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The American Institute of CPAs (AICPA) has submitted a letter to Congressional Leadership of the Senate Finance Committee and the House Ways and Means Committee commenting on several trust and estate related tax proposals in the Department of the Treasury’s General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals, otherwise known as the Green Book, issued March 2022.

In the letter, the AICPA expressed several concerns with proposals that could be included in future tax legislation. Comments submitted address the following proposals:

The comments noted concerns with several proposals that impact fairness to taxpayers and are inconsistent with good tax policy. “Taxing estates the same as trusts for many of the provisions in the Green Book is problematic. The AICPA recommends that estates be treated similar to married filing separately taxpayers for all estate provisions in the Green Book, as well as existing law,” the letter states.

The AICPA also expressed support for the Green Book proposal to improve tax administration and enhance the accuracy of tax information regarding electronic filing of forms and returns. Previously, the AICPA requested that the Internal Revenue Service (IRS) provide electronic filing for the Forms 706, 706 NA and 709. The AICPA agrees with the proposal to require electronic filing for individuals with gross income of $400,000 or more and for income, estate or gift tax returns of all related individuals, estates and trusts with assets or gross income of $400,000 or more in any of the three preceding years. 

By Erik Wasson, Bloomberg News (TNS)

House Democrats delivered the final votes needed to send President Joe Biden a slimmed-down version of his tax, climate and drug price agenda, overcoming a year of infighting and giving themselves a cornerstone achievement to campaign on for the November congressional election.

The legislation passed the House Friday on a party line 220-207 vote. Biden tweeted that he would sign it next week.

The bill passed the Senate on a 51 to 50 vote on Sunday with Vice President Kamala Harris breaking the tie, and Speaker Nancy Pelosi could not afford more than a few defections with the slim Democratic majority in the House. Given the high stakes, Biden personally called lawmakers to ensure support in the House throughout the week, a White House official said.

In the end, Democrats voted unanimously for the bill even though the spending is far less than the $10 trillion measure progressives like New York’s Alexandria Ocasio-Cortez initially pushed. It also doesn’t raise the $10,000 limit on the deduction for state and local tax, or SALT, which moderates from high-tax states demanded. 

In the end the bill spends about $437 billion on climate, health subsidies and drought relief while raising about $740 billion in revenue over ten years. The non-partisan Congressional Budget Office estimated an earlier version of the bill cuts deficits over ten years by $102 billion, a figure that rises to $300 billion when revenue from expanded tax audits is factored in. 

Whether the bill helps Democrats retain their House majority remains to be seen. The party hopes its core voters are mobilized by the largest climate change bill in US history while seniors cheer the coming of lower drug costs. 

“I’ve been prepared to win the midterms all along. It depends on getting out the vote. This probably could be helpful. I don’t know,” House Speaker Nancy Pelosi said this week. “But I do know it will be helpful to America’s working families and that’s our purpose.”

Independent studies project the bill would have a limited impact on inflation despite the name Democrats gave it. A new Penn Wharton study of the bill found that it would reduce inflation by 0.1 percentage points after five years and have no impact after 2028. In the near term, effects would have upward pressure on inflation but be “too small” to be measured by the government.

For middle-class Obamacare enrollees and seniors with expensive prescription drugs the effect will be most immediate. 

Republicans argue that imposing new taxes on business could worsen a looming recession likely to be provoked by the Federal Reserve raising interest rates to fight inflation. GOP lawmakers, who blame historic inflation on last year’s stimulus bill, argue the bill’s tax credits for pricey electric vehicles are a giveaway to the upper-middle class while the drug provision stifles innovation in the pharmaceutical industry. 

“Democrats are desperate for any win, even one that slows the economy and crushes businesses” Republican Representative Kevin Brady of Texas said.

He said the GOP will work to repeal the tax increases and drug price changes if the party wins the House next year and try to shift the additional IRS funding in the bill toward customer service rather than ramped up auditing. 

Democrats said they will seek to pass elements of Biden’s social agenda that did not make it in to the final version of the bill next year if they keep the House and expand their Senate majority.  They said they will once again try to expand Medicare and Medicaid, boost child tax credits and childcare subsidies and provide paid family leave. On Friday Ways and Means Chairman Richard Neal said Democrats will also look to raise the corporate tax rate and top individual tax rate paid by the wealthy next year. 

Key effects on business in the bill that passed the House include:

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©2022 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.

The average starting salary these days for a college graduate’s first job after getting their bachelor’s degree is $55,260, but current college students are expecting that salary to be more. Much more.

According to a recent survey from Real Estate Witch, students in college now expect to make $103,880 in their first job after graduation, which is nearly $46,000 more than they expected to make three years ago.

The report says:

Graduates may be in for a rude awakening: More than half (58%) say the average starting salary of $55,260 isn’t as high as they expected, with nearly 1 in 5 (18%) saying it’s much lower than expected.

Unrealistic salary expectations also extend to mid-career earnings. Ten years into their careers, students anticipate making $200,270 — a 93% increase from their starting salary expectations.

Data shows salaries do tend to double by mid-career in many industries, but $200,270 is more than most students can hope to earn in reality: The average mid-career salary is only $132,497.

The survey of 1,000 undergraduates who are pursuing a bachelor’s degree found that female students anticipate earning $103,550 at graduation, or 0.5% less than men. The gender pay gap widens to 4.3% within 10 years of graduation, when women expect to make $195,000—$8,740 less than men.

But nearly one in four students (24%) believe gender has no impact whatsoever on an employee’s starting salary, according to the survey.

Not surprisingly, men are 14% more likely to say gender does not impact starting salaries. Meanwhile, women—who earn 80 cents to every dollar a man makes—are 4% more likely to say it’s a legitimate problem.

Students currently majoring in journalism, psychology, and liberal arts are most likely to overestimate the value of their degrees, the survey revealed.

Journalism students, in particular, are the most delusional, expecting $107,040 just a year after they graduate—139% more than the median journalist’s starting salary.

Meanwhile, computer science majors have the most realistic expectations, overestimating their starting salary by only 27%.

Students currently majoring in finance or accounting expect to make $111,240 one year out of college—nearly 88% more than the median starting salary of $59,200 in those fields.

Only 15% of students graduating in 2022 have accepted a job offer, and most of those students possess in-demand degrees, such as finance, accounting, and education, according to the survey.

Recently I walked into the lobby of a national coffee and donut chain and saw what has become common place all across America, an extra-large sign about job openings, I guess the national chain figured the larger the sign the more people they would get. Alas, this sign like many other physical signs and recruiting efforts by firms is focused on all the wrong things and not effective.  These failed efforts simply add to the growing problems of staffing shortages. 

These signs, like many accounting job posting are stuck in the past.  Stop me if this sounds familiar, your recruiting efforts focus on compensation and go into lengthy details on benefits; 401k plan, health care, paid time off, flexible schedule, and competitive pay.  For many this is the same job posting that has been used for going on 30 years and it was built on the originally flawed assumption that benefits and perks is what get people to work for a company.

When it comes to people looking for a job, research shows that compensation and benefits are the basics that will get them in the door, they are not deciding factors. Rarely do you see a company with a benefit package so truly remarkable that people want to work for that company. 

This concept is not some new age concept, starting in the early 1990s research was showing that exciting and meaningful work was the main factor for employees in deciding where to work.  The results of those early studies from the 1990s have been further collaborated up to today.  Employees view compensation and benefits as a given and truly care about meaningful work or purpose.

Think about this 401k plans were implemented in 1978 and today are commonplace in even smaller companies.  For the majority of those in the workforce they have never had a job that didn’t offer a 401k plan.

Clinging to the past

Too often when companies go to recruit, they fail to focus on what really matters and instead focus on the givens, just like the failed job posting by the national coffee chain. 

I personal experience I still remember, for most accounting firm job interviews, even up to 2010, partners in the firm would tell me a major benefit to working at the firm is that I would have my own computer or laptop.  To me this was always an odd statement.  For me, a millennial, I do not remember when I first got my own computer.  Contrast this to the baby boomer generation, many of them didn’t get their own first computer until they were in the workforce and to them, having your own computer is a major deal.

If you wish to actually attract, retain, and engage top talent, it starts with the first step of attracting and to do that takes a new brand approach.

Follow the science

While nationally staffing shortages have become a recent headliner, for us in the accounting profession, this issue has been felt for years and has no signs of going away.  As we discussed we need to shift our focus when it comes to recruiting and follow the science.

As leadership thought leader Dan Pink often says, today we see a mismatch between what the research shows and common business practices.  We cling to the past with the same negative outcome and wonder why things don’t change.

To attract people to your organization, it all starts with exciting and meaningful work, focus on that in your job posting and not benefit packages.

Looking Different

As I was wrapping up this article, I went out to breakfast Sunday morning, nothing like a good breakfast before a deadline to get the ideas going.  Again, I saw another large job posting as I walked into the restaurant, but this one was completely different. 

It simply said, “Are you interested in doing something rewarding?”.  No mention of benefits or 401k plan or time off, they didn’t touch on the basic as they are assumed.  They focused on getting your attention.  In doing some research at breakfast, I found out the job posting was for a local independently owned retirement community.  Their website talked all about a culture focused on people doing rewarding and engaging work. 

Perhaps the owner of the nursing community is a fan of Dan Pink or maybe he just figured it out on his own.  Attracting top talent is about appealing to the possible workforce with the exciting about working for the company.

As you shift into your fall efforts to recruit, you can follow the same path as before with the same unsatisfactory outcome, or you can follow the research and focus your recruitment efforts on what makes your company rewarding, exciting, and unique.  Now if you don’t know the answer to those questions that is another problem for another article to solve.

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Garrett Wagner, CPA.CITP, is the CEO and co-founder of the C3 Evolution Group https://www.c3evolutiongroup.com.

By Laura Davison, Bloomberg News (TNS)

Corporations will pay nearly $296 billion more in U.S. federal taxes over the next decade, and middle-income households will see some tax cuts, under the tax-and-climate bill that is likely to become law in the coming days.

That’s the takeaway from analysis released Tuesday by the Congressional Joint Committee on Taxation.

About $222.2 billion of the increase on businesses will come from a new corporate minimum tax that requires companies with at least $1 billion in profits to pay a minimum of 15% on the earnings they report to shareholders. An additional $73.7 billion stems from a 1% excise tax on corporations that buy back their own stock, the projections from the nonpartisan scorekeeper showed.

Households earning less than $100,000 will see net tax cuts through 2025, largely due to an extension of subsidies for Affordable Care Act premiums. After that, taxes for middle- and low-income households are largely unchanged. The bill also includes some tax incentives for electric cars and home-energy efficiency — contributing to the decrease in tax burden.

Taxpayers earning at least $500,000, a group that’s more likely to own stocks, will see their taxes go up by about 1% next year, reflecting indirect tax increases tied to the corporate-tax hikes. While the legislation doesn’t include any direct tax increases on high-earners, the Joint Committee on Taxation’s model directs some of the corporate-tax burden on shareholders.

Friday vote

The figures reflect a corporate-tax increase that’s about $100 billion less than a previous proposal floated by Democratic Senator Joe Manchin and Senate Majority Leader Chuck Schumer several weeks ago.

The Senate passed the bill on Sunday, after making some changes to the tax provisions to get all 50 in the Senate Democratic caucus on board, in face of united Republican opposition. It is now set for a vote in the House on Friday.

Lawmakers narrowed the corporate minimum tax to make it less burdensome on manufacturers and created a special carveout for private equity to get the remaining Democratic holdout—Senator Kyrsten Sinema—to vote for the bill. A proposal to restrict another tax break for investment-fund managers, known as carried interest, was also eliminated from the bill at the Arizona Democrat’s request.

The Joint Committee on Taxation data also show that a last-minute addition to the bill, restricting the losses a pass-through business can write off in any given year, will raise $52.8 billion over the decade.

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©2022 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.

By Darren Root, CPA, CITP, CGMA.

I think the key part of the headline of this article—and the words to really consider—are “to proactively.” In my experience, accounting firms have historically operated with a very reactive model of client service. I don’t think creating a reactive model was necessarily a conscious choice by most firms, but rather a reaction to not having made a choice at all.

To be clear, I completely understand why firms seem to naturally gravitate to a reactive mindset. Just knowing that you have more work than you can handle, that tax season is like an ongoing three-alarm fire, and that clients are incessantly calling, emailing or texting you with questions, thoughts and concerns…well, reacting is pretty much the only way to get through your day.

If you can relate to what I just described, I want you to know that I believe there’s a better way.

But first, let me acknowledge that how you’ve been doing it is not necessarily wrong, because I don’t think there is a right or wrong way in this case. I might also suggest that the reactive model has served you well if you’ve grown a nice business that supports a good financial lifestyle.

But there are signs that clients want a more comprehensive approach—not only from their accountants, but also from their financial advisors and their doctors and just about any other professional they deal with. In addition, staff are weary of the practice of growing clients indiscriminately, causing staff churn and ultimately putting firms in jeopardy.

So, what’s the “better way” I mentioned above? The better way is to evolve your practice from a reactive to a proactive model of working with clients.

For years, I struggled to understand exactly what the industry meant by saying that firms should be moving to “higher level advisory services.” I think because my practice had been very reactive, I struggled to understand how to transition to an advisory practice. I understood that I could create offerings that were more advisory in nature, but I was still somewhat reacting to clients asking for advice on those advisory offerings.

It wasn’t until I was prompted by a good friend a few years ago to sign up for an executive health program—a subscription concierge doctor—that I realized the physician’s goal was to continually collect as much data on me as possible so he could proactively guide me to better health (annual physicals, access to data from my Apple watch, etc.). The relationship I developed with my concierge doc was completely different from anything I had previously experienced in healthcare…and I liked it.

And I realized that this was exactly what I should be doing with my clients. But what I also realized was that the key driver to proactive health management was the availability of health data. The big shift needed was the development of a data mindset: the active collection and organization of all the client data necessary for a comprehensive picture of our client’s financial health.

As professionals, we know what financial health looks like for our clients. If we have an ongoing snapshot of where our clients are in their financial health journey, we can proactively counsel them on next steps. Comprehensive financial health is what our clients want from us as professionals.

I categorize client data into three categories:

  1. Financial data—Information that exists in accounting systems you can easily access for benchmarking, analysis and advice.
  2. Technology data—Information that informs you about the technology tools your clients use so you can better guide them to the right solutions.
  3. Business data—Data about your clients that’s not easily accessible, but important just the same. It includes data like entity type, buy/sell agreements, loan interest rates, etc. Business data is all around your firm…but rarely is it easily accessible.

If you do the work of articulating a picture of comprehensive financial health for each of your client types, and you have at your fingertips your client’s financial, technology and business data, you’ll be in a solid position to be proactive in serving your client. To be clear, proactive client management means you reach out to your clients with ideas and solutions to make their financial lives better.

Would your client be willing to pay a premium for this type of relationship, knowing that you’re actively thinking about them and not just reacting to their questions? Could you serve fewer clients if the clients were being comprehensively served?

The approach I am describing is called Smart Client Management. Smart Client Management enables accounting firms to curate their ideal client roster, maximize recurring revenue and obtain a sustainable work environment. Executed correctly, Smart Client Management helps firms grow existing relationships and build a year-round revenue stream while developing a happier team with more satisfied clients.

Smart Client Management needs a data mindset to proactively make clients’ lives better. I think most practitioners would agree with me that the reactive model currently used by most firms doesn’t seem to be working for anyone. And that’s why it’s time to take advantage of the better way that other firms are finally employing. Not only for your clients’ financial health, but for the career and life satisfaction of you and your team…and for the future of your firm.

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Darren Root, CPA, CITP, CGMA, is the Founder of Rootworks and serves as Chief Strategist for Right Networks. Darren has over 30 years of experience as a CPA and in management within the profession. He has vast accounting expertise and a passion for helping firm owners modernize and transform their practices into thriving, sustainable enterprises.

Darren has earned numerous awards and continues to contribute to the profession with books, articles, podcasts and shows that educate and inform the industry in all areas of firm operations, industry trends and business model.

Aprio LLP, a top 35 business advisory and CPA firm, announced on Aug. 3 that North Carolina-based Ladd Robbins CPAs and Consultants will join Aprio on Oct. 1, 2022.

For more than 20 years, Ladd Robbins has served clients in more than 20 states across the U.S., focusing on healthcare practices including dental and optometry. As part of Aprio, Ladd Robbins clients will have access to greater specialty service offerings to help them achieve increased profitability, including research and development, cost segregation, state and local tax, transaction advisory services, valuation, forensics, and wealth management.

“The Ladd Robbins team’s extensive experience with specialized healthcare providers makes this merger the perfect fit,” said John Bly, Aprio South Atlantic regional leader. “The combination will strengthen and expand Aprio’s existing practices and industry expertise, and together we’ll create innovative and growth-centric opportunities for our clients.”

Mike Ladd and Greg Robbins will join Aprio as partners. “With Aprio, we’re a part of a team who shares our commitment to exceptional client service,” said Robbins. “We’re thrilled to now be able to serve as the single-source provider for our clients, bringing vital services to their businesses that will ensure their success and longevity.”

Alongside Ladd and Robbins, 17 team members will join Aprio in October.

Expensify Inc., a payments superapp that helps individuals and businesses around the world simplify the way they manage money across expenses, corporate cards and bills, announced on Aug. 9 that Fortune has ranked the company as a Best Small Workplace in the US, which comes shortly after the San Francisco Chronicle recognized Expensify as the second best “Top Bay Area Workplace” for 2022.

Expensify’s unique approach to workplace happiness and retention has kept 62% of employees at the company for more than four years, 46% for more than six years, and 16% for more than eight years and has resulted in a 4.9 rating on Glassdoor. Productivity and efficiency gains are equally as impressive, with Expensify consistently generating more than $1 million annually in revenue per employee.

Here are some of the perks, benefits, and other company initiatives that make Expensify a top workplace:

One particular perk, a yearly international work trip called Offshore, has been a treasured company tradition since Expensify’s early days. “Offshore is one of our most valuable perks in that it promotes genuine, face-to-face relationship building between colleagues that can’t be replicated online,” says Daniel Vidal, chief strategy officer at Expensify. “We’re a remote-first, chat-based company, so Offshore is the perfect contrast to the daily digital grind. It forces everyone to step away from the screen when work is done and explore a new place together. It’s team-building on steroids, and it pays off in dividends long after everyone returns home.”

If you’re looking for a great place to work, check out Expensify’s job openings at  we.are.expensify.com.

As we await the House of Representatives’ vote on legislation that would provide the IRS with $80 billion in additional funding over the next decade, a new Morning Consult/Politico poll found that a majority of Americans are not really worried about being the target of an audit from a potentially restocked IRS.

Morning Consult wrote:

Conservative media has echoed GOP lawmakers’ efforts to portray an increase in IRS funding as a potential auditing-free-for-all manned by 87,000 new IRS agents, but the majority of voters (76%) said they were not concerned about the prospect of being personally audited by the IRS, a view that was consistent among Democrats (74%), independents (78%) and Republicans (77%). 

More specifically, when it comes to possibly being personally audited, 44% of voters said they were “not at all concerned,” including 47% of Republicans and 41% of Democrats. 

Regardless of party affiliation, the share of voters who said they were “very” or “somewhat” concerned about being audited personally was about 1 in 4.

In addition to the increase in funding to the IRS, the tax and energy bill passed by the Senate last weekend, called the Inflation Reduction Act of 2022, would establish a 15% corporate minimum tax, impose a 1% excise tax on corporate stock buybacks, and extend and expand tax credits for energy-saving improvements and electric cars. The House is expected to vote on and pass the bill on Aug. 12.

IRS audits have dropped significantly over the past decade, especially those targeting high-earners. According to a May 2022 report from the Government Accountability Office, the audit rate for Americans making $5 million or more fell to about 2% in 2019, compared to 16% in 2010.

In a letter to the Senate, dated Aug. 4, IRS Commissioner Charles Rettig wrote “audit rates will not rise relative to recent years for households making under $400,000.” However, large corporate and high-net-worth taxpayers should watch out, according to Rettig:

Large corporate and high-net-worth taxpayers often engage teams of sophisticated representatives who pursue unsettled or sometimes questionable interpretations of tax law. The integrity and fairness of our tax administrative system relies upon the ability of our agency to maintain a strong, visible, robust enforcement presence directed to these and other similarly situated taxpayers when they are noncompliant. These important efforts also support honest taxpayers who voluntarily comply with their filing and reporting requirements.

The Morning Consult/Politico poll found that 48% of respondents believe higher-income taxpayers will be targeted the most for audits by the IRS, but 44% think the IRS will go after middle-class taxpayers instead. Only 18% of voters said they believe the IRS would use its new enforcement funds to go after low-income earners, including just 14% of Republicans. 

The poll was conducted Aug. 5-7 with a total of 2,005 respondents. The poll’s margin of error was two percentage points.

The Justice Department charged a Connecticut man on Aug. 9 with fraudulently obtaining and misusing funds from a Paycheck Protection Program (PPP) loan he received for his accounting business in 2021.

According to an indictment filed in the District of Idaho, 57-year-old Eric O’Neil of Bethel, CT, is accused of lying about the number of employees, the monthly payroll, and other information about his business on a loan application to a financial institution in Boise last year, CT Insider reported. In the loan, O’Neil sought $373,201 for his business Accountant R Us Inc.

He was charged on Tuesday with one count of bank fraud.

The money was granted to O’Neil by the Small Business Administration under the Coronavirus Relief, Aid, and Economic Security (CARES) Act, intended for small businesses struggling with the economic impact of COVID-19, the Justice Department said. 

CT Insider reported that O’Neil had owned and operated Accountant R Us out of New York since 2013. On March 25, 2021, O’Neil, with others, submitted a PPP loan application:

However, “Accountant R Us had no employees, paid no salaries, and paid no payroll taxes,” according to his indictment.

To further the scheme, O’Neil and others submitted fake tax forms to the financial institution that contained false information about the total income, salaries and wages for the business in the 2019 tax year. The forms were never filed with the Internal Revenue Service, the indictment said.

He also submitted a fake payroll log that listed 22 employees, including O’Neil, and fraudulent profit and loss statements, according to the indictment.

“Accountant R Us did not appear to have any legitimate business operations or employees in 2019 and 2020,” the indictment said.

If convicted of the bank fraud charge, O’Neil faces a maximum penalty of 30 years in prison.

By Dr. Kristy Short.

Quick question right out of the gate: Just how important is client data in running an uber-efficient and highly lucrative firm. Quick answer: Massively!

No doubt you’ve heard this message many times over the past few years: Your client data represents a (potential) goldmine. The simple fact is that your data, and what you do with it, is central to running a successful, sustainable and step-above-the-rest firm. It’s the difference between a potential goldmine and a real one.

Firm leaders that understand this are reaping the benefits. Massive benefits, in fact… such as aggregating an ideal client roster, maximizing recurring revenue to create year-round income streams, and achieving workload balance that leads to happier staff and a sustainable business model.

Marcus Dillon, CPA and owner of Dillon CPAs, is a prime example of a leader who has figured this out. Someone who is leaning into Smart Client Management to maximize client data to grow and thrive. And, by the way, he’s also someone who is willing to share his secret sauce.

The bottom line is that client data is at the center of everything. It’s your ticket to long-term success—if you’re willing to put in the time to work it. And if you are, this is a great place to begin…a starter guide on how to dig deeper into data and strike gold!

Identify your ideal client profile (ICP)

Before you can go after clients who are the best fit for your firm, you first have to know who you’re looking for. Who do you want to serve? Who are you good at serving (think vertical markets)? What is your ideal client profile?

For starters, it’s important to understand that dollars don’t matter.

Okay, well, maybe this is a bit of an overstatement, but the sentiment is dead on. The point here is that looking solely at the revenue a client brings in doesn’t always make them an ideal match for your firm. You must also factor in key non-financial data.

For example: Do you have families of businesses you enjoy serving? Are you skilled at serving specific verticals? Do you actually like the client? Does the client respect your team’s time and efforts?

“Just because, historically, a client has spent a lot of money with you, doesn’t mean they’re a good fit for where you want to take your business,” explained Dillon. “At one point, we decided that we no longer wanted to offer audit and attest services. While they represented some large engagements, it just wasn’t the type of work we wanted to do.”

Relationships are also core to Dillon’s business model, which means one-time engagements don’t make the ideal-client-profile cut.

“We’re in the business of building relationships, not just processing transactions. We want clients to have multiple touch points with staff throughout the year and get really close to them. This is one of the things our staff love about their jobs.”

Looking at the non-financial side of what makes an ideal client is a big part of the puzzle. For long-term success, you have to enjoy the clients you serve and have the skills to deliver services efficiently, effectively and in a standardized manner.

Review the revenue

While this feels like a backslide on advice, it’s really not. (Bear with me.)

While not the sole factor in identifying your ICP, revenue is still an important factor in the data-mining process. Smart management of client data includes looking at the financial side as well. This provides insight into client longevity and adaptability to a fixed-fee, recurring-revenue model.

For Dillon CPAs, reviewing revenue has been central to the firm’s thrive factor. And, according to Marcus Dillon, it’s easy to do.

“We had this data readily available because we bill out of QuickBooks,” said Dillon. “It made it easy to look at the lifetime value of the client, how long they’ve spent money with us and what their average price point is. This really helps to determine if they are a good fit for us.”

A clear view into client revenue aids in understanding which clients to focus on in terms of transitioning them to the recurring revenue model—and/or those where there’s an opportunity to upsell additional value-added services.

Bring your staff into the convo

Dillon was quick to remind that staff input is another critical element of the process. Because staff are on the front line—working with clients every day—they have valuable information to share. So be sure to mine that data as well.

Look to staff to answer such questions as: What clients are the easiest to work with? Do they have needs beyond existing services provided? Do they advance your firm’s vision and support your business model (e.g., recurring revenue vs. one-time engagements)? Are they in an industry that aligns with your firm’s expertise?

“We like to bring our team into this process because they are so close to our clients,” Dillon explained. “At the partner level, I have to be dedicated to consistently reviewing data and refining our client base, and that means I need input from my team. I’ll give them a list and ask which clients are worth fighting to keep and improve as a client, if there are ideal clients I’ve overlooked completely, or if there are clients that need to go.”

While aggregating intelligence on clients is key, it’s also an exercise in getting buy-in from staff. When employees are part of the data-mining process, it fosters a deeper understanding of the firm’s bigger vision and goals. It also provides direct visibility into partner actions—like off-loading non-ideal clients that don’t support workload balance and a sustainable business model.

“Last year we got rid of about $80,000 of revenue by exiting several non-ideal clients,” Dillon said. “This gave our team a lot of motivation because we [the partners] followed through…because we put our money where our mouth is…in creating a better work environment and opening up capacity for staff to focus on clients we actually like serving.”

Getting to the gold

Data is everything if used properly. Regular, dedicated review and management of client data provides full visibility into all vital areas of running a successful and highly profitable firm, including:

There is power in your data. And smart management of it can lead to stellar results. Discover the goldmine, right there inside your business, to build the firm of your dreams.

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Kristy Short, Ed.D, has been serving the accounting profession for more than 25 years—bringing a deep knowledge of branding, marketing communications, and content strategy and development to the table. She’s worked with hundreds of partners and staff to help them advance their firms for the modern era. Kristy’s been named one of CPA Practice Advisor’s “Most Powerful Women in Accounting” three times; has assisted noted thought leader, Darren Root, create multiple books; and published hundreds of education-based, accounting-focused articles over her career.

If you’re a self-employed individual or other small business owner, you now have a wide range of retirement plan options at your disposal, just like the corporate giants. For convenience, you might want to keep things simple. In that case, the Simplified Employee Pension (SEP)-IRA is certainly a viable alternative.

Icing on the cake: The Setting Every Community Up for Retirement Enhancement

The (SECURE) Act provides extra tax incentives for using qualified plans like SEP-IRAs. Notably, the SECURE Act increases the maximum available credit for starting a plan to $5,000 and creates a new credit of up to $500 per year for automatic enrollment plans.

Basic premise: First off, the employer must contribute to a SEP-IRA for any employees age 21 and over who have worked for the business three out of the previous five years (barring a union contract taking precedence). Even employees who have worked on a part‑time basis, or only worked for the employer for part of the year, must be covered if they earned at least a minimal amount during the year ($650 for 2022).

Contributions made to a SEP-IRA on behalf of employees are deductible by the employer just like contributions to other defined contribution plans. Accordingly, the limit for deductible contributions in 2022 is the lesser of 25% of compensation or $61,000. Caveat: The maximum amount of compensation that may be taken into account for these purposes is $305,000.

Note: Employer contributions are discretionary. In other words, you’re not locked into payments for the year. This allows you to boost contributions when business is booming or scale back contributions—or even make no contributions—in a year in which the business is struggling. However, you must contribute the same percentage of compensation for each plan participant.

The contributions to the SEP-IRA vest immediately. For instance, if an employee quits the day after the contribution is made, the money is still theirs to keep. In comparison, certain other qualified plans have “cliff vesting” or gradual vesting over a period of years.

As with other qualified retirement plans, early withdrawals made prior to age 59 ½ are subject to a 10% penalty tax, in addition to regular income tax, unless a special tax law exception applies. Similarly, under the SECURE Act, minimum distributions (RMDs) must begin in the year following the year in which an employee reaches age 72 (up from age 70½). 

Practical advice: Get your SEP-IRA up and running before January 1, 2023. Otherwise, the contributions aren’t currently deductible. However, a SEP may be set up and funded after the close of the tax year as long the paperwork is completed by the employer’s tax return due date, plus extensions.

All you have to do to set up a SEP-IRA is fill out Form 5305-SEP and provide proper notification and copies to employees. You don’t even have to file the form with the IRS. Finally, unlike most qualified plans, you’re not required to provide the IRS with annual reports. This is truly an “easy” retirement plan to set up and operate.

Summer nights. The smell of freshly cut grass. The crack of the bat hitting the ball. A cold beer and a hot dog. The seventh inning stretch and of course that song. Cheering for favorite players. Kids in the stands with their baseball gloves, hoping for a chance to catch a foul tip. We’re Triple A here in Indianapolis, so the experience has a very home-town feel.

Things are different at the ballpark, however, for my first post-COVID-19 game. There is now 40-foot-high netting separating the field from the stands, protecting us from being able to catch those fly balls, and putting an end to those cherished moments when the base coach would toss a ball into the stands and into the glove of a fan. [Note, the outfield is still fair game for home runs, along with providing the ability for fans to throw the ball back on the field when the homer is hit by the opposing team.]

“The new netting system will provide fans peace of mind when sitting close to the action down the first and third baselines,” according to the Indianapolis Indians’ president and general manager. I’m sure there’s a plus side to not having to worry about being conked on the head by a runaway foul tip when you’re not paying attention to the game, but what about those hopeful children cradling their gloves, hoping for a chance at a catch and a memory? What about their peace of mind?

Other things have changed too. The beer and hot dogs are no longer delivered in the stands (nor are any other concessions), although this happened before COVID-19. You have to miss half an inning while you wait in line at the concession counters (where oddly they are televising a baseball game, but not the one you came to see).

I understand change, improvement, trends, insurance issues, health, and safety – all of this goes into decisions to move in whatever direction the rule-makers determine is for the greater good. But at the same time, I’m going to miss the sweet ballgames that were unencumbered with nets and where I didn’t have to leave my seat to get food.

All of that leads me to the point of this month’s message. We are honoring change here at CPA Practice Advisor this month with our annual Innovation Awards. We recognize new technology designed to make our jobs easier, speed things along, improve visibility with clients, stay on top of regulations, and yes, protect ourselves from unexpected fly balls in the form of security breaches and phishing attacks.

I’d like to take just a moment, however, to consider that our clients might still appreciate the traditional touches that we include in our relationships. While we are switching to an online/filesharing/chatbot relationship with clients, the occasional phone call or in-person meeting also goes a long way toward cementing our relationships for the long term. Sharing a few minutes with them to ask how they’re doing, just as we do with friends and family, is like tossing the baseball into the stands. All of the protection we install ensures data security and moves things along more quickly, but don’t forget that your clients might still like to have you toss that ball, spend a moment in the sunshine with them, as you cheer them on.

By Laura Davison, Bloomberg News (TNS)

Wealthy Americans dodged getting hit by tax increases in the Democrats’ economic package, but they likely will face a much better-funded Internal Revenue Service equipped with new auditors and technology to uncover tax avoidance.

Top-earning Americans should be prepared for audit levels they haven’t seen in decades as the agency prepares to train an expanded workforce that specializes in complex financial dealings, including cryptocurrencies and offshore investments.

The tax and climate bill that the Senate passed this weekend includes $80 billion for the IRS over the next decade, a massive influx of cash for the agency that has faced budget cuts and declines in customer service and audit levels over the past decade. Democrats supporting the bill hope the bill will reverse those slides.

The non-partisan Congressional Budget Office projects that the $80 billion investment will yield an additional $204 billion in tax collection over the next decade. But other estimates, including some internal Treasury figures, suggest it could be much higher.

Treasury has projected that the additional IRS enforcement could be almost twice what CBO predicts — about $400 billion over 10 years. Academic research has also found that higher audit rates increase tax revenue in two ways, directly from the money collected from tax return examinations, as well as higher voluntarily compliance after a taxpayer is audited and from others who fear higher risk of IRS scrutiny.

Lawrence Summers, who served as Treasury Secretary under former President Bill Clinton, said the CBO’s figures are too conservative and that the IRS could collect far more from high-earning Americans and corporations.

“If this program is really implemented, instead of the $200 billion that the CBO estimates, I think the benefit could be $500 billion or even possibly, if they do a great job, $1 trillion,” he said in a interview with Bloomberg Television last week. “So I’m pretty optimistic about the fiscal potential here if the administration really steps up.”

The IRS has a lot of ground to make up on audits. The agency scaled back audits of all taxpayers between 2010 and 2019, with the total audit rate falling to 0.25% from 0.9%. The largest drop has been among those reporting $5 million or more, who have a 2.35% chance of being audited, down from more than 16% a decade ago, according to a May watchdog report from the Government Accountability Office.

“The IRS has proven time and time again that it can step up to some of these measures or goals,” said Eric Hylton, a former IRS official in the agency’s small business division who now is the director of compliance at alliantgroup. “If they’re saying $204 billion, I do think the IRS will be able to exceed that with the IT modernization, and the appropriate personnel and funding.”

More than half of the $80 billion, which is slated to be given to the IRS in chunks over the next decade, in the bill is designated for enforcement, including hiring and training new auditors, about one-third is for operations support, and the remaining money is to upgrade computer systems and improve taxpayer services.

It may take several years before the IRS starts to see results from the additional money. The CBO estimates that only $3 billion of the $204 billion will be collected next year, compared to more than 10 times that at the end of the decade. That’s largely because it can take years to train auditors, select cases and resolve audits.

IRS Commissioner Chuck Rettig said in a letter to Congress on Thursday that the agency has fewer auditors in the field at any time since World War II, underscoring the need for the additional money. Rettig told a House panel earlier this year that his agency is “outgunned” in examinations of large companies that have teams of corporate accountants and lawyers.

The IRS funding has faced loud criticism from Republicans in Congress who say pumping more funds into the agency will do harm to taxpayers. Republicans say the additional money will harass taxpayers who haven’t knowingly done anything wrong, despite assurances to the contrary from Rettig.

Senator Rob Portman, an Ohio Republican, told reporters Wednesday that he believes the IRS needs more money, but that the money should be directed to taxpayers services and technology not to bring greater scrutiny to taxpayers.

The House still needs to approve the bill before it can go to President Joe Biden’s desk to become law.

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©2022 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.

The “carried interest” loophole seems to have survived longer than the proverbial cat with nine lives.

New legislation just passed by the Senate—the Inflation Reduction Act—initially cracked down on the loophole once and for all. This tax break has been in the crosshairs of Congress for years. But the provision was removed from the bill due to objections from Sen. Kyrsten Sinema (D-AZ). The latest version is expected to sail through the House before it recesses and be signed by the president.

To make up for the lost revenue, the Act imposes a 1% excise tax on corporate stock buybacks.

Under the current rules for carried interest, compensation paid to managers of certain investment entities is taxed at favorable long-term capital gain rates instead of high-taxed ordinary income rates, after a three-year holding period is met. Generally, the new law would have required managers to meet a five-year holding period to qualify for long-term capital gain.

The maximum tax rate for long-term capital gain is only 20% (15% for certain low-to-moderate income taxpayers). In comparison, the top tax rate on ordinary income is 37% or almost twice as much.

The carried interest rules have long been criticized as providing an unfair tax advantage to a select group of wealthy individuals. In fact, opposition has come from both sides of the aisle. It’s been a frequent target of lawmakers in other proposed legislation. The three-year holding period requirement was added in 2017, but other efforts to curb this tax break have gone by the wayside.

Notably, both President Biden and President Trump supported closing the carried interest loophole during their respective campaigns.

Sinema, who has received substantial backing from wealthy financiers, proved to be the main obstacle this time around. The bill would not have passed without the removal of the provision. However, even those in favor of closing the loophole acknowledge that the projected revenue loss is relatively small.

The new law does contain other tax provisions: creating a new corporate minimum tax, extending and expanding tax credits for energy-saving improvements and electric cars, and increasing IRS enforcement activities, plus the new stock buyback tax. Finally, it’s likely that the carried interest loophole will remain a hot potato in our nation’s capital. Don’t be surprised if some members of Congress take another shot at closing it soon.

By Laura Davison, Erik Wasson and Ari Natter, Bloomberg News (TNS)

President Joe Biden and Senate Majority Leader Chuck Schumer are the biggest winners now that a huge piece of Democrats’ economic agenda is hurtling toward enactment.

The tax and energy bill passed Sunday after a year and half of rocky negotiations that divided the party. It gives Democrats tangible progress on key issues to show voters in the midterm elections this November.

Biden’s popularity nose-dived a year ago in the wake of the haphazard Afghanistan pullout and rising inflation—and a year of infighting among Democrats over the domestic agenda. That squabbling is in the past and Biden can say a cornerstone of his agenda will become law.

Schumer was slammed last year for failing to unite his caucus behind Biden’s “Build Back Better” plan. He managed to revive a slimmed version of the deal, navigate last-minute holdups and blindside Republicans hours after they gave up leverage by allowing a bipartisan semiconductor bill to pass.

Here’s who else comes out on top and who takes a hit from the landmark bill:

Winners

— The wealthy

None of the billions of dollars in tax increases Democrats floated a year ago on high-earning Americans made it into the final version of the bill, including proposals to double the capital gains rate, increase taxes on inheritances and levy a surcharge on millionaires. Despite rhetoric from Democrats that they wanted the richest Americans to pay much more, there wasn’t consensus within the party to pass a bill that raises levies on the 1%.

— Private equity

Private equity fund managers were able to dodge a tax increase that Sen. Joe Manchin wanted, but fellow moderate Democrat Sen. Kyrsten Sinema insisted be taken out of the bill. Manchin had wanted to narrow a tax break known as carried interest, that allows fund managers to pay lower capital gains rates on their earnings. The private equity industry was able to gain an additional win shortly before the final passage of the bill when a handful of Democrats broke with their party to vote on a Republican amendment that created a carveout for private equity-owned companies in the corporate minimum tax.

— Manchin, Sinema

The entire contents of the bill were essentially cherry-picked by Manchin and then tweaked to fit Sinema’s preferences. The two moderates amassed huge leverage with their willingness to accept no bill at all — and attacks from progressives — rather than a bill with provisions they opposed. The pair were also able to score some direct benefits for their states as part of the negotiations: Manchin secured and agreement to permit the completion of the Equitrans Midstream Corp.’s Mountain Valley Pipeline, and Sinema was able to get $4 billion for drought relief in Western states.

— Electric carmakers

The deal extends a popular $7,500 per vehicle consumer tax credit for the purchase of electric vehicles, a win for EV makers like General Motors Co., Tesla Inc. and Toyota Motor Co. But to win the backing of Manchin, companies will have to comply with tough new battery and critical minerals sourcing requirements that could render the credits useless for years for many manufacturers. Not all manufacturers stand to benefit from the credit. New cars that cost more than $55,000 and $80,000 for pickups and SUVs won’t qualify for the credits.

— Renewable energy

Solar company Sunrun Inc., energy storage and software provider Stem Inc., and hydrogen and fuel cell company Plug Power Inc. stand to benefit from generous tax credits in the bill. Nuclear reactor operators such as Southern Co., Constellation Energy Corp., Public Service Enterprise Group Inc. and Energy Harbor Corp. also could see a boon from a $30 billion production tax credit for nuclear power providers.

— Oil companies

Oil and gas got a boost alongside newer energy sources. The bill, which could mandate more federal oil and gas lease sales and boosts an existing tax credit for carbon capture, won praise from companies such as Exxon Mobil Corp. and Occidental Petroleum Corp. The legislation creates a new 10-year product tax credit for hydrogen production that rises to as much as $3 per kilogram depending on carbon intensity.

— Medicare, Obamacare enrollees

The final bill caps out-of-pocket costs for seniors’ prescription drugs at $2,000 a year and allows Medicare to negotiate the prices on 10 medications four years from now. The bill avoids a large January increase in Obamacare premiums for many middle income people by extending subsidies for three years.

— Deficit hawks

Manchin negotiated $300 billion in deficit reduction into the bill, the first major effort by Congress in 11 years to reduce the difference between how much the country spends versus how much tax revenue it takes in. The deficit cuts are minor compared to the $24 trillion national debt but hawks say it’s a start.

— The IRS

The Internal Revenue Service will get an influx of $80 billion over the next decade to expand its audit capability and upgrade technology systems after years of being underfunded.

Losers

— Republicans

The GOP was confident they had beaten back Biden’s tax and climate agenda and were stunned in late July when Schumer and Manchin announced a deal. While still the favorites to gain seats in the midterm elections, passage of the bill is a major setback for the GOP’s policy aims. It does, however, give them a new issue to campaign on in the fall campaigns.

— Pharmaceutical companies

The bill allows Medicare for the first time to negotiate with pharmaceutical companies on drug prices, a change that Congress has been discussing for decades with limited success, in part because of the drug lobby’s power. The pharmaceutical industry was able to score a partial victory after the Senate parliamentarian blocked a portion of the bill that would have capped price increases for drugs in the commercial market. Drug-makers will likely offset some of their reduced revenue from Medicare negotiations with higher prices for patients with private insurance.

— Tech companies

Technology companies are set to bear the brunt of the two major tax increases in the proposal — a 15% minimum tax on financial statement profits and a new levy on stock buybacks. Corporations like Alphabet Inc.’s Google and Meta Inc.’s Facebook have both been able to deftly use the tax code to cut down on the taxes they owe, while still being profitable. The minimum tax is designed to increase levies on companies that report large profits to shareholders, but can claim many deductions and credits to cut their IRS bills.

— The SALT caucus

The legislation does not include an expansion of the $10,000 cap on the state and local tax deduction, or SALT. The omission is a blow to residents of high-tax states in the Northeast and West Coast, and Reps. Josh Gottheimer of New Jersey and Tom Suozzi of New York, who led the effort to increase the size of the write-off.

— Bernie Sanders

The $437 billion in spending is a far cry from the $6 trillion that progressives, led by Sen. Bernie Sanders, envisioned at the start of Biden’s presidency. The bill excludes all proposals for new social programs, including child care, tuition-free college, housing spending and an expanded-child monthly child tax credit.

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©2022 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.