for income tax purposes could be a very appealing structure compared to grantor trusts to improve, enhance and optimize the income tax deductions for trusts.”

 

While the tax overhaul does raise the cost of home ownership via the $10,000 cap on state and local tax deductions, Speiss isn’t seeing any change in his clients’ behavior when it comes to moving or buying additional homes.

 

“This is New York, and we have always seen and will continue to see clients that work in New York, but for domiciled residency establishment want to live in a lower tax rate state,” he said. “That will continue to be a very much investigated and desirous scenario, living in a lower tax rate state or trying to work in a lower tax rate state.”

 

Even though the Tax Cuts and Jobs Act was supposed to make the U.S. tax rate more competitive than other countries, at least for corporate taxes, some wealthy individual taxpayers are still looking to move abroad to lower their taxes. “They aren’t just looking at states. They’re looking at countries,” said Speiss. “They’re looking to establish residency in different countries. At our firm, our clients are looking at residences in a global context. If you’re a U.S. citizen you still have to pay U.S. tax wherever you live, but we represent a lot of non-U.S. citizens, so we work with them on where is the best place to establish residency to minimize their taxes.”

 

The new tax law has also changed estate planning discussions thanks to the higher estate tax exemptions.

 

“The increased estate tax exemption of $11.2 million per person is a lot of money,” said Speiss. “The continued use of traditional estate planning vehicles like family limited partnerships and charitable remainder trusts is now even more powerful with a married couple being able to save $22.4 million of assets from estate taxation. Taking advantage of well-established basic estate planning principles like discounts on limited interests, gifting strategies and valuation discounts, on top of now an $11.2 million estate tax exemption, is a huge opportunity for clients.”

 

With the higher exemption amounts, few clients will need to worry about estate taxes now, but the estate planning discussion can be broader than taxes.

 

“Estate planning remains very important, but estate planning also includes things like selecting guardians for children, selecting executors, very fundamental things which in my experience many CPAs don’t really delve into,” said Speiss. “They focus on taxation. At $22.4 million, most clients are not going to have to worry about estate tax, but what they really need to worry about is how to get assets to beneficiaries, who are the ones that should be selected as executors or fiduciaries, in other words, very rather fundamental matters. What existing techniques can we use to create valuation discounts using trusts? Clients can now gift more without a gift tax. These are things we’ve been talking to clients about since mid-2017 when we saw the legislation evolve.”

 

Besides estate taxes, many clients don’t need to talk with their CPAs about itemized tax deductions so much since the new tax law doubles the standard deduction and caps state and local tax deductions at $10,000. “I would say the elephant in the room is state income tax deductions,” said Speiss. “It’s caused a lot of additional study. It’s also caused a lot of people to say, ‘You know what? I don’t care about it anymore. If it’s not deductible, I don’t care about it because I’ve got something else more important.’”

 

 

 

10 smart end-of-year tax moves

By Mike D'Avolio

Even if your clients didn’t owe money last tax season, it’s more important than ever for them to start planning for the upcoming tax season now due to tax reform changes. Here are tips for end-of-year planning to help maximize their refunds from Intuit senior tax analyst Mike D’Avolio.

With reduced tax rates due to tax reform, clients may be seeing more money in their paycheck – and they can reduce their taxable income or tax liability by the end of the year with some of the following strategies.

 

Maxing out their retirement

• Taxpayers have until Dec. 31 to max out their 401(k) to $18,500 (or $24,500 for those 50 and over) and reduce their taxable income.


• If they are self-employed, they can contribute up to $55,000 into a SEP IRA for 2018.


• They have until the tax filing deadline to contribute up to $5,500 to their IRA ($6,500 for those 50 and over) and get a tax deduction for their contribution.

 

• They may even get a Saver’s Credit of up to $1,000 ($2,000 for those who are married filing jointly) for contributing to their retirement.

 

Donating appreciated stock

• They can supercharge the tax benefits of their generosity by donating appreciated stock or property, rather than cash.


• If they have owned the asset for more than one year, they get a double tax benefit from the donation: They can deduct the property’s market value on the date of the gift, and they avoid paying capital gains tax on the built-up appreciation.


• They must have a receipt to back up any contribution, regardless of the amount for a stock transaction.

 

Paying for college courses in advance

• If they’ve been putting off that class to boost their career, they can pay for college courses for the first quarter of next year by Dec. 31 and possibly be able to get the Lifetime Learning Credit of up to $2,000 per return.


• If they have a college student in their family, they may also be able to pay the student’s first-quarter 2019 college courses by Dec. 31 and may be able to get the American Opportunity Tax Credit up to $2,500 for the first four years of college.


• Also, don’t forget about the student loan interest deduction of up to $2,500 if they are paying on student loans.

 

Selling loser investments to offset gains

This key year-end strategy is called “loss harvesting” — selling investments such as stocks and mutual funds to realize losses. They can then use those losses to offset any taxable gains they have realized during the year – losses offset gains dollar for dollar.

If their losses are more than their gains, they can use up to $3,000 of excess loss to wipe out other income. If they have more than $3,000 in excess loss, it can be carried over to the next year.

 

Deferring income

It’s tough for employees to postpone wage and salary income, but they may be able to defer a year-end bonus into next year—as long as it is standard practice in their company to pay year-end bonuses the following year.


If they are self-employed or do freelance or consulting work, they have more leeway. Delaying billings until late December, for example, can ensure that they won’t receive payment until the next year. 


Of course, it only makes sense to defer income if the taxpayer thinks they will be in the same or a lower tax bracket next year. They don’t want to be hit with a bigger tax bill next year if additional income could push them into a higher tax bracket. If that’s likely, they may want to accelerate income into 2018, so they can pay tax on it in a lower bracket sooner, rather than in a higher bracket later.

 

Watching flexible spending accounts

Flexible spending accounts are fringe benefits that many companies offer that let employees steer part of their pay into a special account that can then be tapped to pay childcare or medical bills.

The advantage is that money that goes into the account avoids both income and Social Security taxes. The catch is the notorious “use it or lose it” rule. The taxpayer has to decide at the beginning of the year how much to contribute to the plan and, if they don’t use it all by the end of the year, they may forfeit the excess.


With year-end approaching, clients should check to see if their employer has adopted a grace period permitted by the IRS, allowing employees to spend 2018 set-aside money as late as March 15, 2019. If not, they can do what employees have always done and make a last-minute trip to the drug store, dentist or optometrist to use up the funds in their account.

 

Tax reform and itemizing

With the almost doubling of the standard deduction under the Tax Cuts and Jobs Act, taxpayers who once itemized and were also able to take additional itemized deductions such as charitable contributions may now have to take the standard deduction, but if their tax deductions are right at the max ($12,000 for single taxpayers and $24,000 for those who are married filing jointly), they can make smart moves before the end of the year:


• Donate more to charity to push themselves over the new standard deduction amount and maximize their deductions.


• Use donor-advised funds for charitable donations. An alternative to bunching donations, cleints can set up these funds and recommend how to distribute money from the fund to their favorite charity.


• Bunch their itemized deductions. Watch deductible expenses like medical expenses that are deductible at expenses over 7.5 percent of your adjusted gross income for 2018. If their medical expenses are getting close to the threshold but not quite there, they can make those doctor visits they’ve been putting off.

 

Eliminated deductions No. 1: Moving expenses.

Expenses a client paid for moving for their job were tax-deductible, but under the new tax law it is no longer tax-deductible unless they are active-duty military. They should negotiate a moving reimbursement with their employer, and also remember that they can deduct mortgage interest and property taxes (property taxes, state income, and state and local sales tax capped at $10,000 in aggregate).

 

Eliminated deductions No. 2: Dependent exemption

The dependent exemption of $4,050 is eliminated, but they shouldn’t forget that they can send their kids to camp over the holidays if they have to work and get a Child and Dependent Care Credit up to $1,050 for one child and up to $2,100 for two or more kids. Also, remember that the Child Tax Credit doubled and is now $2,000 per dependent under 17.

 

Eliminated deductions No. 3: Unreimbursed employee expenses like classes

Miscellaneous itemized deductions like unreimbursed employee expenses for classes were eliminated, but taxpayers can still take advantage of education tax credits like the American Opportunity Tax Credit up to $2,500 or the Lifetime Learning Credit up to $2,000.

 

 

 

Trump’s trust, business tax returns sought by Maryland, D.C.

By Andrew Harris and Shahien Nasiripour

 

Maryland and Washington, D.C. officials unleashed a burst of subpoenas seeking financial records that would penetrate Donald Trump’s closely guarded trust and business and reveal whether the president is profiting off foreign governments.

 

Among the investigative demands issued Tuesday to more than 30 business entities, competitors and government agencies is a request for state and federal tax returns of Trump’s personal trust and the Trump Organization.

 

The officials are seeking information about spending by foreign and domestic governments at Trump’s D.C. hotel as part of a lawsuit accusing the president of enriching himself through the White House.

 

Unless the specific requests are blocked by a court, the records could allow attorneys general in Maryland and the District of Columbia to pierce a layer of secrecy that Trump and his company have zealously guarded — namely, which governments the company is pitching for business and how much revenue Trump has generated from overseas officials while in public office.

 

The subpoenas, many of which the attorneys general publicly disclosed, come a day after a federal judge approved a schedule for the two sides to exchange documents as part of the attorneys general’s lawsuit. The suits claim Trump’s ownership of the luxury hotel violates the U.S. Constitution’s emoluments clauses because visiting government officials may be spending money there to curry favor with the president.

 

Trump Trust

Along with the Trump Organization, the attorneys general seek documents from the Donald J. Trump Revocable Trust, Trump International Hotels Management LLC and related entities. The officials also want records from the hotel’s competitors and the U.S. departments of Defense, Commerce and the Treasury, as well as the state of Maine.

 

The case is among a number of legal and political challenges to Trump’s ownership of a sprawling empire, spurring criticism from Democrats and some Republicans that Trump is seeking to profit off the presidency.

 

In winning the court’s approval to delve into Trump’s records, the D.C. and Maryland attorneys general are now entering a realm of the president’s life he once declared off limits to those probing him.

 

But that hasn’t stopped investigators. Last week, Special Counsel Robert Mueller won a guilty plea from Trump’s longtime personal lawyer, Michael Cohen, who told a judge that the then-candidate secretly sought to develop a Moscow Trump Tower until well after the 2016 Iowa primary.

 

Court Ruling

And last month New York Attorney General Barbara Underwood won a court ruling allowing the state to move forward with a lawsuit accusing the president and his three oldest children of engaging in a decade-long pattern of self-dealing and using his nonprofit’s funds for political purposes. Trump and his children have denied the allegations.

 

The attorneys general lawsuit is taking a different tack, searching for proof that Trump’s luxury hotel — just blocks from the White House — is enriching him in violation of the U.S. Constitution.

 

The lawsuit names just Trump as a defendant. But included among the many targets of the broad subpoenas are documents related to the flow of money from the hotel to the president’s pocket, the extent of foreign and domestic government business at his hotel, and steps taken to attract their dollars.

 

In addition to the tax returns, the attorneys general are seeking organizational charts, communications between the U.S. government and Trump companies, a list of hotel guests and restaurant customers employed by foreign or domestic governments, and insight into how the company calculated a $151,470 payment to the U.S. Treasury, ostensibly from foreign sources.

 

“On Feb. 22, 2018, the Trump Organization voluntarily donated to the U.S. Treasury all profits identified as being from foreign government patronage at our hotels and similar businesses,” company spokeswoman Amanda Miller said. “We intend to make a similar contribution in 2019.”

 

The attorneys general also want records about “the anticipated and actual impact of the 2016 presidential election” on the hotel’s finances, according to the subpoenas.

 

Competitors Scrutinized

The attorneys general will review competing hotels, restaurants and event spaces in Maryland and the District for evidence they’re losing customers to the president.

 

Some foreign governments have been open about spending money at Trump’s Pennsylvania Avenue hotel. The Philippines hosted an event at the hotel in June to mark the 120th anniversary of its independence. Lobbyists representing Saudi Arabia spent some $270,000 at the hotel last year as part of an effort to derail terrorism legislation, according to filings with the U.S. Justice Department.

 

Senator Bob Menendez, the top Democrat on the Senate Foreign Relations Committee, has requested information from the embassies of Kuwait, Bahrain and Azerbaijan regarding events they’ve held at Trump’s hotel since his 2016 election.

 

Justice Department lawyers last week told U.S. District Judge Peter Messitte that they’ll seek permission from an appeals court in Richmond, Virginia, to appeal and to freeze the evidence-gathering process while that review plays out.

 

The case is District of Columbia v. Trump, 17-cv-1596, U.S. District Court, District of Maryland (Greenbelt).

 

 

 

IRS provides safe harbors related to the SALT deduction

By Michael Cohn

 

The Internal Revenue Service is offering business taxpayers some safe harbors related to the state and local tax deduction that was limited under the Tax Cuts and Jobs Act, but only when they make charitable contributions.

 

The IRS released Revenue Procedure 2019-12, which provides safe harbors under section 162 of the tax code for certain payments made by a C corporation or a specified pass-through entity to, or for the use of, an organization if the C corporation or specified pass-through entity receives, or expects to receive, a state or local tax credit in return for such a payment.

 

The tax overhaul that Republicans pushed through last December limited the amount of state and local tax deductions that taxpayers could claim to $10,000, provoking howls of protest from lawmakers in so-called “Blue states” where taxes tend to be higher. Several Democratic-leaning states, such as New York, New Jersey and California, have tried to find workarounds such as setting up state-run funds where taxpayers could pay their taxes and claim them as charitable deductions, but the Treasury Department has indicated it would not allow that strategy to pass muster, at least for individual taxpayers.

 

However, it has been more open to some charitable deduction workarounds for business taxpayers, with Treasury Secretary Steven Mnuchin even reassuring businesses that contribute to school choice programs that they would be able to continue to do so (see IRS will allow contributions to state and local tax credit programs as deductible business expenses). “The IRS clarification makes clear that the longstanding rule allowing businesses to deduct payments to charities as business expenses remains unchanged under the Tax Cuts and Jobs Act,” Mnuchin said in September. “The recent proposed rule concerning the cap on state and local tax deductions has no impact on federal tax benefits for business-related donations to school choice programs.”

 

In September the Treasury and the IRS issued guidance in the form of frequently asked questions to spell out its view of the matter. “The FAQ states that the proposed regulations do not affect the availability of an ordinary and necessary business expense deduction under section 162," the IRS said in the revenue procedure it issued Friday. "Specifically, the FAQ states that a business taxpayer making a payment to a charitable or government entity described in section 170(c) is generally permitted to deduct the payment as an ordinary and necessary business expense under section 162 if the payment is made with a business purpose. The FAQ also notes that the rules permitting an ordinary and necessary business expense deduction under section 162 apply to a taxpayer engaged in carrying on a trade or business regardless of the form of the business.”

 

But since the release of the FAQ, the Treasury Department and the IRS continued to receive questions regarding the application of the proposed regulations and sections 162 and 164 to taxpayers engaged in trades or businesses. “These questions include whether payments by these taxpayers to organizations described in section 170 in return for state income, property, and other business tax credits would bear a direct relationship to the taxpayer’s trade or business, such that these payments would be considered ordinary and necessary business expenses of carrying on such trade or business under section 162(a) to the extent of the credit received or expected,” the IRS said in the guidance Friday. “To the extent a C corporation receives or expects to receive a state or local tax credit in return for a payment to an organization described in section 170(c), it is reasonable to conclude that there is a direct benefit to the C corporation’s business in the form of a reduction in the state or local taxes the C corporation would otherwise have to pay and, therefore, to the extent of the amount of the credit received or expected to be received, there is a reasonable expectation of financial return to the C corporation commensurate with the amount of the transfer."

 

The guidance also applies to pass-through entities such as S corporations. "Similarly, in the case of a business entity other than a C corporation that is regarded as separate from its owner for all federal tax purposes under section 301.7701-3 of the Procedure and Administration Regulations (pass-through entity) and that is operating a trade or business within the meaning of section 162, to the extent the credit received in return for such a payment can reduce the pass-through entity’s tax liability, it is reasonable to conclude that there is a direct benefit to the pass-through entity in the form of a reduction in the state or local taxes the entity would otherwise have to pay," said the revenue procedure. "However, under the principles of sections 702 and 1366, the deductibility of the payment must be determined at the level of the individual owners of the entity if the credit received or expected to be received will reduce a state or local income tax subject to the limitations in section 164(b)(6). Accordingly, section 3 of this revenue procedure provides a safe harbor for C corporations, and section 4 of this revenue procedure provides a separate safe harbor for specified pass-through entities described in section 4.02 this revenue procedure.”

 

The IRS has not been releasing much guidance this week because of the partial government shutdown, which applies to the Treasury Department. But an IRS spokesman said in an email that the agency is allowed to make an exception for guidance related to the Tax Cuts and Jobs Act. “As a side note, there is no Internal Revenue Bulletin number at this point due to the appropriations lapse,” he added. “The guidance itself is coming out because work related to TCJA is exempt and still allowed during the lapse.”

 

 

 

Tax-free withdrawals from a retirement plan for a disability

By Henry Montag & Brett Goldstein

 

There has been a lot of interest in 401(h) plans after an earlier article we wrote, but also many questions. Most of the questions about 401(h) plans have revolved around the fact that this is a benefit for retirees only. Most people want to know if there is anything that can be done for pre-retirement medical expenses for tax and accounting clients. The answer is yes, thanks to Section 105(c) of the tax code.

 

What is Section 105(c)?

Section 105(c) applies to amounts received under an accident and health plan. Any amount received under an accident and health plan is tax free as long as it satisfies the requirements of the section.

 

Can a retirement plan be considered an accident and health plan?

Yes. Under the incidental benefit rule, a retirement plan can be considered an accident and health plan if it contains all of the required language.

 

When can I expect a 105(c) benefit to be available to me?

Section 105(c) benefits from a retirement plan are only available before you retire. Amounts are usually distributed soon after an injury, disability or disfigurement.

 

What can a 105(c) benefit pay for?

Unlike the 401(h) plans, Section 105(c) benefits are not paid to reimburse a participant for a qualifying medical benefit. Section 105(c) benefits are paid from a retirement plan due to a disability. The disability must be permanent and calculated without reference to the number of work days missed. Once a client has received a medical diagnosis confirming a disability and/or inability to work, they can receive money from the retirement plan tax free.

 

How much would a client receive under Section 105(c)?

That would depend on the nature of their injury or disability. Disability payments must be for the loss or loss of use of a member or function of the body. Payments can also be made for a permanent disfigurement. If a client has lost sight in one eye or lost hearing in one ear, they would receive a small disability payment not to exceed your account balance in the plan. The amount they would receive would be designated in the retirement plan documents. However, if the disability was severe and they couldn’t work, they would receive 100 percent of their account balance in the retirement plan.

 

Can the tax-free 105(c) benefits be used for retirement payments?

No, the plan documents must make it impossible for the disability payments to be made for any purpose other than providing disability payments. Thus any money paid under Section 105(c) can’t be moved to an IRA or another retirement plan.

 

Can the 105(c) benefits be used for a client’s family?

Yes, any disability that a client suffers or any disfigurement they, their spouse or dependents incur can be paid tax-free from the retirement plan under 105(c). 

 

What if a client can’t work at their job, but can still do other things like light office work?

Benefits under Section 105(c) apply to the client’s job. Thus, if their disability prevented them from being a doctor, but they could teach at a local college, they would still qualify under Section105(c).

 

What are the qualification requirements? Can an employer discriminate?

No, employers may not discriminate. All full-time employees, those working 20 hours per week or more, will need to benefit under Section 105(c).

 

How much can be contributed to a 105(c) account?

The 105(c) is a benefit under the retirement plan and not an insurance policy or separate account. Thus the normal contribution maximums under a retirement plan still apply. Any vested money in the retirement plan, including rollovers from other retirement plans or IRAs, would be paid to the participant tax free under Section 105(c) if the participant had a qualifying disability. 

 

Why should a client have a 105(c) account in their retirement plan?

At least 51 million working adults in the United States are without disability insurance other than the basic coverage available through Social Security. Only 48 percent of American adults have an emergency fund to cover three months of living expenses. More than one in four Americans can expect to be out of work for at least a year due to a disability. A 105(c) account can offer a client the ability to tap into their retirement savings tax free if they have suffered a disability.

 

I have never heard of 105(c). Who else has a plan design like this?

The National Football League started a retirement plan for players in 1963. In 1976, the plan was amended to provide disability benefits. The IRS puts the information out there and there are plenty of court cases that can researched. IRS Publication 794 specifically mentions that a retirement plan can be an accident and health plans under Code Section 106. However, for the most part 105(c) and Section 106 have been ignored, largely due to the fact that people just don’t read the fine print.

 

Yes, it can be added to any 401(k), profit-sharing plan, money purchase plan or defined benefit plan. The current plan would need to be amended to incorporate the proper language. Without the required language, all distributions from a retirement plan are taxable.

 

What if a client is already disabled? Can it still be added to their retirement plan?

Yes, they can. There are no pre-existing conditions under Section 105(c). As long as they are still working, they can add Section 105(c) to their plan. Five to 10 percent of all cancer cases occur in someone who inherited a genetic mutation that increases cancer risk. About 50 percent of those who are 75 and older have disabling hearing loss and, 6.5 million Americans over age 65 have a severe visual impairment. Cancer treatments or a loss of hearing or eyesight could prevent a client from working, and they would then be able to withdraw from their retirement account under Section 105(c).

 

 

 

The 7 most important things about your website

By Hugh Duffy

 

Most accounting firms in this day and age have a website. The problem is that most websites are not created equal. Simply having a website doesn't mean the website is doing work for you. A high-quality website should act as your online business card. It should be generating new leads through SEO and acting as a working member of your marketing team.

 

I recently decided to visit over 200 accounting firm websites to identify the most common mistakes. Overall, the quality of websites in the marketplace has improved dramatically as midsized firms have really gotten on board and made sizable investments over the past two years. But, there is still much room for growth. Here is what I found and encourage you to avoid making the same mistakes.

 

1. Your website cannot be found on the search engines.

The success of every website revolves around being found on the search engines. In other words, your website needs to be near the top of the search engine results in order to generate new business for your practice. Otherwise, it's just another website that is lost in space, which is useless.

 

The vast majority of accounting websites that I have visited were not search engine optimized, which means they have very little value. You wouldn’t pay an employee who came to work and did no work — it’s the same with your website. You don’t want to pay for a website that's not getting found online.

 

2. Your phone number is not on every page.

I always laugh at accounting firm websites that make it difficult for the prospect to find your phone number — or any website in that matter. I think we’ve all been on a website before and are frustrated when we can’t easily locate the contact info. We don’t want our prospective clients to run into the same problem.

 

In many of the websites I looked at without easy-to-find phone numbers, the phone number was either in tiny print or it was difficult to find the Contact Us page, which is where most web designers bury your phone number. For most of us over the age of 40, it’s difficult to read tiny print. Make it easy for your prospects: Put your phone number on every page, make it large enough and inform them who to ask for (e.g., Call us at XXX-phone number and ask for Jeff).

 

3. Ensure the content is well written and in plain English.

The internet is an information-driven medium. Make it easy for your website visitors to determine if your firm is perfect for them. Avoid using accounting jargon as most small business owners have no idea what reviews, compilations and write-up services entail. Not to mention, most people aren't searching the internet using that type of language.

 

You also want to make your content easy to scan. Website content is very different than print content — this isn't a novel where the reader will read each and every page. On the internet, visitors tend to scan your pages rather than read them. As a result, it is important to use bulleted lists, highlighted keywords, and short paragraphs.

 

4. The graphic design, colors and photography need to flow.

We all have far too many things to read. Photography can quickly create an impression and help prospects determine if your website is worth reading further. Using a website provider who has in-house graphic designers can make the difference between a site that has well-styled imagery and graphics and one that looks like it was just pieced together. This helps to brand your firm and make the site look more professional.

 

Oh, and yes, you should also place your picture on the About Us page so prospects know what you look like. This helps you break through the anonymity of the internet and show you're a real person.

 

5. Your website should be responsive.

More internet content is consumed on mobile devices than on desktops. It's vital that your website look great on whatever device a prospect is looking at it on, be that a laptop, cellphone or desktop computer. Responsive websites are designed to look great no matter the screen size.

 

6. Answer your prospects’ questions.

Prospects using the internet to locate an accounting firm are highly goal-oriented. They visit websites because they are searching for a solution. Help them determine if your firm can address their needs.

 

7. Website navigation should be dummy proof.

Because most website visitors are impatient and very good at hitting the back button, your website navigation must be easy and intuitive. Visitors should be able to navigate to any page on the website in less than three clicks. In addition, you can't assume that website traffic will enter your website from the home page because search engines drive traffic to specific pages within your website. In other words, poor navigation on the interior pages means you are sending prospects to a dead end page.

 

 

 

SEC penalizes Hertz $16M for accounting violations

By Michael Cohn

The Securities and Exchange Commission has imposed a $16 million civil penalty on Hertz Global Holdings and its subsidiary Hertz Corporation, the car rental giant, for misstating pretax income because of accounting errors.

 

Between February 2012 and March 2014, Hertz’s public financial filings “materially misstated” the company’s pretax income because of the accounting errors in a number of business units, according to the SEC. Some of the misstated income came from errors in different accounts subject to management estimates. For example, the SEC noted that Hertz’s car rental business routinely recovers money from third parties for damages occurring during a car rental. Hertz estimated an allowance for uncollectible amounts as an offset to what it recorded as potential recoveries, but for years, Hertz’s allowance-related expenses were understated and its income was inflated because the company relied on inappropriate estimation methodologies that resulted in inadequate allowances and write-offs, according to the SEC.

 

“The inappropriate methodologies occurred within a pressured corporate environment where, in certain instances, there was an inappropriate emphasis on meeting internal budgets, business plans, and earnings estimates,” said the SEC. “Pressure also existed at times when other inadequate disclosures were filed with the Commission. For example, Hertz, consistent with the regular course of its business, routinely estimated how long it would hold cars before disposing of them and replacing them. The planned holding periods were one of the variables in the formula Hertz used to depreciate its car rental assets, and also could have impacted other aspects of Hertz’s business, such as maintenance costs.”

 

In 2013, Hertz decided to extend the holding periods of a significant part of its car rental fleet in the U.S. “That decision, and its impact on aspects of Hertz’s business, were not adequately disclosed to investors,” said the SEC. “Also in 2013, after having already revised its earnings guidance downward, Hertz reaffirmed the revised guidance publicly in November 2013 despite certain internal analysis indicating that the revised guidance had been based in part on inaccurate information and that certain recent internal estimates fell below the low end of that guidance range.”

 

In July 2015, Hertz restated its financial results for 2012, 2013 and prior periods, including some unaudited data for 2011. Including some revisions in early 2014, Hertz reduced its previously reported pretax income by $235 million, identifying 17 areas with material accounting errors across its business units.

 

Without admitting or denying the SEC’s charges, Hertz agreed to the $16 million penalty, according to the orderreleased Monday by the SEC.

 

Hertz did not immediately respond to a request for comment, but in an SEC filing Wednesday, Hertz Global Holdings and Hertz Corporation acknowledged the settlement, noting that the entire board and senior management had been replaced: “All members of the Companies’ board and senior management were replaced in the aftermath of the restatements and, in connection with the Order, HGH agreed to pay a civil penalty in the amount of $16.0 million to the SEC. Pursuant to the agreements governing the separation of Herc Holdings Inc. from HGH that occurred on June 30, 2016, Herc is responsible for 15 percent of the civil penalty, leaving HGH with a net obligation of $13.6 million. The Companies previously accrued a loss contingency of $13.6 million for this matter with respect to the quarter ended September 30, 2018.”

 

 

 

Team-building traditions that make the firm stand out

By Gerald Herter

During 2018, HMWC CPAs & Business Advisors celebrated 50 years in business serving the Southern California community and beyond. The firm has come a long way in that time. Starting with a sole practitioner pioneer opening up an office in 1968, the firm and affiliates have reached the milestone of 100 in personnel.

 

A number of factors account for success and sustainability over that period of time. CPAs often remark that their achievements stem from employing an approach that differs from their competitors. However, my years of observations tend to show that the public looks upon most CPA firms as being remarkably similar. The expectation is that all will be experts in the fundamentals of accounting, audit and tax. Consequently, in order to stand out, CPAs need to reach beyond the basics to distinguish themselves.

 

One challenge that gives international firms an advantage over smaller firms is the array of resources at their disposal. In recent years, the gap has been narrowed by the rise of associations of independent firms. HMWC is a founding member of Integra International, which has grown in 25 years to over 100 firms all over the world, serving most regions, industries and specialties.

 

Traditions are another way firms can set themselves apart. Traditions can perform a two-fold function, helping to establish a firm’s distinct persona while developing pride and loyalty among team members. Several traditions, some serious, some adventurous, and some just plain fun, have paralleled HMWC’s growth. One of the oldest and most enduring marked its 40th year in 2018: The Death March. This remarkable annual event has imparted a unique distinction to the firm. Along with more conventional accomplishments, it has helped the firm stand out in the community and the marketplace.

 

Traditions can happen in various ways, not always by plan. My wife Lori is a writer of fiction, with over 20 novels to her credit. She has lamented at times that the question most often asked when we are about to embark on an exotic vacation is: “Will you be looking for ideas for a new book on your trip?” She has to reply, “That’s not how it works for me.” While travels may be good for research, ideas come at the oddest times, and often in merely mundane circumstances. That was the case for how the Death March tradition formed as well, yet many unplanned and unexpected benefits emerged from its humble beginning.

 

It all began 50 years ago, when the firm’s founder, Robert Sterman, left his home in New York and headed west to Orange County, California to start a new life and a new firm. Ten years later, I too left my home in Chicago and headed west. For us, it was like the famous newspaperman, Horace Greeley, had said: “Go west young man, and grow up with the country.” And so, the firm got its start in Orange County, California.

 

One day shortly after I had joined the firm, a couple colleagues and I were talking about what it would be like to hike to the top of Mount Whitney in Central California, the tallest mountain in the lower 48 states. Before long, one of us said, “Let’s just do it!”

 

We knew nothing about backpacking, or hiking at high altitudes. We were terribly out of shape. But off we went. What was supposed to be a 20-mile hike to the top of Mount Whitney turned into a 45-mile death march! As we hiked out to the trail head almost half dead and never having made it to the top of the mountain, we swore we would never do that again.

 

In retrospect, as I look back, we were starting to learn important team-building lessons even then that would apply equally in business as they did on the trail. The first one was “Be prepared.”

Several months later, we had forgotten all the bad elements and just remembered this spectacular sense of being in the wilderness with these majestic mountains. Right then and there, we started to plan the “Second Annual Death March.”

 

We lowered our sights to more realistic levels. Again our objective was the High Sierra, just not as high. And our packs would be lighter. Getting in better shape was called for also. However, this time we learned the hard way that one does not hike into the High Sierra in June. Before long, with the trail and mountain pass covered with snow and ice, we realized we would not get very far and turned back, cutting the trip short. As we hiked back down, we hoped we would glean from this experience the importance of doing the research before forging ahead.

 

The third year would be the charm, or so we thought. We decided to return to the same High Sierra locale as the prior year. We would be familiar with the terrain and know to go a month later, giving the area time to thaw out. The shift in tactics worked. We were rewarded with vibrant blue lakes, snow only in the highest mountain crevices, and a stream rippling vigorously through the valley. We were so exhilarated by the scenery, that we didn’t notice until too late that we had gone three miles out of our way. The lessons learned that year were the need to have good maps and the sense to follow them closely. Back at the office we also found that thoroughly developed plans that were well monitored succeeded best.

 

Having conquered the High Sierra, we were ready to broaden our horizons the following year. The Grand Canyon beckoned us. Traversing the 24 miles from the North Rim to the South Rim was the objective. This time, halfway down, staff accountant George gave out and sat down on the trail, refusing to take another step. My partner Steve and I had to use all of our accountant’s psychological powers and encouragement to get George moving again and into camp. Fortunately, after a good night’s sleep and a layover day, George was refreshed and managed to make it back to the top under his own power. His wife Kay was there to greet us. Kay had driven the car around 200 miles to the South Rim to pick us up. On the way, she was a little too anxious and got a ticket for speeding. Lessons learned: All team members matter and follow the rules.

With mountain and canyon adventures behind us, we proceeded to river rafting, selecting the Kings River for the Fifth Annual Death March. This time I talked my wife Lori into joining us. Though not normally the adventurous type, she was a good sport, even tackling Class 4-5 rapids like a trooper. On a subsequent Death March in Yosemite National Park, she also held her own on the eight-mile trail between the Glen Aulin and May Lake High Sierra Camps.

 

One of the firm’s values is the importance of families. Family members are encouraged to join in. Just as firm members get to know colleagues in new and better ways on the trail, meeting family members also helps with the building of bonds. Families come in different sizes. My sister Karen often comes by herself, while the participants from my colleague Steve’s extended family sometimes number in the teens.

 

We don’t stop with just families. Clients and friends are welcomed as well. On a recent Death March to Yosemite, the group included four clients, two doctors and at least one pastor. All possible contingencies were covered.

Over 40 years, the Death March has taken us to many beautiful places: Yosemite, Sequoia, Zion National Park hiking in the river through the Narrows, the Grand Canyon, Crater Lake, Lassen Volcanic at places like Boiling Springs Lake, the Channel Islands where a freshly caught halibut made for a delicious dinner one night, and Banff National Park in Canada. We rafted on six different rivers, including kayaking on the Rogue River, and running the granddaddy of them all, the mighty Colorado through the Grand Canyon.

 

We’ve gone on horseback, by ship over the ocean, stayed at a lighthouse, and spent a week with a National Park ranger, who taught us how to connect with nature.

 

As amazing as the Death Marches are, they are not for everyone. Climbing steep rock faces can be unnerving, and long, challenging trails, like the Kalalau in Hawaii, can take a lot out of a person. There are some at the firm who cannot see themselves on a Death March, no matter how good the bonding and team-building experience. Even so, when asked if that can be a limiting factor for a person’s advancement, my answer was no.

 

Flexibility is another important value for the firm. The partners realize that while everyone is encouraged to go and all are welcome, the Death March does not work for everyone. Choosing not to go shouldn’t detract from a person’s advancement in any way. There are different things that get the blood flowing for different people. The firm encourages everyone to seek out those things for themselves.

 

For instance, my partner Susan, an outstanding professional, just can’t see herself on a Death March. But Susan is also an actress who stars in roles in community theater productions from time to time. That’s her outlet, her way of expressing herself and using her creativity to get out of her accounting persona for a while. Other firm members take part in a variety of pursuits like that. The firm tries to lift those up and recognize people for their own unique forms of creativity. In turn that helps develop camaraderie and retention.

 

Getting out of the office environment every so often is important for a person’s well-being. Accountants have always got “stuff” to do at the office. If it’s not one thing, it’s another. Therefore, by getting out of the office, up into the mountains or the canyons, a person is given time when on the trail, where the mind can be free from all the stresses back in the office. That’s when ideas often come and the mind clears. There may be things that couldn’t get figured out when at the office. But with the mind in a different environment out on the trail, there come these “a-ha” moments. That possibility, in itself, is a reason, no matter what is going on, to take time to get away from the busy-ness, to let the mind be creative.

 

It's also a great way to really get to know co-workers. We all have different personalities. It seems like certain types mesh together better than others. Individuals may find themselves at the office gravitating more towards those that are easier to get along with. Yet, to be most successful, they need to learn to relate to all types of people.

 

On the Death March, when out on the trail, I've found opportunities to relate to others, sometimes even with someone at the office that I've had difficulty working with. The two of us find ourselves walking along together, and there’s a totally different scenario. Out there I’m not trying to impress anyone with my business acumen. I just want to get to know people.

 

For example, one of the newer staff members, Tristan, is a computer technician. At the office he stops by if someone’s Excel isn’t working, or something like that, and fixes it. That’s great. But, at the office, I've just seen him as a necessary person to get a job done. I didn't really know Tristan. However, a couple years ago, he decided to participate in the Death March to Crater Lake. There, walking along with Tristan, I discovered that he has a wonderful personality, he’s got goals in life and enjoys doing different things.

 

I started to look at him in a totally different way and realized that each one of us is important in our own way. One time I knew a pastor who gave a benediction that included, along with a number of other things, the directive “honor all persons.” I like to keep that thought with me, that each one of us is a unique individual with a fascinating story. That is so, even in this day and age when we're so polarized with our politics that we can hardly look some people in the eye who disagree with us.

 

We need to get beyond all that. When you're out on the trail, you do get beyond. You're just enjoying nature together and the beautiful creation. It makes quite a difference.

 

Traditions can help a firm stand out. The Death March is a great one for us, since we’re situated in California, close to all these magnificent places. But there are other traditions that can work for a firm.

 

Sporting traditions are great. Whether it’s a golf tournament or running a 10K, traditions can be developed around those types of events. Charities are another. HMWC does a lot of charitable work, and has set up traditions around them. The firm supports a homeless shelter called Family Promise. Thirteen congregations each take a week a quarter, providing housing, food and support. Regularly, my partner Susan brings dinner, my wife and I help set up tents, and my partner Jodi and I stay overnight with the families. Along with the firm’s financial support buying a table for the annual gala, we roll up our sleeves and feel like we are helping that way.

 

Whatever the activity, if firm members are encouraged to take part, the outcome can become a meaningful tradition as well.

 

Another HMWC tradition that’s fun as well is known as the annual firm breakfast. The theme centers on a state of the firm report. After the busy season is over and everyone is trying to take a deep breath, the whole firm and their families go to nearby Disneyland, to spend the weekend at the Grand Californian Hotel having a good time.

 

On one of the mornings, the annual breakfast takes place where partners and managers report on firm results for the year and future plans. The managers give the report for their respective departments. A friendly competition has developed among them to try to outdo each other in giving the most entertaining presentation of how their department has done. Some use games or quizzes or questions. There is a sense of enjoyable involvement. And along the way, the managers are getting some valuable experience honing their public speaking skills.

 

The key to a successful tradition is finding something that has appeal to the firm and its location, wherever that may be. If it’s something a little different, then that can help the firm stand out. HMWC always enjoys putting out a press release each year of the latest Death March. Some noteworthy responses are forthcoming from clients and friends, which prove to be helpful. I encourage getting the word out, since the publicity is most helpful.

 

Also, know when to get out of the way and pass the baton to others. In 2008, at the annual breakfast, the firm showcased the 30th Annual Death March. Awards were given out with names such as “Swiss Family Robinson” and “The Old Gristle-ly Bear Award.”

 

That was a nostalgic occasion for me, as I had just turned over the title of Managing Partner to my successor Steve Williams. At the breakfast, I presented him with the “Taking the Firm to New Heights” award. The award turned out to be prophetic, as Steve has since done just that. His foresight and persistence have made a good example of what needed to be done to see that a tradition got off the ground and sustained itself.

 

A successful endeavor needs a champion as well. Find someone who has passion and energy for the new tradition or service. About 20 years ago, HMWC wanted to expand services provided to physicians, to go beyond just accounting and tax. Someone was needed to lead the effort. Steve again stepped forward. A substantial effort was required on his part, backed by the partners who gave him the time and money to make it happen. Within a few years, a cradle-to-grave service to health care professionals had been created. Today HMWC is the go-to firm in Southern California for healthcare services.

 

Another fun-loving tradition at the firm is the “Where in the World is the HMWC Water Bottle” contest. Each person, when hired, is issued a water bottle inscribed in green with the firm name and logo. Fierce competition erupts every year as staff scour the world looking for the most exotic places to capture a photo of the HMWC water bottle. Winners have included an elephant in Thailand drinking from the water bottle, and a fountain in Sweden filling it.

 

While a lot of factors went into HMWC’s recognition in 2008 as one of the 25 best managed firms in the USA, I like to think that the loyalty and trust built up over the years of special traditions played a role.

 

In summary, here are a few final thoughts:

• We learn from the obstacles in our path.

• A change of scenery can create an atmosphere for accessing our creative, intuitive side.

• While many factors go into building a successful team, the confidence that comes from trusting relationships forged on jointly shared wilderness adventures can have a lasting impact.

• Each experience taught us new ways to work together, depend on one another and value the special bond that deepened with each passing year.

 

The Death March tradition is chronicled in the newly released second edition of my book, From Ledgers to Ledges, Four Decades of Team Building Adventures in America’s West.

 

 

 

Mongolia’s tax collectors are the real winner in national lotto

By Terrence Edwards

 

Mongolia’s effort to get its citizens to pay taxes by enrolling them in a lottery is delivering a big payout — for the government.

 

The north Asian country between Russia and China has expanded its tax base by almost half since 2016, according to government statistics, partly by printing a lottery ticket on every retail receipt when the 10 percent value-added tax is paid. The gimmick has consumers insisting they pay the tax at the register so that they have a chance at winning a jackpot.

 

Mongolia has struggled to crack down on the so-called shadow economy — transactions made when retailers cut costs by failing to report sales to the tax office. Informal markets such as the Narantuul black market in Ulaanbaatar are filled with vendors selling everything from blenders to animal skins — much of it off-the-books. That had Mongolia’s tax authorities looking for innovative ways to grow its tax base.

 

Every receipt that comes from a purchase when VAT is paid can enter consumers into a lottery that pays out prizes from as little as 50,000 tugrik ($18.99) to jackpots that can equal thousands of dollars. In 2017, one woman won 500 million tugrik, or 500 times the average monthly household income, according to local media reports.

 

Last year, Ulaanbaatar paid out 5.05 billion tugrik in prizes to 119,254 citizens, according to the government website for the Information Technology Center of Custom, Taxation and Finance.

The National Statistics Office in a December report said a 32.7 percent expansion in VAT over the previous year was a main driver for tax revenue growth.

 

Shadow economies are tricky to pin down and estimates vary, but the IMF reckons Mongolia’s gray economy was as high as 15.9 percent of GDP in 2015.

 

To play, consumers download a smartphone app to scan bar codes printed on receipts. Taxpayers get the added bonus of a 2 percent tax refund the following year from all the receipts they’ve scanned.

 

While Mongolia isn’t the first to experiment with such a program, with governments in Europe trying similar ones, this lotto has widened the spotlight on the informal retail business in the country.

 

 

 

How to get hydrated without choking on the fire hose

By Kyle Walters

Seth Godin, the prolific blogger and marketing guru, likes to say,“Drinking from a fire hose is a really bad way to get hydration.” We’re all humans. We need water to survive. But no matter how thirsty you are, if you are getting deluged from all sides, the normal response is to walk away and say, “I’m better off thirsty.”

 

Obviously, that’s not sustainable for your personal health or your practice. With things changing so fast in the accounting world, many CPAs feel it’s like drinking from a fire hose just trying to keep up. Ask anyone who’s tried to drink out of an industrial strength fire hose: It’s painful and inefficient. Too much change can feel overwhelming, but doing without water is not an option. You need it to survive.

 

Start by breaking things down into more manageable gulps. Most CPAs see a tidal wave of change looming over them. As I’ll get to in a minute, these changes didn’t just start yesterday, but now they seem on the verge of crashing down on you. When you feel overwhelmed, the natural tendency is to hunker down and go back to your tried and true way of doing things — back to your comfort zone.

 

Unfortunately, your clients are not going to wait around for you to catch up. The key is to remember you’re running a marathon, not a sprint. You have to make small, incremental gains that won’t burn you out trying to make up a huge gap all at once. Try breaking things down into small digestible steps that will help you get just 1 percent better every day. The Japanese call that kaizen, which literally means, “change for the better.” One percent might not seem like much, but thanks to the power of compounding, it quickly adds up to a huge improvement.

 

One step at a time
 

No one’s expecting you to reinvent yourself and your practice overnight. Think about what’s coming down the pike. What tools do you and your team need to leverage? What’s going to have the biggest impact on your firm and to whom do you provide the most value?

Still feeling stuck? Go back to your core values. Ask yourself these questions:

 

• Who are the clients we serve best?

• What do they want?

• What do they really need from us?

• How do we deliver it in light of everything that is happening in our world?

 

Again, block out some time every day — even if it’s only 10 minutes — to make small improvements in your practice. Don’t succumb to analysis paralysis, decision fatigue or information overload. Pick just one thing that you’re committed to working on and keep moving every day.

 

It all goes back to crystallizing in your mind which clients you are uniquely qualified to serve and what’s the greatest value you can provide to those clients. Keep applying that logic to every challenge you face.

 

There’s never a perfect time. Do it now!

Some would say this time of year — holidays, year-end deadlines, work and family obligations, wintry weather, etc. — can be more stressful than busy season. We know there really never is a time when we aren’t stressed about something. So when’s a good time to start doing a little self-improvement? ASAP!

 

Something’s always going to be happening that could give you a reason to procrastinate about learning a positive new habit. Clients will always have questions. There’s always year-end planning to be done. There’s always going to be something going on with your family, your children, your partners or your health.

 

I know the kaizen approach may not be applicable in March. But, right now, why not ask yourself, “How can I start laying a foundation for continuous learning and incremental improvement so it becomes a habit for each us here and part of our firm’s culture?” When you really narrow down your choices, moving forward and sticking to your plan is so much easier.

 

Look at things as they are, not as you wish they were

Wouldn’t it be nice if we could just put our head downs, do our work — the same work we’ve always done for the same clients — and then go home at night? Wouldn’t it be nice if clients would continue to pay on time and we could keep raising fees a little every year and have a nice gradual upward trend in revenue? Clients would be happy, we’d be happy and we wouldn’t have to adjust our retirement projections.

 

Unfortunately, that’s not what happens in the real world.

 

You cannot just sit back and bill your clients the same thing for the same kind of work, because everything around you is changing and clients are always demanding more. As Jack Welch liked to say, “If the rate of change outside your organization is greater than the rate of change inside your organization, then soon you will not have an organization.”

 

Don’t be the frog in the pot

You may not hear an alarm going off every day, but does the water around you seem to be getting warmer? It may not be hot enough to force you out of the pot, but eventually it’s going to boil over and scald you if you don’t take action.

 

Are clients making big financial decisions without consulting you first? Are referrals from long-time clients starting to wane? Are you losing more and more talented candidates to rival firms? Are clients going elsewhere for services they didn’t realize you could deliver? It’s that slow boil that can end up being the most painful.

 

Making habits stick

This is the time of year when people start making resolutions or setting BHAGs (Big Hairy Audacious Goals) which inevitably go unfulfilled. Start reading about developing positive habits. Become more aware of your behavioral patterns. Start really small. For instance, if you want to get in better shape, don’t sign up for the marathon or cross-fit competition in your town. Commit to doing just one push-up every morning — just one. Then commit to doing one push-up three times a day. Before you know it, you’ll be telling yourself, “I’m already down on the floor; I might as well do five push-ups.” And as it starts getting easier to do five push ups, it will begin to feel weird if you don’t do your five push ups every day. That exercise habit will become ingrained in your psyche. Same goes for your business.

 

When you first sit down at your desk, block out 10 minutes a day to learn all you can about that service or technique you’ve been trying to bring in. Write something about it, read something about it or watch something about it every day. Pretty soon you’ll realize: “I’m already sitting down and working on this, I might as well spend 15 minutes instead of 10.” Then that 15 minutes becomes 20. But if you start with an unrealistic goal, say committing one full hour a day, then it’s not going to happen. It’ll be like drinking from a fire hose again.

 

Everybody’s got 10 minutes. Everyone can do one push-up a day. Once you’ve developed the habit of improvement, it will permeate all the other things that you do.

 

You can’t avoid exercise or self-improvement just because you don’t like it. You have to stick with it. But, before long, you will start liking what you see in the mirror. Now go get a drink of water. You’ve earned it. Just be sure to use the water fountain or a squeeze bottle. Don’t drink from the fire hose!

 

 

 

Art of Accounting: Happy New Year

By Edward Mendlowitz

 

Here are some suggestions of ways to feel happier in 2019.

 

  • Take off Fridays. Work a four-day week — work some extra hours each day to “pay” for the extended weekend if necessary.

 

• Reduce the mortgages on your time.  Follow my three simple rules: DINow. Touch IOnce.  Always work on your Most Important Thing first each day. DIN. TIO. MIT.

 

Time management

Drawing by Don Bloom

 

• Reduce mandatory tax season hours for your staff.

 

• Increase all your fees to at least keep you even with your increased costs.

 

• Make sure you fully fund your retirement plan.

 

• Set aside at least a half day a month for an owners’ or partners’ meeting. Plan your future deliberately. Make it the future you want. Run your practice like the business it is.

 

• Get your personal and practice’s tax returns done without extensions.

 

• Tell your spouse or partner how much you appreciate them, more often.

 

• Catch your staff people doing something good…and then tell them.

 

• Give a little more to charity. You are not here alone.

 

• Talk less. Listen more.

 

• Be nicer.

 

These are suggestions, but as I learned to do each of them, my life, outlook and fortunes have improved. I can list a couple of dozen more items, but use this as a start.

 

 

 

Why some small firms want to remain small

By Edward Mendlowitz

 

A benefit of writing these columns is the emails and calls I get from colleagues who share what they are doing. Here are some of their comments:

 

• Remaining small makes it easier to control my staff and know what they are always doing.

 

• Because I always know what my staff are doing, I don’t need to use time sheets.

 

• Since I have fewer clients, I can keep in better touch with them.

 

• When there is a screw-up, I usually find it quicker and can fix it quicker.

 

• I developed a “network” of specialists that I can call on when clients need services I cannot perform, making it easier for me to keep current with what I do know. Some of these are international tax issues, forensic investigation and business valuation consulting (as opposed to actually working on the matter), merger and acquisition consulting, cost segregation and transfer pricing studies, and due diligence assignments.

 

• I like keeping my overhead low. If I grew, the overhead at some point would jump up and that would cut into my profits…until I would eventually get enough new business to cover those added costs. That would take time and add much more pressure than I would like.

 

• Staying small keeps me from having to pay certain employee benefits.

 

• If I got larger, I would need to become completely paperless and that would increase my costs substantially.

 

• I don’t want to grow, and the next time my rent goes up, I will merge my practice into a firm that can absorb me without adding any new costs.

 

• Once I grow, I will probably need to add some partners or higher-level staff and then there will be office politics and I don’t want to get caught up in that.

 

• What I am doing is working well and I don’t want to upset the applecart…just that I would like to make a little more than I am now.

 

• I don’t want to have to account to anyone for what I am doing, and keeping it small keeps me independent.

 

• I love my interactions with clients and the work I do and do not want to get involved with the non-client work necessary when you run a firm.

 

They are all valid comments for the people who told them to me, but some I don’t agree with and I could even write lengthy columns about a few of them. However, the above comments represent reasons why some accountants remain small and, for the people who provided them, they work very well. One person’s potion is another’s poison. You can never go wrong doing what works for you.

 

There are 46,000 accounting firms and I am sure there are more than 46,000 ways of successfully running a practice. Those who provided the above comments are all successful to the extent they want or need to be.

 

Keep the comments coming. My email is emendlowitz@withum.com.

 

 

 

10 lessons to prepare your firm for the future

By Ayalla Reuven-Lelong

 

Most of the organizational processes that are connected to leadership and management were invented and created in the early years of the 20th century by people that were born in the 19th century.

 

In the current competitive environment, where change is the new normal, the ability of any accounting firm to continue and lead in the market lies in the ability to be creative and innovative — invent and reinvent itself. To do so, the senior partner and the partners must build a winning and hard-to-copy culture, which is the most important competitive advantage in the 21st century.

The culture should be based on positive relationships and trust, with a sense of a higher purpose at the heart of it, a culture in which creativity and innovation are the job of every partner, leader and employee, where partners and leaders invest time and effort to help their team members develop their personal value proposition. In such a firm, leaders and employees feel empowered and significant, and as a result, they come to work every day full of passion and enthusiasm to do their best for their clients.

 

Without a doubt, firms that don’t fully realize the importance of such a culture or ignore it will face stormy seas and troublesome realities.

Here are 10 lessons I have learned in the past 10 years while supporting senior partners in the journey of preparing their firms for the future:

 

1. Treat this process as your number one priority and be prepared to go all the way to the end.

Only senior partners who are profoundly convinced that building the firm of tomorrow is a matter of life and death for the organization and their number one priority will be able to lead a successful process. Much of the success in preparing their firm for the future lies in their own ability to lead with confidence, to convey the right messages explicitly and implicitly, and of course, to lead by example; be a role model and inspire their teams. Senior partners must take full ownership and lead this process from within. Acting as the leader of this process and evangelizing it is one of the tasks that senior partners should not delegate to anybody else.

 

The biggest mistake senior partners can make is asking the HR partner, an external consultant or any other partner to lead the process. Or, even worse, to ignore the need to strategically prepare their firm to the future, because they are afraid that someone will remove them and leave it to the next senior partner.

 

2. Become a lifelong learner and invest time to truly understand how the future of work and the future of accounting firms are going to look.

Senior partners need to let go of the mindset of “best practices” (i.e., “this is how we do things here”). They need to fully understand how technology and regulation are going to influence their business models, how the gig economy is going to shape the firm’s ability to provide a winning value proposition to its clients, and how to build a tailor-make reward system that makes people want to be part of building the firm of the future. Having a full understanding of the future of the workplace will enable senior partners, on the one hand, to identify obstacles and rapidly remove them, and on the other hand, to make smart decisions with confidence and act upon them quickly.

 

The biggest mistake senior partners can make at this stage is to jump into the process without understanding enough about the future of their profession or their workplace, and without understanding what makes a successful change management process in the new era of the workplace. Their understanding is crucial for their decision-making process and the confidence they will convey.

 

3. Become an effective CFO and CPO – take care of both the future and the present.

One of the biggest challenges of any senior partner today is to divide the firm's resources, people and money between the need of the present and the needs of the future. As CFOs (in the meaning of Chief Future Operators), senior partners must make sure they invest enough resources in preparing their firm for sustainable success in the next years, that they invest enough in new technology that is sure to influence their business model, upskill their workforce and build a winning culture. On the other hand, to be effective CPOs (Chief Present Operators), senior partners must make sure that partners, leaders and employees are able to execute and provide high-quality work and a winning value proposition to their clients. To find the right balance between the future and the present is not an easy task, especially when any investment in the future influences the yearly partners' remuneration.

 

The biggest mistake senior partners can make in this area is to have a short-sighted view, to look at their profit and conclude that everything is under control and nothing dramatic is changing. As a result, they refrain from investing enough in the future of the firm, counting on new regulations to continue and bring profits to the firm. They might even start to invest in creating the firm of tomorrow, but stop the process when they don’t have good quarterly figures.

 

4. Explain it over and over: For permanent change to occur, make partners and leaders see the need for preparing the firm for the future and understanding what is in it for them.

While establishing the case for change and discussing external and internal challenges, in every interaction with partners and leaders, senior partners need to make sure they talk about the benefits of the process for them personally. It’s not a secret that accounting firms are very challenging organizations to lead. In her book “Leading Professionals: Power, Politics and Prima Donnas,” Laura Empson states that the process of leading any professional firm is about building consensus: “Without the cooperation of senior professionals, leaders of professional organizations will struggle to get anything done and may find themselves marginalized and removed.” The most important point is to make partners, leaders and employees realize why this process is good for them personally, so they will be willing to be open and to change their mindset and behavior. It’s important to understand that our brain is going to be open to changes and new learning processes, “specifically when it determines, by its own standards, that change would be good for it!”

 

The biggest mistake senior partners can make at this stage is to ignore this psychological aspect of the process and to try to lead by talking about the strategy, action plan and KPIs.

 

5. Try to create a process that is coherent as much as possible.

Most partners, leaders and employees today are overwhelmed by their workload and the complexity of the new reality. On the one hand, building the firm of tomorrow is more art than science, but on the other hand partners, leaders and employees need clarity. It’s important to choose an adequate transformational model that conveys your organizational story, the skills of the future, a winning culture and a winning client value proposition. Make sure everybody understands the model, the milestones and the KPIs. Make them understand in what ways this process will influence their everyday life. Create an authentic sense of urgency in order to keep it going.

 

The biggest mistake senior partners can make in this context is to believe it is enough that they and their executive committee understand the process. If people don’t fully understand the process, they will be confused and eventually go back to their old habits.

 

6. Understand the concept of Organizational Mindset and determine what is the New Mindset you would like to create.

The concept of organizational mindset refers to “the way we do things around here.” Understanding how the organizational mindset influences partners’, leaders’ and employees’ behavior is the only way to make sustainable change happen. In fact, 70 percent of change management processes fail. That’s mainly because we tend to put more emphasis on processes and behavior without understanding that the organizational mindset drives behaviors, and that behaviors support those management practices that lead to organizational success or failure. In this process, senior partners need to determine the critical few mindset shifts they wish to make in order to drive the right behaviors and make the necessary changes.

 

The biggest mistake senior partners can make at this juncture is to try to lead a change of processes and behaviors in the firm without tracing issues back to the root cause of the behaviors that shapes them – the shared mindsets.

 

7. Support partners, leaders and employees in upskilling themselves with the skills of the future, which will make this journey possible for them.

It’s not a secret that most partners and leaders were promoted due to their professional and technical skills. The new era of the workplace caught most of them unprepared to deal successfully with the complexity of their roles. Senior partners need to have a deep understanding regarding the skills and competencies that their people will need to lead in the markets. Then they need to build a tailor-made training program, together with the professional people from learning and development. They can use the Five Lands Model, which was specifically created for accountants to support partners, leaders and employees in upskilling themselves, or any other model that is tailor-made to the skills needed by accountants to be successful. Most of the leaders and employees will need to develop a growth mindset and a new set of skills in order to be able to build the firm of tomorrow.

 

The mistake senior partners can make at this stage is to assume that all partners and leaders are very talented and intelligent and that they already have the set of skills required to build the firm of tomorrow. Moreover, even if they don't possess those skills yet, they can still acquire them quickly and easily by themselves, in their free time.

 

8. Lead the process decisively, but build your dream team to support you and others in the process.

Senior partners must lead this process, but of course, they cannot do it alone. They should create their own dream team. A dream team is a small team of confidants and talented people (three to five of them) who understand “the way we are used to doing things here” doesn’t work anymore, and who share a common sense of urgency to build the firm of the future. It’s important to make sure these extremely talented players have the right values, mindset and skills, and the appetite to build the firm of the future and sustain a world-class company. Of course, it’s important to make sure that you and your dream team speak with one voice.

 

The biggest mistake senior partners can make at this stage is to try to lead such a process alone or while creating their dream team to make political choices and therefore building a team of people without the right values, mindset, and skills. Such a team will be the first obstacle to the process.

 

9. Be with your people at all times and use your emotional intelligence daily.

We are talking about one of the most exciting and challenging processes senior partners can lead during their term. Senior partners need to make sure they are wisely spending their time with their partners, leaders, and employees and support them on this journey. While being with their people, they need to use their interpersonal skills and empathy to win their hearts and minds and their buy-in. They need to pay attention to their own feelings and remember that “feelings are data,” which tell us how to behave and make good decisions. They need to make sure they regulate their emotions well enough and that they can count up to 10. They need to use their flexibility on a daily basis and make sure they know how to re-energize themselves and keep their passion.

 

The biggest mistake senior partners can make in this context is to think this process is about presentations, workshops and KPIs, without understanding that their own emotional intelligence and interaction with their people is the heart and soul of this process. Senior partners need to realize that emotional intelligence is one of the most important abilities in the fourth Industrial Revolution and use it daily in their work.

 

10. Make sure you and your people are taking care of yourselves physically, emotionally, mentally and spiritually.

The rate of change we are all facing now is not easy for any of us. Senior partners need to understand they don’t have the privilege of getting tired mentally, emotionally or physically. A tired senior partner means a tired top leadership team and, eventually, a tired organization. Without the energy of the senior partner, any organizational change will eventually die. It will be very challenging for a tired senior partner to inspire leaders and employees, build a winning culture, provide a winning value proposition for strategic clients, and deal effectively with all the obstacles on the way.

 

As no one, not even a great senior partner, is capable of running a marathon at sprint-speed, they need to proactively take care of themselves: get enough sleep, eat well, exercise and engage themselves in activities that contribute to their well-being and level of happiness. It’s not always easy for them to stop their activities and leave the office merely to care for themselves. Still, they must possess a deep realization that their level of energy has a tremendous effect on their organizational sustainability in an ever-changing reality. Moreover, senior partners need to make sure their firm’s partners, leaders and employees are doing the same.

 

The biggest mistake senior partners can make is to think that “these horses can run faster,” which means to put more and more assignments on the desk of everyone, including themselves, and believe there is no price for it. Exhausted partners, leaders and employees cannot be creative and innovative, maintain positive relationships, become lifelong learners, feel passion, and provide a winning and sustainable value proposition to their clients. They surely cannot build the firm of tomorrow. In the best case, they can survive, and in the worst case, they will eventually lose their value proposition and even damage the firm’s brand.

 

 

 

The independent contractor filing blues

By Roger Russell

 

The acceleration of the due date for filing independent contractor forms with the Internal Revenue Service has put pressure on small businesses and their tax preparers.

 

Independent contractor forms, along with W-2s, are now due to the IRS by Jan. 31, 2019. The date was moved up by the PATH Act, which also moved the filing deadline for W-2s to the earlier date. The earlier date helps the IRS more efficiently verify income that individuals report on their tax returns and helps prevent fraud.

 

“States tend to follow the federal government,” said Todd Waletzki, president of the payroll division of BenefitMall, a large payroll company and the largest general agency helping brokers provide insurance benefits for small businesses.

 

“We are seeing filing deadlines being compressed, and it compels us to keep our clients informed of accelerating deadlines and help them close out year-end taxes in a timely manner,” he said. “We file employment tax returns, such as Form 921, and provide packages to our clients and their CPAs to help them file their business returns.”

 

“There used to be separate due dates, one for the payee form on January 31, and one for the IRS version due on February 28,” said Vincent O’Brien, of Vincent J. O’Brien CPA PC.

 

The earlier due date only applies if Box 7 on Form 1099-MISC is checked, according to O’Brien.

“If you have a 1099-MISC with other information, then it won’t be due on the earlier date,” he said. “That time frame compresses tax season a lot. But if you’re reporting anything other than Box 7, non-employee compensation, then the end-of-February due date still applies.”

 

“And it goes beyond that. If you pay someone other than a corporation, you are required to send them a Form 1099 for payment for their services if it amounts to more than $600,” he continued. “That would include someone like a plumber or electrician that comes to the office. If they’re organized as a corporation such as ‘Acme Plumbing Inc.,’ it wouldn’t be necessary to complete Form 1099-MISC for them, but if they’re organized as a sole proprietor you have to send the form. There are severe penalties if you don’t.”

 

The same holds true for clients of an accounting firm, O’Brien noted. “If the accounting firm is organized as a partnership or an LLC but is not incorporated, the accounting firm’s clients are supposed to send the firm a 1099 if their payments to the firm amounted to more than $600 in the aggregate during the year.”


The thorniest of issues

The classification of a worker as an independent contractor rather than a worker can be exceedingly complex, and depends on the facts and circumstances of each case. The determination is based on whether the person for whom the services are performed has the right to control how the worker performs the services.

 

“An employee is technically controlled by the employer, managing what they do, how they do it, and when they do it,” said BenefitMall’s Waletzki. “However, an independent contractor may be told what project is needed and when it’s due, but they are in control of the way they go about it.”

 

Both of these statuses have pros and cons, according to Waletzki. “Some advantages of hiring employees include the fact that the hourly wage is usually less, the employee is routinely available to work 30-plus hours a week, and can require less training. Disadvantages of hiring employees include the cost of providing benefits, consistently scheduled payment, and increased payroll paperwork.”

 

“With an independent contractor, overall cost can be less and employers are provided more flexibility when it comes to replacement and assignment,” Waletzki said. “Additionally, the independent contractor handles licensing and permits. However, some of the disadvantages include less control over the individual. Since the independent contractor’s time is their own, they can say no to a project, and have no sense of loyalty.”

 

Employers who mislabel their workers as employees escape the obligation of paying minimum wages, overtime, payroll taxes, worker’s compensation, unemployment, Social Security, health benefits, paid leave, and retirement benefits. Workers themselves benefit by being classified as independent contractors by being able to deduct certain business expenses that are not available to employees, the ability to set up their own retirement plans, and the fact that they are not subject to withholding.

 

But there are serious consequences to misclassification of a worker as an independent contractor. If the worker is determined by the IRS to be an employee, the business is liable for the taxes it neglected to withhold, in addition to the employee’s share, plus interest and penalties.

 

The filing of Form 1099-MISC helps employers protect the status of a worker as an independent contractor, according to Waletzki.

 

“Employers provide one copy to the contractor and another to the IRS. The independent contractors use the forms to keep track of their own income for tax purposes,” he said. “Since they self-pay FICA taxes, employers do not deduct any payroll taxes from contractor pay.”

The IRS has kept a close eye on this issue in the past several years, Waletzki noted.

 

“Employees tend to be more expensive than independent contractors, since the employer must withhold federal income tax and FICA taxes on the wages of the employee, pay state taxes and any benefit premiums,” he said. “None of these taxes apply to independent contractors, so employers have a financial enticement to prefer them. But they should know that misclassifying workers is bound to bring hefty penalties and fines.”

 

And it’s easy for a business or accountant to make a mistake because there is no bright-line test. The IRS has used both a 20-factor test based on common law principles, which it has condensed into a three-part test focusing on behavioral control, financial control, and the relationship of the parties. States may follow the federal tests or have their own more restrictive rules.

 

Recently, the California Supreme Court adopted a new three-part test to make the determination under California’s wage orders, which regulate wages, hours and working conditions, Waletzki said.

 

This new “ABC” test requires a company to establish three factors to classify a worker as an independent contractor:

 

  1. The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

B. The worker performs work that is outside the usual course of the hiring entity’s business; and,

C. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

 

 “Prior to the ABC test, the Borello analysis was the primary consideration in determining if an employment relationship existed,” Waletzki said. “This analysis focused on whether the company has the right to control the manner and means in which the worker performs tasks and completes projects.”

 

And for those that are unsure whether certain workers are employees or independent contractors, the IRS is happy to help.

 

The request to have the IRS make the determination can be made by a firm or a worker, and is submitted on Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and income Tax Withholding.”

 

 

Happy Tax sues H&R Block, alleging false advertising

By Michael Cohn

 

Tax prep franchise Happy Tax has filed a lawsuit against H&R Block in a federal district court in New York, accusing the tax prep chain of false advertising.

 

Happy Tax claims H&R Block is making misleading claims by advertising that its upfront and transparent pricing is available “only from H&R Block.” Happy Tax, while a comparatively new and smaller tax prep chain, contends it has been advertising upfront and transparent pricing for its CPA-assisted tax prep services since 2015.

 

"We filed this false advertising lawsuit to stop H&R Block from intentionally and improperly misleading consumers," said Happy Tax CEO Mario Costanz in a statement, "At Happy Tax, we pride ourselves on being innovators in the tax industry and have always used our upfront, transparent pricing as a key differentiator. While I am pleased that so many in the industry continue to copy our ideas, I don’t appreciate that they are taking credit for them in misleading ways. In interviews and in their investor calls, H&R Block’s CEO has even paraphrased, almost verbatim, my statements about pricing strategies. Happy Tax has invested significant time and money into marketing our convenient, professional and transparent solution, and we will pursue all appropriate legal avenues to protect our brand from false and misleading statements and unfair competition from industry giants."

 

Happy Tax claims it is entitled to monetary damages and injunctive relief under a federal law known as the Lanham Act. It said it has previously tried to resolve the matter amicably before filing a lawsuit. The Miami Beach-based company said a hearing will be scheduled to request a preliminary injunction from the court to compel Kansas City, Missouri-based H&R Block to cease and desist from making false or misleading statements, stop any use of the false misleading promotions in all forms of media.

 

H&R Block is rejecting Happy Tax’s contentions. “We believe the claims are without merit, and do not have further comment on this pending litigation,” said spokesperson Susan Waldron.

 

 

 

IRS to waive tax penalties for underwithholding and underpayment

By Michael Cohn

 

The Internal Revenue Service said Wednesday it wouldn’t penalize many taxpayers whose tax withholding and estimated tax payments fell short last year because of changes in the withholding tables under the Tax Cuts and Jobs Act.

 

The IRS said it would generally waive the tax penalty for any taxpayer who paid at least 85 percent of their total tax liability last year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold for avoiding a penalty is 90 percent. The waiver calculation will be built into commercially available tax prep software and show up in an upcoming revision of Form 2210 and its accompanying instructions.

The relief comes after requests from the American Institute of CPAs, the National Conference of CPA Practitioners, and the top Democrat on the Senate Finance Committee (see AICPA and NCCPAP ask IRS to suspend tax penalties and Wyden asks IRS to overlook penalties for unexpected tax bills). Sen. Ron Wyden, D-Ore., cited estimates from the Government Accountability Office in a report last year that nearly 30 million taxpayers could have underwithheld their taxes after the passage of the new tax law in December 2017.

 

The relief is designed to help taxpayers who weren’t able to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act, the far-reaching tax reform law enacted in December 2017.

 

“We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig in a statement. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

 

The IRS issued Notice 2019-11 on Wednesday, providing a waiver of the addition to tax under section 6654 of the tax code for the underpayment of estimated income tax for certain individuals who would otherwise be required to make tax year 2018 estimated income tax payments on or before Jan. 15, 2019. The waiver, though, is limited to individuals whose total withholding and estimated tax payments equal or exceed 85 percent of the tax shown on the return for the 2018 taxable year.

 

The updated federal tax withholding tables that were released early last year mostly reflected the Tax Cuts and Jobs Act’s lower tax rates and doubled standard deduction. That generally meant taxpayers had less tax withheld from their pay last year and saw more money show up in their paychecks.

 

However, the withholding tables didn’t completely take into account other changes, such as the suspension of dependency exemptions and reduced itemized deductions. That meant some taxpayers paid too little in taxes last year if they didn’t properly revise the W-4 withholding form with their employer or increase their estimated tax payments. The IRS and some of its partner groups did extensive outreach and education last year to encourage taxpayers to do a “Paycheck Checkup” to avoid such a situation where they had too much or too little tax withheld when they file their tax returns.

 

While most 2018 tax filers are still expected to receive tax refunds, the IRS warned that some taxpayers will unexpectedly find out they owe additional taxes when they file their returns this year.

 

The IRS is urging everyone to check their withholding for 2019, especially anybody who is now facing an unexpected tax bill when they file. To help taxpayers get their withholding amount correct in 2019, an updated version of the IRS’s online Withholding Calculator is now available on IRS.gov.

 

Typically, a penalty applies at tax filing if too little is paid during the year. Normally, the penalty wouldn’t apply for 2018 if tax payments during the year met one of the following tests:

 

The person’s tax payments were at least 90 percent of the tax liability for 2018 or

 

The tax payments were at least 100 percent of the prior year’s tax liability, in this case from 2017. However, the 100 percent threshold increased to 110 percent if a taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return.

 

For waiver purposes only, Wednesday’s tax relief will lower the 90 percent threshold to 85 percent. That means a taxpayer won’t owe a penalty if they paid at least 85 percent of their total 2018 tax liability. If the taxpayer paid less than 85 percent, then they are not eligible for the waiver and the penalty will be calculated as it normally would be, using the 90 percent threshold.

 

Senate Finance Committee chairman Charles Grassley, R-Iowa, addressed the problems with the withholding penalty on the Senate floor on Wednesday. “A chief priority for the new withholding tables was accuracy,” he said. “Extensive analysis was done to help taxpayers get the right amount withheld from their paycheck – not too much and not too little. However, no withholding table will ever be perfect. Every taxpayer may be affected a little differently under the new law based on their personal circumstances. The IRS continues to consider whether future improvements to the withholding structure may be necessary, which I support and will be monitoring as chairman of the Finance Committee. The IRS has also embarked on an extensive campaign to alert taxpayers to check and update their withholding. This included establishing an online withholding calculator to help them determine what, if any, adjustments to their withholding may be necessary. That being said, there are still going to be some taxpayers who may discover that they were underwitheld due to changes in the law and owe tax at the end of the year. A subset of these taxpayers could be subject to a penalty tax for underpayment.”

 

He noted that Senator Wyden, the ranking Democrat on the committee, had raised the issue with IRS Commissioner Rettig earlier this month. “I generally agree with the Ranking Member and have encouraged the IRS to be lenient on penalties, especially with this first time through a filing season under the new tax law,” said Grassley. “If a taxpayer is underwitheld as a result of changes in the law – not through fault of their own – the IRS should consider what actions the agency can take to provide penalty relief. But the issue of underwitholding due to the passage of tax reform should not be exaggerated. Yes, as the Ranking Member claims in his letter to the Commissioner, it is estimated that as many as 30 million taxpayers may have had taxes underwitheld from their paychecks. But, what hasn’t been said is that 30 million is actually only a 3 percentage point increase from how many taxpayers would be underwitheld under the old law. Moreover, just because a taxpayer was underwitheld during the year does not automatically mean they will be subject to a penalty tax. Safe harbors have long been in place to protect taxpayers whose withholding is slightly off from being penalized.”

For further details on the IRS relief, see Notice 2019-11.

 

 

 

Business owners get IRS rules on 20 percent tax break

By Laura Davison and Lynnley Browning

 

Business owners — and their accountants — can rest a bit easier: the IRS has given them the long-anticipated final word on how they can claim one of the biggest perks in the 2017 Republican tax overhaul.

 

The regulations detailing the new 20 percent deduction for pass-through business owners are of critical importance to the operators of such entities, who range from mom-and-pop convenience store owners to private equity investors.

 

The regulations, issued on Friday despite a partial government shutdown that has many Internal Revenue Service employees on furlough, can cut their tax bills by up to one-fifth, but also govern what many say is one of the most complex changes in President Donald Trump’s tax law.

The IRS made a series of changes to make it simpler for businesses to determine if they can or can’t get the tax break, a senior Treasury official said on a call with reporters.

 

Veterinarians, for example, don’t qualify for the deduction, but rental real estate owners that spend at least 250 hours a year involved with the business can get the deduction, according to the IRS guidance.

 

Lobbyists had wanted Treasury to make the rules easier for taxpayers who own multiple pass-through entities. That didn’t happen, according to Brian Reardon, president of the S Corporation Association.

 

“Disappointed,” he wrote in an email. “They had a chance to broaden the tax benefit while making it much simpler for businesses to comply with, but they chose not to.” He added that for larger pass-through businesses, “these rules are going to be very complex and require a lot of planning.”

 

Filing Season Awaits

The rules make it clear that income from originating and selling mortgages is eligible for the deduction, said Alan Keller, first vice president of legislative policy at Independent Community Bankers of America, a trade and lobbying group. “That is favorable,” he said.

 

Taxpayers had been worried that they wouldn’t see final rules in time for the filing season due to the partial government shutdown, and that confusing parts of the original provision could leave them exposed to penalties plus interest on improperly reported income.

 

The agency on Friday also released a proposal clarifying that shareholders of mutual funds with real estate investment trust investments can get the deduction. That change will affect about 15 million investors, according a trade group representing REITs. The IRS is still considering whether publicly traded partnership investments held through a mutual fund will qualify for the deduction.

 

An official with the National Association of Real Estate Investment Trusts, or Nareit, said the IRS guidance was welcome news confirming that individual REIT investors through mutual funds are eligible for the same 20 percent deduction as direct investors with respect to their qualified REIT dividends.

 

The proposed regulations also provide guidance for taxpayers who hold interests in regulated investment companies, charitable remainder trusts and split-interest trusts, the IRS said in a statement.

 

The agency also put in a test for rental real estate owners to know if they can get the tax break. Property owners can get the tax break if they -- or someone they hire, such as a contractor -- spend at least 250 hours a year on the business and keep records of their activities.

 

Small Businesses

The pass-through deduction was included in the overhaul to give a tax break to businesses whose owners pay the taxes on their personal tax returns -- partnerships, limited liability companies, and S corporations. Trump and Republican leaders have said that middle-class Americans and small businesses would be the biggest beneficiaries under the $1.5 trillion tax cut.

 

All taxpayers who earn less than $157,500, or $315,000 for a married couple, can deduct 20 percent of the income they receive via pass-through businesses from their overall taxable income. If taxpayers earn above those amounts and aren’t service professionals -- such as lawyers or accountants; they must meet certain tests to take the full deduction -- the size of their deduction depends on how much they pay in employee wages or how much they’ve invested in capital like real estate.

 

For service professionals, the break fully phases out if they earn more than $207,500 if they’re single, or $415,000 if they’re married.

 

No ‘Crack and Pack’

The rules make clear that companies can’t use a tax planning technique called “crack and pack” to avoid limits on the new tax break. Professional service providers had eyed the break to get around the income limits set for owners of pass-through businesses.

 

The strategy would have allowed them to split their firms into different entities to lower their tax bills. For example, a law firm could have put all of its secretarial staff into one entity and its lawyers into another to get the full deduction on the income tied to the administrative work.

But companies with some income that qualifies and some that doesn’t can still delineate those different activities, such as through separate accounting books, to get the deduction on the eligible income. For example, banking activities qualify for the deduction but wealth management advising doesn’t, so a bank with some investment advising can separate the bookkeeping for those two units and still get the deduction on the qualifying income.

 

Simpler Record-Keeping

The deduction is limited for employers who pay low wages or hire few workers. The rules make it easier for related pass-through businesses to maximize their deduction by allowing companies to combine at the entity level or at the owner level. For example, two related businesses -- one with a lot of employees but little profit, and another with a lot of profit but few wages -- could aggregate their payroll and income to get a bigger tax break.

 

The rules retain a provision meant to simplify record-keeping if companies only have a small amount of income from ineligible activities, such as health or law. If less than 10 percent of the income is from ineligible sources, the company can still get the full deduction on all its profits.

Despite Treasury rules making it more clear how the law is implemented, the deduction isn’t available evenly, even within industries, said Mike Greenwald, a partner at accounting firm Friedman LLP. A long-time building owner may not be able to get the tax break, while newer buyers might be able to get the deduction because they’ve invested more capital in the building, he said.

 

‘Anomalous Results’

“We’re seeing a lot of anomalous results,” said Greenwald.

Donald Susswein, a pass-through tax specialist who’s a principal in the Washington National Tax unit of RSM US LLP, said the final rules allow taxpayers to choose whether to use prior proposed regulations or the final regulations when preparing their returns.

 

Ordinarily, final rules supersede earlier rules, but this time the Treasury Department made an exception because many taxpayers had already put their accountants to work for the filing season. “It’s unusual,” he said.

 

One thing the final rules didn’t clarify, Susswein said, concerns taxpayers with multiple trades and businesses held within the same entity.

 

For example, he said it’s not clear how much of a deduction would be available to an optometrist who sees patients, a service business subject to the cap, and also grinds lenses, a manufacturing business that is not.

 

Howard Wagner, a national tax services partner at Crowe LLP, said the final rules deal a blow to real estate owners involved in a popular type of lease known as a triple net lease. The term refers to property owners who lease a building to an investor but require the investor to pay for repairs and maintenance. Those property owners aren’t eligible for the deduction, he said.

 

— With assistance by Siri Bulusu

 

 

 

Business expense trends are changing

By Michael Cohn

 

The most popular business expenses are ride-sharing services like Uber and Lyft, according to a new report.

 

The report, from the expense management software company Expensify, analyzed emerging trends and patterns in business spending. Combined, the rival services made up a total of 93 percent of all expensed business rides last years. Riders in the U.S. tended to choose Uber five times more often than Lyft, but in Southeast Asia, a competing service known as Grab showed more than 200 percent growth in the past year, making it the third most frequently expensed rideshare service.

 

The report also looked at business expense patterns in other areas, such as advertising, software, printing, bikeshares and food delivery. The four fastest-growing business expense categories are advertising, software, printing, scooters and bikeshares. Advertising took the first spot, with an average growth rate of more than 250 percent across the three most popular online services: Google, Facebook and Twitter.

 

Businesses also still investing heavily in software, with spending on technologies such as Twilio, Asana, Slack, Zoom and SendGrid growing by an average of more than 180 percent over the past year. Business spending on print materials has also jumped, with business card providers Moo and Vistaprint growing 344 percent and 90 percent, respectively, in the past year.

 

Spending on employee commuting has been changing, with the scooter and bikeshare services Scoot and Lime winning the race over other two-wheeled transit apps.

 

Expensify’s Spend Trends report also looked at business expenses for meal and grocery delivery services. Business spending on meal delivery services such as Caviar, DoorDash, Grubhub and Deliveroo surged an average of 150 percent in the past year. Thanks largely to Instacart’s 450 percent growth, grocery delivery also increased significantly in 2018.

 

 

 

South Florida mansion sales surge as tax exiles seek savings

By Prashant Gopal and Jonathan Levin

 

For the past year, Florida real estate agents have been actively courting wealthy Northeasterners who took a hit from the Trump administration’s tax overhaul. Now signs are emerging that some of those disgruntled taxpayers are indeed jumping at the chance to cut their tax bill by moving to Florida.

 

Luxury sales are slowing across the country, from New York to California, but they’re rising in South Florida. Million-dollar home sales in the fourth quarter jumped 7.5 percent from a year earlier in Miami-Dade County, 17 percent in Broward County and 15 percent in Palm Beach County. In Fort Lauderdale, the median price for a luxury condo jumped 26 percent to almost $1.6 million, according to data on the top 10 percent of sales released today by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.

 

Donald Trump’s tax overhaul got Bloomington, Illinois, executive Jim Morris looking at South Florida for a $10 million-plus mansion with his own piece of beach, low property levies and no state income tax.

 

“It’s not just the weather,” he said. “The advantages of the tax code are greatly appreciated.”

While the tax advantages of relocating to Florida vary depending on income and where the people are moving from, residents of high-tax states who are able to relocate are checking it out, say local brokers. Morris, 58, said he may even bring his packaging company’s headquarters with him. Hedge fund managers, retirees and other wealthy folks from high-tax states are also looking at Florida.

 

Foreign Buyers

Real estate brokers in the state are targeting buyers from the Northeast and other parts of the country with higher property and state taxes as Latin American buyers have pulled back amid political and economic unrest at home and a plunge in their currencies against the dollar. Last year’s federal tax bill, among other changes, limits deductions for state and local tax. The savings would mainly accrue to those making more than $1 million per year.

 

“New Yorkers are the new foreign buyers in Florida,” said Jonathan Miller, president of Miller Samuel. “For people who were looking for a reason to make domicile in Florida, the new tax laws made that decision easier.”

 

The data suggest Broward and Palm Beach counties — typical destinations for Northeasterners — are outperforming majority Spanish-speaking Miami-Dade. But David Martin, developer Terra’s founder and chief executive, said to beware of distortions from a handful of high-end condominium development closings.

 

New Projects

“New projects in Broward are going to skew your statistics more than they will in Miami," he said. “All three counties are going to be benefiting from this tax migration."

 

Jorge Perez, the billionaire Related Group chief executive, said he sold 83 of the high-end condos at his Auberge Beach Residences & Spa in Fort Lauderdale last year. He added that foreign buyers are still coming to Florida and Broward County might finally be shedding its reputation as purely appealing to Americans.

 

“That spurt from international buyers has helped Fort Lauderdale a lot, because before it was purely a local and national market,” he said.

 

Michelle Noga, the agent working with Morris from Bloomington, said customers have been paying close attention to Florida residency requirements.

 

“I just finished a showing with some people from Boston,” she said of the retirees. “They want to live there for six months and one day.”

 

The tax changes have been good for the Palm Beach Hedge Fund Association, which has seen its membership swell to 1,700, increasing 10 to 15 percent over the past year, according to founder Dave Goodboy.

 

Hedge Funds

“I get phone calls on a weekly basis with people wanting to relocate here, both firms and individuals,” Goodboy said. “About 80 percent of our members are in the area. The rest are interested in coming here.”

 

Morris and his wife, Lori, began searching in Palm Beach about nine months ago. While most of his more than 400 employees work in manufacturing plants, he has been talking to the 20 employees in the company headquarters about a possible move, he said.

 

“We’re looking for the right estate — I want my own piece of beach, basically,” Morris said. “Right now, we pay a lot of state income tax.”

 

 

 

The 7 most important things about your website

By Hugh Duffy

 

Most accounting firms in this day and age have a website. The problem is that most websites are not created equal. Simply having a website doesn't mean the website is doing work for you. A high-quality website should act as your online business card. It should be generating new leads through SEO and acting as a working member of your marketing team.

 

I recently decided to visit over 200 accounting firm websites to identify the most common mistakes. Overall, the quality of websites in the marketplace has improved dramatically as midsized firms have really gotten on board and made sizable investments over the past two years. But, there is still much room for growth. Here is what I found and encourage you to avoid making the same mistakes.

 

1. Your website cannot be found on the search engines.

The success of every website revolves around being found on the search engines. In other words, your website needs to be near the top of the search engine results in order to generate new business for your practice. Otherwise, it's just another website that is lost in space, which is useless.

 

The vast majority of accounting websites that I have visited were not search engine optimized, which means they have very little value. You wouldn’t pay an employee who came to work and did no work — it’s the same with your website. You don’t want to pay for a website that's not getting found online.

 

2. Your phone number is not on every page.

I always laugh at accounting firm websites that make it difficult for the prospect to find your phone number — or any website in that matter. I think we’ve all been on a website before and are frustrated when we can’t easily locate the contact info. We don’t want our prospective clients to run into the same problem.

 

In many of the websites I looked at without easy-to-find phone numbers, the phone number was either in tiny print or it was difficult to find the Contact Us page, which is where most web designers bury your phone number. For most of us over the age of 40, it’s difficult to read tiny print. Make it easy for your prospects: Put your phone number on every page, make it large enough and inform them who to ask for (e.g., Call us at XXX-phone number and ask for Jeff).

 

3. Ensure the content is well written and in plain English.

The internet is an information-driven medium. Make it easy for your website visitors to determine if your firm is perfect for them. Avoid using accounting jargon as most small business owners have no idea what reviews, compilations and write-up services entail. Not to mention, most people aren't searching the internet using that type of language.

 

You also want to make your content easy to scan. Website content is very different than print content — this isn't a novel where the reader will read each and every page. On the internet, visitors tend to scan your pages rather than read them. As a result, it is important to use bulleted lists, highlighted keywords, and short paragraphs.

 

4. The graphic design, colors and photography need to flow.

We all have far too many things to read. Photography can quickly create an impression and help prospects determine if your website is worth reading further. Using a website provider who has in-house graphic designers can make the difference between a site that has well-styled imagery and graphics and one that looks like it was just pieced together. This helps to brand your firm and make the site look more professional.

 

Oh, and yes, you should also place your picture on the About Us page so prospects know what you look like. This helps you break through the anonymity of the internet and show you're a real person.

 

5. Your website should be responsive.

More internet content is consumed on mobile devices than on desktops. It's vital that your website look great on whatever device a prospect is looking at it on, be that a laptop, cellphone or desktop computer. Responsive websites are designed to look great no matter the screen size.

 

6. Answer your prospects’ questions.

Prospects using the internet to locate an accounting firm are highly goal-oriented. They visit websites because they are searching for a solution. Help them determine if your firm can address their needs.

 

7. Website navigation should be dummy proof.

Because most website visitors are impatient and very good at hitting the back button, your website navigation must be easy and intuitive. Visitors should be able to navigate to any page on the website in less than three clicks. In addition, you can't assume that website traffic will enter your website from the home page because search engines drive traffic to specific pages within your website. In other words, poor navigation on the interior pages means you are sending prospects to a dead end page.

 

*****Note this applies to all businesses and NOT just CPAs*****

 

 

China’s rich brace for tax raid on $24 trillion wealth pile

By Jinshan Hong

 

China’s plan to cut taxes in 2019 for the masses has the nation’s super-rich running for cover on concern the government will make up the shortfall by going after the wealthy.

 

Changes to the tax regime as of Jan. 1 mean authorities will be paying closer attention to assets and investment holdings. In a nation where personal wealth is estimated to have climbed to a record $24 trillion in 2018 — $1 trillion of which is held abroad — that potentially offers rich pickings. Anxiety over how the new rules will be enforced has already triggered a flood of Chinese clients seeking to create overseas trusts.

 

Tougher taxes at home could have implications beyond China’s shores, with the country’s wealthy having been on a buying binge in recent years, driving up prices for everything from property in Vancouver and Sydney, to famous artworks and fine wines.

 

The State Administration of Taxation didn’t respond to a faxed request for comment.

 

Here’s how the new tax rules may affect — and rein in — China’s rich:

 

Crackdown on Havens

Under the new rules, owners of offshore companies will not only pay taxes on dividends they receive but will also face levies of as much as 20 percent on corporate profits, from as low as zero previously. This has triggered a flood of rich families seeking refuge via trusts, which often shield wealthy owners from having to pay taxes unless the trusts hand out dividends. Overseas buildings or shell companies are also becoming easier to track for authorities as China embraces an international data-sharing agreement known as the Common Reporting Standard, or CRS.

 

It’s not clear how the government will utilize CRS data, especially in early 2019, but authorities may grant amnesty for a certain period for a stable transition or focus on penalizing the biggest offenders, according to Jason Mi, a partner at Ernst & Young in Beijing.

 

Closing Loopholes

In the past, the rich could avoid paying taxes on overseas earnings by acquiring a foreign passport or green card, while keeping their Chinese citizenship. But this won’t work starting in January as the government will tax global income from all holders of “hukou” household registrations — the most encompassing way of identifying a Chinese national — regardless of whether they have any additional nationalities.

 

That’s prompted many people to give up their Chinese citizenship in 2018 by surrendering their “hukou” to avoid paying taxes on foreign income from Jan. 1, according to Peter Ni, a Shanghai-based partner and tax specialist at Zhong Lun Law Firm. Starting in 2019, people surrendering Chinese citizenship will need to be audited by tax authorities first and possibly explain all their sources of income, according to Ni.

 

Reining in Gifts

Tycoons transferring assets to relatives or third parties could be subject to taxation in the new year, depending on how strictly China enforces rules on gifts, according to Ni at Zhong Lun. The levies could reach as much as 20 percent of the asset’s appreciated value, according to Ni.

 

For example, if a tycoon were to transfer overseas shares worth $1 million to his son for free, and if those shares originally cost the tycoon $100,000, the tycoon could be taxed 20 percent of the $900,000 increase in the value of those shares, or $180,000.

 

The risk of getting taxed will be higher if the recipient is a foreigner because their assets may be beyond Chinese officials’ reach, according to Ni.

 

Tougher Taxman

Tax authorities will sharpen their scrutiny of high-net-worth individuals thanks to more modern tools at their disposal, according to Ni. One is the Golden Tax System Phase III platform that’s being increasingly used to chase down people’s entire source of income. The system allows authorities to view various tax-related data, which had been scattered across various government departments, in one consolidated platform. The new system also beefs up the identification process by preventing individuals from divvying up their income across multiple sources or ID numbers to pay lower taxes.

 

But it’s not just the rich that may face a stricter tax environment. China lowered the threshold for blocking citizens with overdue taxes from leaving the country to 100,000 yuan ($14,600) from the previous threshold of 1 million yuan, according to the official Xinhua news agency.

 

Eyes on Property

Further down the road, China is preparing to introduce a property tax law that could go into effect as soon as 2020. Though the tax rate and the details remain unclear, the prospects of the tax has caused people with multiple apartments to worry and made properties a less desirable investment tool, EY’s Mi said.

 

 

 

The nuances of the 20% deduction for pass-through business income

By Dan Thrailkill

 

When the Tax Cuts and Jobs Act was passed in a whirlwind vote at the end of 2017, significant questions arose regarding implementation of the new law -- and one of the biggest sticking points was the 20 percent deduction under Section 199A. It took the IRS a little over seven months to officially comment. On Aug. 8, 2018, the IRS issued proposed regulations to help explain this deduction. The proposed regulations were a short, easy read of 184 pages.

 

The deduction will take effect in tax years starting Jan. 1, 2018, or after. Those eligible include pass-through entities (such as S corporations, LLCs, LPs, GPs, etc.), sole proprietors, and certain trusts and estates. A basic example would be for someone who owns their own business and made $100,000 in 2018. Under this example, you would get a $20,000 cash-free deduction and only pay tax on the net $80,000 of taxable income.

 

As with anything, there are always exceptions. In this case, certain exceptions apply to those who work in any of the following industries: accounting, health, law, consulting, athletics, actuarial sciences, financial services, brokerage services, performing arts, or any trade or business where the principal asset of the trade of business is the reputation or skill of one or more of its employees. These are known as “Specified Service Trades or Businesses” or SSTBs.

 

And of course, there are exceptions to the exception. The deduction is available to SSTBs whose 2018 taxable income is below $315,000 (married filing joint), and $157,500 for other taxpayers. Should a taxpayer's taxable income go above these limits, they will be subject to phase-out of the 20 percent deduction up to $415,000 (married filing joint) or $207,500 (other taxpayers).

There are limitations, however, to the 20 percent deduction even if the business is not an SSTB. If the taxpayer's income is above the higher taxable threshold and the business is not an SSTB, then the calculation is limited to:

 

  • The lesser of 20 percent of the business’s qualified income; or,
  • The greater of 50 percent of the W-2 wages of the business, or 25 percent of the W-2 wages of the business and 2.5 percent of the business’s unadjusted basis in all qualified property.

 

In these cases, W-2 wages are defined as wages subject to withholding, elective deferrals and deferred compensation paid during the tax year that contribute to the business' qualified income. Basis in qualified property is defined as tangible, depreciable property, available for use in the business at the end of the tax year and used in the production of qualified business income.

 

A not-so-basic example would look like the following: Mr. and Mrs. Smith are planning to file a joint income tax return and they have a taxable income of $800,000. Their taxable income is $500,000 of ordinary income from an S corporation that is not an SSTB. The applicable share of W-2 wages is $150,000. The unadjusted basis in the property is $400,000. In this situation, the “20 percent deduction” will be calculated as follows:

  • The lesser of 20 percent of $500,000 ($100,000); or,
  • The greater of 50 percent of W-2 wages, or 25 percent of W-2 wages and 2.5 percent unadjusted basis in property (($150,000 * 50% = $75,000) or ($150,000 * 25% = $37,500) + (400,000 * 2.5% = $10,000) = $47,500).

 

In this example the limitation is the lesser of $100,000 or $75,000; therefore, the 20 percent deduction for Mr. and Mrs. Smith will be $75,000.

 

But the biggest question of all is, what happens if the taxpayer's taxable income falls between the income limitations, if they have qualified business income, W-2 wages, unadjusted basis in property, and they are deciding to file separately from their spouse? That’s when clients need to talk to their tax advisors.

 

As you can see, this is a very complex part of the new tax law. There are many nuances within the law, and clients will be turning to their tax advisors for guidance.

 

 

 

Tax season to start Jan. 28, IRS confirms

By Daniel Hood

 

While the ongoing government shutdown had some concerned about a possible delayed start to tax season, the Internal Revenue Service confirmed Monday that it would begin processing tax returns on Jan. 28 – and issuing refunds on a regular schedule.

 

“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig in a statement.

 

In 2011, the Office of Management and Budget had directed the IRS not to pay out tax refunds during “a lapse in annual appropriations,” but this year, at the request of the Treasury Department, the OMB reviewed the rules and reversed itself.

 

“Tax refunds will go out,” the acting director of the White House Office of Management and Budget, Russell Vought, told reporters at a briefing on Monday. (See “IRS will pay refunds during shutdown, easing pressure for a deal.”)

 

As a result, the IRS will recall what it described as “a significant portion” of its furloughed workers, and plans to release more details in an updated version of its “FY2019 Lapsed Appropriations Contingency Plan” in the near future.

 

“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig in the IRS statement.

 

The complexity of the Tax Cuts and Jobs Act, which was passed in December 2017, but many of who major provisions will only begin to come into play this tax season, had led to concerns that the IRS would not be able to implement it on a timely basis.

 

The IRS noted that taxpayers who are ready to file can do so as soon as they like; software companies and tax professionals can accept and prepare returns before Jan. 28, and then submit them when the service opens its systems.

 

 

 

IRS will pay refunds during shutdown, easing pressure for a deal

By Laura Davison

 

The Internal Revenue Service will issue refunds to taxpayers even if the U.S. government shutdown extends into the filing season, a decision that may reduce political pressure on Congress and President Donald Trump to reach a deal to reopen the federal government.

 

“Tax refunds will go out,” the acting director of the White House Office of Management and Budget, Russell Vought, told reporters at a briefing on Monday.

 

In previous shutdown contingency plans, the IRS would accept tax returns during the filing season, but refunds would be delayed until the government was funded. Vought said the administration is fixing what he called a problem faced by past administrations.

 

The decision will come as a relief to many taxpayers who file their taxes as soon as the filing season begins to claim their refund checks, which averaged $2,899 last year. Within the first week of the 2018 filing season, more than 18.3 million people claimed about $12.6 billion in refunds. The IRS hasn’t yet announced the start date to file tax returns this year, but says it’s on track to begin in late January or early February.

 

The policy change also removes a major political incentive for lawmakers and the White House to reach a deal in the coming weeks. If refunds won’t be held hostage, the shutdown effects will be felt much less widely, relieving some of the strain on Congress and Trump to resolve the current impasse about how much money to spend on a border wall with Mexico.

 

No 'excruciating pressure’

If people weren’t able to get refunds there would be "excruciating pressure" on lawmakers to cut a deal, said Mark Everson, a former IRS commissioner. The calls congressional offices are receiving about the wall would morph into inquiries about why families haven’t received their refunds, he said.

 

In the past, the IRS has said it couldn’t issue refunds during a shutdown based on its interpretation of the Antideficiency Act, the rules governing what type of government work is permissible during a shutdown to protect life and property.

 

However, given the political popularity of allowing refunds to be processed during the shutdown, it’s unlikely OMB would challenge the IRS’s decision.

 

Republicans are under pressure this filing season to show taxpayers how they benefit under the new tax law. GOP leaders acknowledged they had lost the messaging battle about who benefits from the tax cuts ahead of the mid-term elections, but proponents of the law have said people will have more appreciation for it once they see how the overhaul affects them directly.

 

 

 

10 tech stories you may have missed: The rise of the IoT

By Gene Marks

 

If growing instances of malware are any indication, the Internet of Things is the next big thing, and nine other big developments that happened in technology this past month.

 

1. A startup raises $15 million to help companies develop their own customer service chatbots.

Canada-based startup Ada, which helps companies develop automated customer service tools, has raised U.S. $14 million in a series A round of funding. Founded in 2016, the company develops chatbots and related AI software to help nontechnical teams at companies set up these chatbots to manage inbound customer queries more quickly. (Source: Venture Beat)

Why this is important for your firm and your clients: Chatbots are artificial intelligence-based software that conduct conversations with unknowing users. Their benefits are significant (cost reduction for companies, quicker responses for customers) and their uses are growing. Many customer relationship management and office productivity applications are including this technology in future versions. But companies like Ada are developing easy-to-use tools for the business owner that wants to construct their own process using chatbots.

 

2. The Department of Energy has innovation funding for small businesses.

The U.S. DOE has released its second Funding Opportunity Announcement (FOA) for the Small Business Innovation Research and Small Business Technology Transfer programs for Fiscal Year 2019. The Phase I Release 2 FOA, with approximately $37 million in available funding, will provide money for innovations that address multiple R&D programs throughout the DOE. Phase I grants are six to 12 months in duration with maximum award amounts of $200,000, and Phase II grants are up to two years in duration with maximum award amounts of $1.1 million or $1.6 million, depending on the research topic. (Source: U.S. Department of Energy)

Why this is important for your clients: Many small businesses don’t realize that various federal agencies – like the Department of Energy – give out free money in the form of grants in return for developing technology that could benefit the government as well as the private sector. If a client has an early-stage technology that requires funding then it’s a good idea to look further into these programs.

3. Microsoft Teams usage passes Slack in new survey; IT pros expect its presence to double by 2020.

A new survey of 901 organizations conducted by IT network Spiceworks shows that Microsoft Teams is now being used by more organizations than its competitor Slack. The survey demonstrates how far Microsoft’s collaboration app has come in less than two years, with 21 percent of respondents saying they use Microsoft Teams versus 15 percent who use Slack. Skype for Business is still the most popular chat app, with 44 percent of organizations saying they use it. Spiceworks also projects that Microsoft Teams will double its market share by 2020, growing faster than every other chat app, including Skype for Business. (Source: Geek Wire)

Why this is important for your firm and your clients: My firm is a Microsoft partner and we’re telling all of our clients that have Office to take advantage of Teams and Skype. It’s built-in for most of our users and the capabilities are very similar -- if not more beneficial -- than using Slack (which is also a great application.). My recommendation: Hire a Microsoft consultant and get some training.

 

4. Eighty-six percent of enterprises are increasing their Internet of Things spending in 2019.

Zebra Technologies’ second annual Intelligent Enterprise Index shows that 86 percent of enterprises plan to increase their IoT spending next year. The Index also revealed that 38 percent of them have company-wide IoT deployments in production today, 67 percent are sharing data in real-time or near real-time, and 82 percent share information from their IoT solutions with employees more than once a day. Enterprises increased their investments in IoT by 4 percent in 2018 over 2017, spending an average of $4.6 million this year. One of the main reasons is the goal of digitally transforming their business models this decade. (Source: Cloud Tech News)

Why this is important for your clients: Smart companies are planning for tomorrow, and tomorrow will be an Internet of Things world. This world will incorporate sensors on machinery, equipment, manufacturing stations, inventory, pallets and trucks. It will be a world where lights turn off by themselves, heating units turn on without humans and security systems adjust to human traffic. Oh, and given the results of Zebra Technologies’ index, that tomorrow is 2019.

 

5. McAfee: Cryptomining and Internet of Things malware both rose over 70 percent in Q3 2018.

The December McAfee Labs Threats Report said that cyber-criminals are currently generating 480 new threats per minute, and Internet of Things malware rose 73 percent in the third quarter of this year. In addition, cryptocurrency mining malware was up 71 percent, even though the value of many cryptocurrencies has declined. Even worse: The McAfee report says entrepreneurial cybercriminals have new ways of evading law enforcement. (Source: Venture Beat)

Why this is important for your firm and your clients: As the popularity of digital currencies and the Internet of Things rise, so does malware associated with them. Your technology investments for 2019 should include machine-learning security software that can adapt to these changes, training for your employees and a good online backup application that can restore data if infected.

 

6. Firefox 64 brings better browser tab management and smart recommendations.

Firefox’s newest version for desktop and Android — Version 64 — launched this week, and it comes with new features for more intensive tab and extension use. (Source: The Verge)

Why this is important for your firm and your clients: According to Mozilla, your users who use the browser will now “see suggestions in regular browsing mode for new and relevant Firefox features, services, and extensions” based on how they use the web. This feature won’t work in private browsing mode and is not based on browser history. Another new feature is “enhanced tab management,” which enables users to select multiple tabs in the tab bar and group them together to move, close, bookmark, or pin them.

 

7. The Galaxy S10 could be Samsung’s last flagship with a headphone jack.

Samsung’s latest smartphone, the Galaxy A8S, is its first without a headphone jack and the first with high-end features in a mid-range device. Bloomberg reported in October that Samsung has been experimenting with prototype phones without the 3.5mm port, but since then there have been several unconfirmed reports suggesting it will be included. Customers who want to use older headphones with a Galaxy S10 will still be able to, since Samsung said it’s keeping the jack for that device. (Source: The Verge)


Why this is important for your firm and your clients: I use a Samsung and so do many of my clients. Wireless headphones are certainly growing in popularity but most of the business owners I know prefer to limit the number of devices that need charging. That said, if Samsung decides to abandon the headphone jack you and your employees are not going to have much choice.

 

8. Microsoft is building its own Chrome browser to replace Edge.

In an effort to improve web compatibility for Windows, Microsoft will soon announce that it is building its own Chromium browser to replace the default on Windows 10. The reason is that the underlying browser engine (EdgeHTML), introduced in 2015 with a redesign to replace Internet Explorer and compete with Chrome and others, has had a hard time keeping up with Chromium — so the company realizes it is finally time to move its default Windows 10 browser to Chromium. (Source: The Verge)


Why this is important for your firm and your clients: One of the reasons why Microsoft has seen so much success over the past years is its ability recognize what’s not working … and fix it. As mentioned before, my company sells and uses Microsoft products – but not Edge. Why? Because Chrome is a great browser. It’s fast, customizable and integrates most of my apps. I’m glad that Microsoft realized this and is adapting a version of Chrome for its user base. Now that will be something I’ll consider – and so should you.

 

9. Amazon to expand cashier-less technology to Whole Foods.

Former co-CEO of Whole Foods Walter Robb, who was on the board when the company was sold to Amazon in 2017, says Amazon’s push for a cashier-less experience in larger stores like Whole Foods will revolutionize retail by giving consumers more options. “This says that physical retail does matter,” Robb explains, “and it’ll make it more streamlined so it competes better with online retail.” Amazon plans to open as many as 3,000 Amazon Go locations in larger spaces within the next few years by adapting its “Just Walk Out” technology to handle high amounts of foot traffic. (Source: CNBC)


Why this is important for your clients: More and more brick and mortar retailers are discovering that technology really can replace humans. But will consumers adapt? And will they like it? If your clients are in retail, keep a close eye on Amazon, Whole Foods, Walmart and other big box stores as they test cashier-less locations. If it’s catching on, you’re going to need to make sure your retail clients are making similar tech investments to keep up.

 

10. Walmart to use robot janitors to clean stores.

Walmart said that it will have 360 “Auto-C” robots working as janitors in its stores by the end of January 2019. The robots are similar to the Zamboni machines used to clean ice rinks, only smaller. After their cleaning route is programmed by Walmart employees, the robots will be able to autonomously scrub floors and clean store aisles, with the help of sensors that allow them to safely navigate around customers and other objects in their paths. The retailer already uses robots to help manage store inventory and prepare online orders. (Source: Fox Business )

Why this is important for your clients: Technology isn’t just replacing cashiers at stores. It’s also replacing janitors and maintenance people. How much are your clients paying their cleaning service? Perhaps a robotic vacuum cleaner may help eliminate some of their time and therefore reduce costs. There are plenty of less-expensive consumer devices available that may be perfectly suitable for your small business.


Note: Some of these stories also appeared on Forbes.com.

 

 

 

IRS won’t penalize confused taxpayers following changes to code

By Allyson Versprille and Laura Davison

 

Taxpayers who miscalculated how much they’ll owe the Internal Revenue Service this year won’t get hit with penalties — up to a certain point.

 

The Treasury Department said Wednesday it won’t penalize individuals who underpaid their estimated taxes for 2018, as long as they paid 85 percent of what they owe through withholding or estimated quarterly payments.

 

The 2017 tax overhaul changed the tax brackets, expanded the child tax credit and nearly doubled the standard deduction to $24,000 for a married couple — all changes that affect how much an individual will owe in taxes this year. This is the first filing season individuals are paying taxes under the new rules.

 

Salaried workers have their taxes withheld from their paychecks. Business owners and self-employed people pay estimated taxes to the IRS quarterly. Those who still owe taxes will have to pay the IRS the additional tax they owe by April 15, the tax filing deadline, or file for a six-month extension.

 

The announcement comes after the top Republican and Democrat on the Senate Finance Committee, Chuck Grassley and Ron Wyden, urged the agency to be lenient with penalties as taxpayers adapt to the changes stemming from the tax overhaul.

 

Moments before Treasury’s announcement, Grassley took to the Senate floor to urge the IRS and Treasury to provide relief to taxpayers but to also include guardrails to prevent abuse.

“The IRS should consider what action the agency can take to provide penalty relief,” Grassley said. “But the issue of underwithholding due to the passage of tax reform should not be exaggerated.”

 

 

Trump blasted by tax workers as trying to save face with recall

By Bob Van Voris

 

Thousands of Internal Revenue Service employees are being ordered back to work, without pay, only so President Donald Trump can avoid the political embarrassment of delayed tax refunds, a federal workers’ union claimed.

 

That’s not a good enough reason, the union said in a request to a judge to block the move.

 

“IRS employees who process federal tax returns and refunds do not protect human life or property from imminent threat,” the legal standard for ordering federal employees to work without pay during a government shutdown, the National Treasury Employees Union said on Thursday, the 27th day of the shutdown.

 

The union added the new claim to a lawsuit filed last week. It had sued Office of Management and Budget Director Mick Mulvaney in an unsuccessful bid to win a temporary court order forcing the U.S. to pay its employees or let them take other jobs. In the revised complaint, the union added Treasury Secretary Steve Mnuchin as a defendant and asked the judge to block the Trump Administration’s plans to recall its sidelined members.

 

The IRS will have about 46,000 of its more than 80,000 employees at work in the coming days, according to an updated shutdown contingency plan the agency released Tuesday.

 

“The timely issuance of federal tax refunds is politically important to the president,” the union said.

 

The case is National Treasury Employees Union v. U.S., 19-cv-00050, U.S. District Court, District of Columbia (Washington).

 

 

 

It’s time for the federal government to incentivize cybersecurity

By Dror Liwer

 

It should come as no surprise to learn that cybercrime is on track to cost the global economy more than $600 billion in 2018. What is surprising, however, is that many of the organizations contributing to such economic peril are not of Fortune 1000 status, but rather they are the small and midsized businesses that drive the U.S. economic engine.

 

Today, hackers, fraudsters and cyber criminals regularly target smaller companies as larger organizations prove more difficult to breach due to the time, money and resources they have to invest in cybersecurity. A recent survey by Hiscox found that nearly half of all small businesses have experienced at least one cyberattack in the past year at an average cost of $34,604 to remediate.

 

Similarly, Symantec research concludes that 43 percent of all cyberattacks now target small business, while 6 in 10 of such businesses go out of business for good post breach.

 

Cybersecurity threats to small business

https://assets.sourcemedia.com/dims4/default/153ffcf/2147483647/resize/680x%3E/quality/90/?url=https%3A%2F%2Fassets.sourcemedia.com%2F19%2F15%2F949c71854136a65bc1321b57491c%2Ficpassecurity2018.pngThe vast majority of small businesses do not have the time, money and resources to invest in the depth of cybersecurity needed within today’s threat landscape. That’s unfortunate, as only 16 percent of small businesses report being very confident in their cybersecurity readiness, and barely half had a clearly defined cyber security strategy, according to Hiscox.

 

Today, SMBs rely primarily on outdated firewalls and consumer-grade solutions, or the limited security inherent to the cloud apps they use most. However, such confidence in cloud app security is misguided, creating a false sense of security. For a variety of reasons and unbeknown to most users, cloud apps, such as Office 365, G-Suite, Dropbox, Slack, etc., are highly vulnerable to cyberattack. With low risk and high reward for attackers, cloud apps mask as a primary attack vector on a regular basis.

 

Making cybersecurity accessible to small business

Knowing the increase in attacks targeting small businesses will not moderate anytime soon, and that the financial burden of implementing strong cybersecurity will price out many of the 30.2 million American small businesses, it’s time for the federal government to act. Offering incentives, such as tax credits or reduced costs, to small businesses to invest in cybersecurity tools could not only boost innovation and help companies acquire a much-needed safety net, but it would improve security across the entire economy.

 

With small businesses making up almost half of U.S. private sector employment, any mass increase in downtime and forced closures due to cyberattack, such as a data breach, would likely have ripple effects throughout the public and private sector. Such a reality represents a daunting proposition for what is already a fragile U.S. economy hampered by inequality, stagnant wages, and soaring debt and deficits.

 

Incentives would offer the same endgame as regulations without the stigma of companies being forced to do something. In fact, there are many cases where the federal government has used tax rebates, deductions and credits to encourage behavior that may have otherwise not occurred or been financially unattractive.

 

The federal solar tax credit, for example, allows consumers and businesses to deduct 30 percent of the cost of a solar system from their federal taxes, has helped consumers bridge the cost gaps in solar panels. This has made it more affordable for consumers and has encouraged more innovators to enter the space and improve the technology. Federal incentives have also been partly responsible for the rapid advancement in wind power and electric vehicles. And they have also been used to encourage the purchase of health insurance at a time when rising health costs are contributing mightily to the national debt and deficit.

 

Some states are already offering cybersecurity industry incentives. In Maryland, the Cybersecurity Investment Incentive Tax Credit offers a refundable income tax credit equal to 33 percent (up to a maximum of $250,000) for companies that invest in a qualified cybersecurity company. Recently, The Mayor’s Office of the Chief Technology Officer (MOCTO) of New York City, launched a ‘moonshot’ challenge, incentivizing the cybersecurity community to devise “new, affordable and scalable solutions to protect New York’s small and mid-size business from cyber-attacks.”

 

Maryland and New York aren’t alone. According to the National Council of State Legislators, “states are addressing cybersecurity through various initiatives, such as providing more funding for improved security measures, requiring government agencies or businesses to implement specific types of security practices, increasing penalties for computer crimes, addressing threats to critical infrastructure and more.”

 

Now, action is needed at the federal level. While such incentives do carry a price tag, the Atlantic Council and Zurich Insurance Group noted that a completely secure internet could result in a global net gain of $190 trillion by 2030. Incentivizing the adoption of and investment in cybersecurity could significantly reduce risk across the entire U.S. economy.

 

Democratizing cybersecurity through incentives

Incentives for cybersecurity adoption would likely reduce risk to not just individual businesses but would have the same effect throughout the entire economy. With global trade and economic tensions heightening, we as a country cannot afford to wait for small businesses to find the means to afford the cybersecurity that they now need, and we certainly cannot expect cybersecurity companies to reduce their costs of goods and services. Instead, we must look to the federal government to join states and municipalities and formulate an incentives program that does more than simply encourage smaller businesses to adopt cybersecurity – it makes it realistic for them to do so.

 

 

 

Closed minds: What clients say about the government shutdown

By Jeff Stimpson

 

As the federal government’s partial shutdown attains record lengths and neither side in Washington shows signs of budging on a $5 billion wall along the U.S./Mexican border, tax preparers’ clients seem pretty clear on the issue.

 

“Clients are inquiring about the shutdown based upon their current position with the IRS,” said Enrolled Agent Janet Sienicki in Schererville, Indiana. “Those who have an installment agreement with the IRS have asked as to their requirement to keep sending in their monthly payment. (These clients must keep their installment obligation or they will default this agreement.) Our tax resolution clients have been asking how it’s affecting their individual cases. My response is quite individualized based on where we are in the process of working on their case.”

 

“I’ve received no questions or comments of concern from any clients over the shutdown. I believe that they’re not going to be concerned until we get closer to filing deadlines and the process gets slowed down or stuck,” said Don Paul Cochran, a CPA and attorney in Apple Valley, Minnesota. “Most of my clients pay in or just roll their refunds over into estimates. Therefore they have no interest in whether refunds are paid.”

 

“Actually, none of my clients has talked about [the shutdown] except in the context of Democrat versus Trump,” said Jeffrey Schneider, an EA at SFS Tax & Accounting Services, in Stuart, Florida.

 

“Turns out some clients who have responded did not think the IRS would be affected by the shutdown,” added said Manasa Nadig, an EA and owner at MN Tax and Business Services and a partner at Harris Nadig, in Canton, Michigan.


‘Daunting challenge’

Many preparers’ functions in dealing directly with the IRS have, of course, become what Sienicki termed “greatly limited.” Clients anticipating refunds voiced concern about delays, at least until the service announced it would pay refunds and process returns when it opened the season and began processing tax returns on Jan. 28 – and issuing refunds on a regular schedule (https://www.taxprotoday.com/news/tax-season-to-start-jan-28-irs-confirms).

 

“My clients tend to file later than earlier, as most wait on their broker statements. I try to get them in earlier and tell them they can always get me their missing papers later. So for them, the shutdown is not an issue,” Schneider said. “The Tax Cuts and Jobs Act is, as I have many who are employees who took deductions for unreimbursed employee expenses. Under the new law, they can’t deduct them. Though I told them [about this law change] when I prepared their 2017 return, they’re panicking.”

 

“My concern with the shutdown and the tax software is the delay in getting forms out of draft mode and into filing mode,” Schneider said.

 

The speed of the passage of the TCJA and other recent tax legislation has contributed to software problems, according to Minnesota’s Cochran. “Passing tax law changes in December that are effective immediately or retroactively means that programming is done on the fly and mistakes happen. With such a major change in many areas, the IRS and state authorities are nowhere near close to giving us sufficient guidance on how to implement the tax law changes to make it reasonable to expect than anyone can know what they’re doing after only a year.

 

“Then to understand how the tax program has changed and where to look for changes becomes a daunting challenge for preparers,” he said. “We don’t see final versions of the software until we’re expected to use it.”


Other software concerns

Price and security also remain constant concerns with prep software during the shutdown. “The more government changes, complicates (usually through ‘simplification’) or ignores (such as with the failure of states to act on conformity legislation or for both federal and state government to fail to correct problems because of their political agendas) the Tax Code at both federal and state levels, the more it costs for prep software companies to adjust the programs,” Cochran said. “I’ve known preparers who think they can use stripped-down consumer versions of tax prep software to save money, but they’re deceiving themselves.

 

 “We’re forced to e-file tax returns but even the government can’t protect clients’ information,” Cochran added. “The Tax Code requires information to be exchanged in increasing volumes from banks, brokerage firms and so on, but all that information has to be mailed or transmitted to individuals who generally have little or no sense of data security or who get their mail in boxes that anyone can open, assuming it even gets delivered to the correct address in the first place.”

As in previous shutdowns – this is the 21st since the modern federal budgeting process began – the biggest misconception is whether taxpayers should stop making payments on their federal tax obligations. “Some have been erroneously informed that the EFTPS has also been shut down,” Sienicki said. “I informed my clients that the IRS is still offering some services and one of those services, as in past shutdowns, is accepting payments.”

 

One response is consistent: “Clients must continue to meet agreed-upon deadlines for providing documentation and answers vital to our proper representation,” she said.

 

 

 

Supreme Court agrees to hear major estate case

By Roger Russell

 

The U.S. Supreme Court has granted certiorari to, or agreed to hear, a case about whether the due process clause of the Constitution prohibits a state from taxing an out-of-state trust based on the in-state residence of the beneficiary.

 

While the question in the case, North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust, is relatively simple, the states are split on the issue, according to Reed Smith associates Megan Miller and Michael Lurie.

 

“It’s a really simple question with a really simple answer, but for some reason [state disagree] on the issue,” said Lurie. “North Carolina analyzed it as a straightforward minimum contact case, and decided that minimum contact was not present.”

 

In a 2016 decision in the Court of Appeals of North Carolina, the North Carolina Department of Revenue lost an appeal from a North Carolina Superior Court decision holding that the state did not demonstrate the minimum contacts necessary to satisfy the principles of due process required to tax an out-of-state trust. The decision affirmed the lower court’s grant of summary judgment in favor of the trust and upheld the order directing the Department of Revenue to refund the taxes and penalties paid by the trust.

 

The original trust was established by settlor Joseph Lee Rice III. Its situs, or location, was New York. The primary beneficiaries of the original trust were the settlor’s descendants, none of whom lived in North Carolina at the time of the trust’s creation. In 2002, the original trust was divided into three separate trusts: one for each of the settlor’s children, Kimberly Rice Kaestner, Daniel Rice, and Lee Rice. At that time in 2002, Kimberley Rice Kaestner, the beneficiary of the Kimberley Rice Kaestner Family Trust (the trust in the case) was a resident and domiciliary of North Carolina.

 

Tax returns were filed in North Carolina on behalf of the trust for tax years 2005-2008 for income accumulated by the trust but not distributed to a North Carolina beneficiary, In 2009, the trust filed a claim for a refund of taxes paid amounting to $1,303,172.

 

“The North Carolina court focused on whether the trust had a separate legal existence apart from the beneficiary,” said Miller. “The court held that it did. The fact that the beneficiary was in North Carolina did not provide sufficient contact for the state to tax the trust.”

 

Representatives of the trust asserted that the state DOR’s contention that a beneficiary’s domicile alone is sufficient to satisfy the minimum contacts requirement conflates what the law recognizes as separate legal entities – the trust and the beneficiary. The Court of Appeals of North Carolina agreed, and held that the connection between North Carolina and the trust was insufficient to satisfy the requirements of due process.

 

The decision will be a significant one whichever way the Supreme Court decides, according to Lurie. “If North Carolina wins, some states will be able to tax income they could not tax before. On the flip side, if the Supreme Court affirms the decision in favor of the taxpayer, taxpayers in states such as California will be entitled to a refund.”

 

A very small percentage of cases that petition for certiorari are successful, Lurie indicated. “The factors that made this case likely to be granted cert include the fact that multiple state courts are split on the issue. In addition, the court prefers to grant cert where the state lost in a state court on constitutional grounds. The reasoning behind that is that if the state loses on a constitutional issue in state court, it has no other option but to comply with the decision.”

 

 

 

Big tax break for business owners at risk as shutdown drags on

By Laura Davison

 

The longest government shutdown in U.S. history could cause tens of thousands of businesses to make a tough choice about whether to claim one of the biggest perks in the Republican tax overhaul.

 

Owners of so-called pass-through entities such as partnerships and limited liability companies have to file their businesses’ returns by March 15 — and still don’t have the final word from the Internal Revenue Service about who, exactly, qualifies for the 20 percent deduction on business income. Those returns form the basis of their personal returns, which are due on April 15.

 

The rules were nearing publication when the shutdown began, but could now face delays as the majority of IRS workers, who are responsible for writing the final regulations, and White House Office of Management and Budget employees, who would then review the regulations, are furloughed.

 

If companies take a position that the IRS challenges, they could be hit with penalties tied to the amount of the underpayment plus interest — which is 6 percent for the first quarter of 2019.

 

The break, which could reduce a firm owner’s tax bill by as much as one-fifth, was included in the Republican law as a way to cut rates for companies that didn’t benefit from the overhaul’s slashing of the corporate tax rate. The deduction applies to the hundreds of thousands of pass-through businesses — from mom-and-pop convenience stores to private equity funds — and has been regarded as one of the most complicated changes in the tax law.

 

“It’s mid-January and you have to start making some decisions,” said Don Williamson, executive director of American University’s Kogod Tax Center. “Small taxpayers are in a crunch.”

 

Matt Leas, a spokesman for the IRS, referred comments to the Treasury Department. A Treasury spokeswoman didn’t respond to a request for comment.

 

The agency issued proposed regulations in August that gave businesses some clarity about what kinds of businesses and income are eligible for the deduction. But there are still dozens of questions about how the tax break applies.

 

For example, are long-term care facilities in the business of health services? If so, they can’t get the tax break. But if they’re not, they can qualify for as much as a 20 percent deduction. Banks face a similar issue. Income from taking deposits and making loans qualify, but other services that banks offer — such as financial advice or wealth management — may not.

 

Owners of rental real estate also don’t have a clear answer about whether they can get the write-off. Tax advisers agree that the more owners are involved in the day-to-day operations, the more likely they can get the tax break. Yet tax professionals don’t know how much activity is enough, meaning their clients could face an IRS challenge if they aren’t careful when filing their returns.

 

Tax Return Do-Over

Pass-through owners make estimated quarterly tax payments throughout the year. Last year, the first two payments were due before the IRS issued any guidance about the deduction, leaving it up to taxpayers to make their best guess about how much they owe. When taxpayers file their returns this year, they’ll effectively settle up with the IRS, by either paying any additional amount they owe or receiving a refund.

 

Accountants hope any issues will be addressed in final regulations, but when those could be available is unclear. The partial shutdown is the longest in modern U.S history and entered its 24th day on Monday, when President Donald Trump rejected the latest proposal by Republicans to cut an immigration deal and resolve the impasse.

 

Many businesses may end up filing for an extension to file their tax returns, so they don’t have to rely on guidance that may be outdated in a few weeks or months, according to Julia Dengel, a manager at accounting firm BKD. That would give taxpayers an additional six months to file their returns from the filing deadline, meaning pass-through entities would have until Sept. 16 and pass-through owners would have until Oct. 15.

 

Taxpayers that don’t take the prudent approach could end up paying their accountants to prepare their returns twice, said Ed Reitmeyer, a regional partner-in-charge at accounting firm Marcum LLP. Before the proposed regulations were released, some companies paid their lawyers to restructure their business in an attempt to get a bigger deduction, he said.

 

“Then the regulations came out and quashed all of that,” Reitmeyer said.

 

Deduction Wiggle Room

All taxpayers who earn less than $157,500, or $315,000 for a married couple, can deduct 20 percent of the income they receive via pass-through businesses from their taxable income. If taxpayers earn above those amounts and aren’t service professionals — such as lawyers or accountants — they must also meet tests to take the full deduction. The size of their deduction depends on how much they pay in employee wages or how much they’ve invested in capital like real estate.

 

For service professionals, the break fully phases out if they earn more than $207,500 if they’re single, or $415,000 if they’re married.

 

In some cases, not having the final rules can be a benefit, said David Dvorak, a certified public accountant. The complexity of the rules and the lack of guidance in many areas give taxpayers wiggle room to claim the biggest deduction possible, he said.

 

“It’s just so complicated and there are so many rules to consider,” he said. “Particularly for higher wealth individuals, there are a lot of things you can do to maximize the deduction.”

 

 

 

Remote work will cross the chasm in 2019

By Tomas Suros

 

Earlier this year, the Bureau of Labor and Statistics published a look at the prevalence of remote work, highlighting that one in five professionals now work from somewhere outside the office. In part, the trend has been facilitated by companies striving to compete in today’s rapidly evolving workforce. A recent Gallup poll observed that up to 43 percent of employed Americans work at least partially remotely -- and that offering work-from-home benefits proves advantageous for companies in terms of employee retention.

 

While heavily regulated industries such as accounting, banking, legal services and insurance were once slower to adopt flexible workplace practices due to compliance issues and other barriers, they are now becoming commonplace in these spaces. Accounting itself has experienced perhaps the most significant shift toward increased digitization and flexibility.

 

According to FlexJobs, accounting roles are now one of the most popular to be offered on a remote basis. As firms have begun embracing the benefits of a cloud-based practice, enabling accountants to perform their functions from nearly any computer, tablet or mobile device, accounting practitioners can expect this paradigm shift to gain even further mainstream acceptance in 2019 due to a confluence of factors.


Millennials continue to take over the workplace

This may prompt some to envision entitled, entry-level employees with freshly printed diplomas, but it’s key to remember that many millennials are now in their late 30s. At present, the group of digital natives is the largest generation in the American labor force, making up 35 percent of it. With the generation now typically responsible for the lion’s share of work in many offices, firms of all sizes are adapting to both attract and retain millennial employees. Data confirms that an excellent way to achieve millennial talent retention is to offer competitive benefits.

 

The American Institute of CPAs’ 2018 Employee Benefit Report found that a whopping 80 percent of workers prefer a job with such benefits over an identical one that offered 30 percent more salary without them. The same report discovered that millennials, particularly, place the highest priority on benefits that contribute to work-life balance - such as paid time off, flexible work hours and, of course, remote work. These preferences are prompting accounting firms to offer an unprecedented increase in workplace flexibility to remain competitive in winning millennial hires. As a result of new policies enabling the shift, remote opportunities will continue to become moderately conventional among accounting practitioners of all ages.

 

 


Our level of connectivity is skyrocketing

https://assets.sourcemedia.com/dims4/default/f71e78f/2147483647/resize/680x%3E/quality/90/?url=https%3A%2F%2Fassets.sourcemedia.com%2F28%2Fbb%2F9aad44434fc29091c43a8a0b3811%2Fbackup-bar-template-v2-10.jpegThis is a direct result of the already extensive availability of high-speed internet access across the United States. While the digital divide unquestionably remains an issue for numerous communities - whether due to age, income, education or geographic region - the bulk of the population now possesses access to a high-speed connection in their home. What’s more, nearly 40 percent of Americans ages 18 to 49 report being online “almost constantly” every day, according to findings from the Pew Research Center.

 

In the coming year, existing connectivity gaps are predicted to drop in prevalence, too. These will close as 5G solutions from mobile carriers and cable service providers appear online in 2019, increasing access to connectivity. By 2024, 5G networks are expected to cover more than 40 percent of the globe, creating a more thoroughly connected society than we can fathom today. A monumental benefit of 5G networks is their capability to replace traditional connections, increase the amount of data available across devices, reduce delays and improve download speeds.

 

For remote employees across industries, this could redefine the experience. Removing their dependency on an adequate Wi-Fi connection, remote workers will no longer be relegated to coffee shops, co-working spaces and desks within home offices. Instead, they’ll be given a dependable connection to their colleagues and seemingly endless flexibility in terms of viable work locations.

 

This hiring guidebook will provide you with best practices to help you before, during and after you bring that first employee on board.

 

For accountants, this will allow a heightened level of client service, providing CPAs the ability to meet their clients almost anywhere and access data seamlessly. Alleviating connectivity-induced roadblocks for accountants will be transformative -- enabling further remote opportunities in the field and mitigating stressors caused by digital limitations when on the go.

Whether driven by increased connectivity, the growing pressure of millennial influence or cloud-enabled remote access, it’s clear that remote work in accounting is a burgeoning trend and one unlikely to be suppressed in the near future.

 

Does your firm offer remote work or other flexible workplace benefits? Why or why not?

 

 

 

Expense report approvals vary wildly

By Michael Cohn

 

Companies are closely auditing employee expense report claims, flagging some of the most questionable expenses in the fourth quarter of last year such as strip clubs, dog kennels, jewelry, cigarettes and gambling losses, according to a new report.

 

Employee expense report approvalsThe report, from AppZen, a provider of expense management technology, found that expense approval averages can differ widely. While 46 percent of companies reimburse employees for gifts and 39 percent do so for golf, only 16 percent of businesses reimburse employees for room service and 15 percent for the mini bar. Meanwhile, 41 percent of companies reimburse employees for cell phone expenses, 24 percent for car washes, and 19 percent for clothing.

 

Last quarter, the average business processed 4,374 expense reports, each containing 11 expenses on average. While only 10 percent of enterprises’ total expenses were flagged as high risk last quarter, they represented one-third of the total dollar value across all expenses, making them critical to find and review.

 

The report particularly spotlighted the importance of using artificial intelligence for examining expense reports, noting that companies that use AI to make spend audit approval decisions and automate process achieve 100 percent visibility, as opposed to only 2 to 10 percent for companies that don’t employ AI.

 

 

 

 

 

 

Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.

 

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