J A N U A R Y/ F E B R U A R Y 2 0 1 9
UNDERSTANDING AND IMPLEMENTING NEW TAX LAWS Page 4 UNDERSTANDING SECTION 199A Page 6 BEYOND SECTION 199A: OTHER TCJA TAX CHANGES
Page 8 RIDING THE WAVES OF WAYFAIR Page 10 MANY TAX CHANGES ENACTED WITH THE 2018/19 NJ BUDGET
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contents J A N U A R Y/ F E B R U A R Y 2 0 1 9
THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
RALPH RALPH ALBERT ALBERT THOMAS, THOMAS, CGMA ChiefCPA Executive (DC), Officer CGMA &Chief Executive Executive Director Officer rthomas@njcpa.org & Executive Director rthomas@njcpa.org ELLEN C. McSHERRY, CGMA Chief ELLEN Operating C. McSHERRY Officer emcsherry@njcpa.org Chief Operating Officer emcsherry@njcpa.org DON MEYER Chief Marketing DON MEYER Officer dmeyer@njcpa.org Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing RACHAEL Editor BELL rbell@njcpa.org Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER KATHLEEN Content Editor HOFFELDER khoffelder@njcpa.org Content Editor khoffelder@njcpa.org MARC L. REIN Multimedia MARCSpecialist L. REIN mrein@njcpa.org Multimedia Specialist mrein@njcpa.org
4 Understanding Section 199A
8 Riding the Waves of Wayfair
Under the Tax Cuts and Jobs Act (TCJA), a new deduction was created — Section 199A of the Internal Revenue Code — that permits owners of sole proprietorships, S corporations and partnerships to potentially deduct up to 20 percent of their business income. Learn the basics.
New Jersey, along with about 30 other states, acted to impose some economic nexus standards upon sellers following the U.S. Supreme Court’s decision in June to rule for the state in South Dakota v. Wayfair. Now is the time for businesses to determine the extent of Wayfair’s impact on their operations to help minimize unwanted tax-related surprises in the future.
6 Beyond Section 199A: Other TCJA Tax Changes
10 Many Tax Changes Enacted with the 2018/19 NJ Budget
While Section 199A has overshadowed much of the tax discussions following the TCJA, lots of changes are in effect with its passing. These include changes to the corporate tax rate, Section 179 expensing and bonus depreciation, and interest expense to name a few. Find out what it all means for corporations and individuals.
2 CLOSE UP
Connecting with Members
THE THE NEW NEW JERSEY JERSEY SOCIETY SOCIETY OFOF CERTIFIED CERTIFIED PUBLIC PUBLIC ACCOUNTANTS ACCOUNTANTS 425 425 EAGLE EAGLE ROCK ROCK AVENUE AVENUE SUITE SUITE 100, 100, ROSELAND ROSELAND NJNJ 07068 07068 973-226-4494 973-226-4494 | NJCPA.ORG | NJCPA.ORG #NJCPAMAG #NJCPAMAG READ READ NEW NEW JERSEY JERSEY CPA CPA ONLINE ONLINE ATAT NJCPA.ORG/ NJCPA.ORG/ NEWJERSEYCPA NEWJERSEYCPA DEDE S IGN/ SIGNP/RODUCTI P RODUCT ON I ON / / A DVERTISING ADVERTISIN G THE THE YGS YGS GROUP GROUP 3650 3650 WEST WEST MARKET MARKET STREET STREET YORK, YORK, PAPA 17404 17404 Advertising Advertising Contact: Contact: LAURA LAURA GAENZLE GAENZLE ACCOUNT ACCOUNT EXECUTIVE EXECUTIVE 717-430-2351 717-430-2351 laura.gaenzle@theygsgroup.com laura.gaenzle@theygsgroup.com
12 ACCOUNTING, AUDITING & ATTEST
The Power of Intelligent Automation 13 BECOMING A CPA
Secret Sauce for Success on the CPA Exam: Time to Study 14 BUSINESS ADVISORY SERVICES
Effective Structuring in 2019 to Avoid SALT Exposure 16 CORPORATE ACCOUNTING
What to Expect After the Auditor Leaves
Find out about numerous tax changes that affect both individuals and businesses under the New Jersey state legislature budget agreement signed into law by Governor Murphy last July. From sales tax to corporate business tax to gross income tax, accounting professionals need to stay abreast of the changes.
17 FIRM & PRACTICE MANAGEMENT
Three Ways to Keep Up with Standards 18 FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION
Tax Changes Affecting Family Law 19 GOVERNMENTAL & NONPROFIT
Be SMART About Tax Reform 20 LAW & ETHICS
Record Retention for Tax Return Preparers 22 PROFESSIONAL DEVELOPMENT
Networking 101— A Bit of Work for Young Professionals but Worth It
23 TAX
The Surprising Impact of the SALT Deduction Limit 25 TECHNOLOGY & INFORMATION MANAGEMENT
Maintaining Body Health with Use of Technology 26 NJCPA NEWS
yy Career Night Helps Young Professionals yy Tax Season Survival Tools 27 CLASSIFIEDS 28 MEMBER STORY
Elena Klarberg, CPA
CLOSE UP
Connecting with Members BY SARAH KROM, CPA, MANAGING PARTNER, SKC & CO., CPAs, LLC AND NJCPA PRESIDENT
Meeting NJCPA members at “Dine & Connect” gatherings around the state these past few months has been extremely enlightening and invigorating. If you are not familiar or missed them, the meetings were informal gatherings held throughout New Jersey to connect with members on an individual basis. I truly appreciated the opportunity to hear everyone’s opinion on what can be done to make the NJCPA a better resource to support your needs as CPAs and accounting professionals, CPA candidates or those nearing retirement. A lot of great ideas came out of our discussions as well as challenges that we can all work on going forward. Here’s what members told me they want from the NJCPA: yy Be our own voice, separate from the AICPA. Advocate for the licensee and protect the license. yy Focus on small firms. A lot of sole practitioners and small firms are struggling with limited resources; it’s hard to keep clients and wear all necessary hats. yy Help with standards compliance. Sole practitioners and small firms are overloaded with standards compliance. yy Provide information about federal tax law. Members are concerned about how the Tax Cuts and Jobs Act will impact their business and their clients; many do not want to make long-term commitments because of this. yy Use chapters as a training ground. Small firms and sole practitioners need help, and chapters are a great place for learning. Attendees at chapter events would like more participation from the larger CPA firms that are in their vicinity.
yy Attract young professionals to the profession. We need to educate young professionals about various CPA career options. yy Continue to focus on the CPA designation. Keep it front and center for young professionals starting out in the profession and make the public more aware of what the license means. Here’s what we are doing about it: yy Engaging. I said I would work to engage more NJCPA members when I started my term as president, and that’s what we are doing — from the Board of Trustees to interest groups to volunteer events. In September, we began having each board member establish personal goals in the areas of influencing educators, CPA credential awareness, supporting small firms and other member outreach. yy Relearning. NJCPA CEO Ralph Thomas and I have been visiting CPA firms across the state to garner your thoughts, your expectations and where we can work together. These firm visits have been a great opportunity to hear what’s driving your businesses right now and where you hope to be in the future. yy Promoting advocacy. A lot is changing in Trenton. We as an organization need to stay on top of those initiatives. We are well-placed with Ralph and Jeff Kaszerman, NJCPA vice president of government relations, representing member values at key legislative meetings. yy Enhancing education. We are working towards fulfilling members’ educational and professional development
needs. We have new CPE programs and webinars focusing on tax regulation, new uses of technology, cannabis and professional development. yy Encouraging young professional involvement. We continue to reach out to students and young professionals to keep the CPA pipeline moving. We have the highest number of student ambassadors at New Jersey colleges and universities than we ever had. We continue to work with academia and firms to promote the value of the CPA license. We also work to captivate our younger members with networking, golf and kickball tournaments and other fun events. I hope to speak with all of you in oneon-one gatherings or at NJCPA meetings, chapter events or other activities. I encourage you to reach out to me. We do our best work when we work together. I can be reached at president@njcpa.org.
New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068. Issue No. 73 Copyright © 2019 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues. Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.
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JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
UNDERSTANDING SECTION 199A By CHRISTOPHER R. CICALESE, CPA
ALLOY SILVERSTEIN ACCOUNTANTS AND ADVISORS
The passing of the Tax Cuts and Jobs Act marked a new era in taxation. A new deduction — Internal Revenue Code Section 199A — was created that permits owners of sole proprietorships, S corporations and partnerships to potentially deduct up to 20 percent of their business income.
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While the addition of a state and local tax (SALT) deduction limitation hurt many taxpayers, this new deduction may create a more favorable tax outcome for some. THE BASICS Effective for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, a taxpayer other than a corporation may be entitled to a deduction equal to 20 percent of qualified business income (QBI) earned in a qualified trade or business. The deduction is the sum of: yy The lesser of a) the “combined QBI amount” or b) 20 percent of the excess of taxable income over the sum of any net capital gain and the aggregate qualified cooperative dividends; plus yy The lesser of a) 20 percent of the aggregate qualified cooperative dividends or b) taxable income minus capital gains. Combined QBI is the sum of deductible amounts determined for each qualified trade or business plus 20 percent of the taxpayer’s aggregate qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income. Generally, the qualified business deductible amount can be summarized as the lesser of: yy 20 percent of the taxpayer’s QBI from the trade or business or
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
yy Greater of a) 50 percent of allocable share of W-2 wages paid by business or b) 25 percent of allocable share of W-2 wages paid by the business plus 2.5 percent of allocable share of unadjusted basis (original cost) of qualified property QBI does not include wages, guaranteed payments, capital gains (losses) or investment income. There is a deduction phase-out that starts for single taxpayers at taxable income of $157,500 ($315,000 married filing jointly (MFJ)) with no deduction allowed if they reach $207,500 ($415,000 MFJ). Any taxpayer who has a taxable income below the phase-out limitations does not have any limitations on the deduction in terms of wages, property or industry specifics. As the deduction is phased out, the limitations partially apply. If the taxpayer’s income goes above the threshold, the limitations and industry exclusions fully apply. QUALIFIED TRADE OR BUSINESS In order to claim the Section 199A deduction, the trade or business must be a qualified trade or business. Employees that perform services as a trade or business would not qualify for the deduction. Specified service trades or businesses (SSTB) that would not qualify include the performance of services in
health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investments, trading, or working where the principal asset is the reputation or skill of one or more employees. It is important to note that engineering and architecture are specifically removed from the list of excluded services and are considered a qualified trade or business. yy Example 1: Company A is an S corporation owned 100 percent by Dave. The S corporation had $200,000 of net income for the year, which includes interest of $25,000. Dave’s wages were $75,000. QBI is calculated as $175,000 ($200,000 net income minus $25,000 interest). The QBI deduction is $35,000 ($175,000 x 20 percent). yy Example 2: Company B is a single-member LLC owned by Dave. The business had $500,000 of net income for the year, which includes interest of $100,000, and Dave is not paid any wages. QBI is calculated as $400,000 ($500,000 net income minus $100,000 interest). The potential QBI deduction is $80,000 ($400,000 x 20 percent). Dave’s income is over the threshold, and the deduction is subject to the wage and property tests. Since there are no wages or property, the QBI deduction is $0. yy Example 3: Company C is an engineering firm. Total W-2 wages paid are $9 million, unadjusted basis in fixed assets are $3 million and QBI is $17 million. The partner’s profit-and-loss percentage is multiplied by these three amounts. The partner is a 10-percent shareholder. His share of W-2 wages paid is $900,000, unadjusted basis in fixed assets is $300,000 and QBI is $1.7 million. The partner’s maximum possible deduction is $340,000 (20 percent x $1.7 million). Next, the wage and property limitations must be tested. Fifty percent of the partner’s allocable share of the wages are taken and compared to the sum of 25 percent of the wages plus 2.5 percent of the basis in the assets. The $450,000 in wages is greater than the $232,500 sum, so the $450,000 is used. Finally, the lesser
of ($340,000) or $450,000 must be chosen. In this case, the wages paid by the partnership are great enough to get the full 20-percent QBI deduction. IRS GUIDANCE The IRS has issued FAQs and proposed regulations (REG-107892-18) that provide some clarification for most aspects of the QBI deduction that needed guidance. Below is a summary. yy Reputation or skill of one person. The IRS set to clarify the type of business that would be disallowed under the “reputation or skill of one person” criteria. Businesses with income from endorsing products, appearance fees, licensing or receiving income for an individual’s image or likeness would not qualify for the QBI deduction. The majority of taxpayers that fall in this category would be professional athletes, celebrities, media personalities, social media stars and even professional video game players. yy De minimis tax rule. If a business is involved in multiple activities, the business would not be disqualified from taking the QBI deduction if less than 10 percent of the gross receipts (5 percent if gross receipts are greater than $25 million) are attributable to a SSTB activity. yy Aggregation rule. The proposed regulations allow taxpayers to aggregate commonly controlled businesses rather
than calculating the QBI deduction separately for each entity. To aggregate two or more businesses, the following criteria must be met: each business must meet the definition of a “trade or business” and not be an SSTB; the same person or group must directly or indirectly own a majority interest in each of the businesses for the majority of the year; and they all must have the same taxable year. Lastly, the taxpayers must meet two of the following three factors, which demonstrate the businesses are part of a larger conglomerate: yy Businesses provide products and services that are the same or customarily provided together yy Businesses share facilities or significant centralized business elements (common personnel, accounting, legal, manufactures, HR, IT) yy Businesses are operated in coordination with, or reliance on, other businesses in the group Thankfully, the proposed regulations have made Section 199A a little easier to understand. Christopher R. Cicalese, CPA, MSTFP, is a manager at Alloy Silverstein Accountants and Advisors. He is a member of the NJCPA and can be reached at 856-667-4100, ccicalese@alloysilverstein.com or on Twitter at @AthleteCPA.
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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BEYOND SECTION 199A: OTHER TCJA TAX CHANGES By NICOLE DEROSA, CPA WITHUMSMITH+BROWN
The Tax Cuts and Jobs Act (TCJA) has been at the forefront of tax news for what seems like a lifetime already, and it will continue to be for the remainder of 2019 as we formally implement the Act’s changes during the upcoming filing season.
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While the Section 199A deduction has overshadowed many of the other various federal tax law changes — as it should, it’s a pretty big deal — let’s not forget about additionally important business and individual provisions that will affect just about everyone. BUSINESSES The following changes are in effect for tax years beginning after Dec. 31, 2017. yy Corporations. Flow-through entities were not the only businesses greatly affected by the TCJA. In an effort to be more competitive and keep profits in the United States, the corporate tax rate was permanently reduced from a maximum progressive rate of 38 percent to a flat rate of 21percent. In addition to this significant tax rate reduction, the corporate alternative minimum tax was also eliminated. yy Section 179 expensing and bonus depreciation. Businesses will now be able to expense up to $1 million (increased from the 2017 amount of $510,000) for qualifying property placed in service during the year, as long as the total property placed in service during the year does not exceed $2.5 million. “Qualifying property” eligible for immediate expensing was also expanded to include certain improvements, as long as the improvements are not structural in nature and do not enlarge the building. In addition,
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
the bonus depreciation rules now allow businesses to take a 100-percent first-year deduction (up from 50 percent) on qualified new and used property that was acquired after Sept. 27, 2017, and placed in service by Dec. 31, 2022. yy Interest expense. Under amended Code Section 163(j), the deduction for business interest incurred will now be limited for tax years beginning after 2017 for all taxpayers, except for those with average gross receipts of $25 million or less (average of three-tax-year period ending with the prior tax year); real estate or farming businesses that elect to exempt themselves; and certain regulated entities. The deduction will be limited to the sum of: 1. Business interest income for the taxable year; 2. 30 percent of the taxpayer’s adjusted taxable income for the tax year; and 3. The taxpayer’s floor plan financing interest paid by vehicle dealers for the tax year. For calculation purposes, adjusted taxable income is taxable income before any net operating loss, Section 199A deduction, depreciation, amortization or depletion. If businesses are in a real property trade, they can file an irrevocable election to elect out of the limitation; however, if they elect out, they are required
to use the alternative depreciation system (ADS) to depreciate real property. yy Net operating losses. Prior to the TCJA, net operating losses (NOL) were generally able to be carried back up to two tax years and forward up to 20 tax years to offset taxable income. For NOLs arising in tax years beginning after Dec. 31, 2017, the TCJA now limits the NOL deduction to 80 percent of taxable income, eliminates the two-year carryback period and allows for an indefinite carryforward. yy Miscellaneous provisions. Other notable modifications under the TCJA include the following:
yy The Section 199 Domestic Production Activities Deduction has been eliminated. yyThe Orphan Drug Credit has been lowered to 25 percent from 50 percent of a company’s costs related to clinical trials for developing rare-disease treatments. yySmall taxpayers are excepted from the uniform capitalization rules (UNICAP). yyThere is a now a limitation on tax-free exchanges of real property not held primarily for sale. yyThere is a transition from a worldwide tax system to a territorial system with base erosion rules.
INDIVIDUALS There are numerous tax changes for individual taxpayers. Most of them are set to expire on Dec. 31, 2025. yy Tax brackets. Although the seven-bracket structure has been retained, there has been a shift as the income bracket ranges were modified. Most individual income tax rates have been lowered, including the top marginal rate from 39.6 percent to 37 percent. Table 1 shows a comparison of the married filing jointly tax brackets.
yy Standard deduction and exemptions. The standard deduction has been almost doubled, which was one of the major selling points for the TCJA in simplifying the tax law. Due to the increase, more taxpayers will likely take the standard deduction rather than itemizing their deductions. However, the personal exemption has been eliminated, which makes the perceived tax benefit of the increased standard deduction deceptively higher than it should be. In an effort to soften the blow of the elimination of exemptions, the child tax credit was expanded from $1,000 to $2,000 (of which a portion is refundable), and the phaseout was increased to be more inclusive. yy Itemized deductions. A number of deductions have been eliminated or limited, the most noteworthy being the $10,000 cap on all state and local income taxes. Other changes to itemized deductions include: the elimination of the 3-percent Pease limitation; reduction of the mortgage interest limitation; elimination of deductions subject to the 2-percent limitation; and an increase to the charitable contribution adjusted gross income (AGI)
TABLE 1 – TAX BRACKETS FOR MARRIED FILING JOINTLY PRIOR LAW
TCJA
10%
$0 - $19,050
10%
$0 - $19,050
15%
$19,051 - $77,400
12%
$19,051 - $77,400
25%
$77,401 - $156,150
22%
$77,401 - $165,000
28%
$156,151 - $237,950
24%
$165,001 - $315,000
33%
$237,951 - $424,950
32%
$315,001 - $400,000
35%
$424,950 - $480,050
35%
$400,001 - $600,000
39.6%
$480,051 +
37%
$600,001 +
limitation from 50 percent to 60 percent. yy Alternative minimum tax (AMT). Although individual AMT was not eliminated like its corporate counterpart, the exemption and phaseouts have been increased in an effort to align with the original intentions of the supplemental tax first enacted in 1982. With the increased exemption and phaseout amounts, the AMT will be less likely to hit at lower income levels. For example, for taxpayers who are married filing jointly, the exemption increased from $86,200 to $109,400, and the phaseout threshold increased from $164,100 to $1 million. Nicole DeRosa, CPA, MAcc, is tax manager at WithumSmith+Brown. She is a member of the NJCPA Federal Taxation Interest Group, Emerging Leaders Council and Emerging Leaders Interest Group and can be reached at nderosa@withum.com. LEARN MORE JAN. 14, ROSELAND FEDERAL TAX UPDATE – INDIVIDUALS
JAN. 15, ROSELAND FEDERAL TAX UPDATE – C & S CORPORATIONS, PARTNERSHIPS & LLCs Register at njcpa.org/events
READ MORE TCJA ARTICLES AND RESOURCES njcpa.org/taxreform
DO MORE JOIN THE FEDERAL TAXATION INTEREST GROUP njcpa.org/groups
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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RIDING THE WAVES OF WAYFAIR By JIM BARTEK, CPA, AND ANDREW STEINHAUS, CPA
KPMG LLP
On June 21, 2018, the U.S. Supreme Court ruled for the state in South Dakota v. Wayfair. Since that decision, more than 30 states, including New Jersey, have acted to impose some economic nexus standards upon sellers.
In its decision, the Court overturned prior decisions imposing the physical presence standard for sales tax nexus. It ruled that retailers would have to collect sales tax based on an economic nexus standard even in states where they have no physical presence. The Court also found out-of-state retailers that met thresholds provided in South Dakota’s law (over $100,000 of sales into South Dakota or 200 or more separate transactions for delivery into South Dakota) had substantial nexus with the state for purposes of the Commerce Clause of the U.S. Constitution. Now is the time for businesses to determine the extent of Wayfair’s impact on their operations to help minimize unwanted tax-related surprises in the future. WHAT NOW? A WAYFAIR REVIEW PLAN While there is no one-size-fits-all method, a good first step would be for companies to examine where they may be required to register and collect tax, whether their sales are taxable and whether their existing tax compliance process can handle any increased requirements.
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JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
These steps could act as building blocks for a comprehensive sales/use tax review that would include the following: yy Review nexus footprint. Businesses should review states where their operations could create existing physical presence and affiliate activities to determine any potential prior-period gaps. Companies should also examine current and planned sales activity to determine whether economic nexus standards would be exceeded in states where the company isn’t currently collecting tax. yy Analyze taxability of sales. In states where it is determined that registration is required, businesses should evaluate their product and service offerings to determine the correct taxability. It’s also important to analyze whether sales invoices bundle taxable and exempt products and properly display tax calculations. yy Review technology needs. Companies should consider whether current systems properly track sales by jurisdiction, apply correct taxability determinations and calculate the appropriate tax. Also, organizations need to consider whether their systems can generate the documentation required to prepare sales tax returns and
support potential future tax audits. yy Develop a compliance plan. Some businesses will see their compliance obligations expand, and they may need to register, collect tax, obtain exemption documentation (for exempt sales) and file returns in new states. Is the existing compliance framework up to the task? If not, additional personnel, tax compliance systems or outsourcing partnerships might be solutions. yy Consider sales implications. Companies should inform stakeholders outside the tax department of any potential changes. Customer-facing departments must be prepared to answer questions from customers regarding any new tax charges. In addition, invoicing requirements, systems upgrades and new tax registrations might affect billing, IT, marketing and legal departments. yy Consider purchasing implications. Businesses might see more vendors charge sales tax on their purchases. If so, systems must ensure that use tax is not remitted when sales tax is collected and sales tax is not charged on exempt purchases. yy Stay current on changes. Wayfair will bring about changes to tax policy in many states. Companies will need to monitor future law changes, product taxability, tax rates, filing requirements and more in new and existing jurisdictions.
WAYFAIR IN NEW JERSEY In response to Wayfair, on Oct. 4, 2018, New Jersey Governor Phil Murphy signed a law changing the sales tax collection standards. Effective Nov. 1, 2018, the law establishes an economic nexus standard similar to South Dakota’s and extends a sales tax collection responsibility to marketplace facilitators. New Jersey now requires out-of-state sellers to collect sales tax if either of the following criteria is met: yy Gross revenue from delivery of tangible personal property, a specified digital product or services into New Jersey in the calendar year in which a sale occurred or the prior calendar year exceeds $100,000; or yy The seller sold tangible personal property, a specified digital product or services for delivery into the state in 200 or more separate transactions during the calendar year in which a sale occurred or the prior calendar year. For businesses subject to this new collection requirement, tax applies to sales following the effective date of the bill. New Jersey will not retroactively enforce the economic nexus standard. The bill also requires marketplace facilitators (e.g., Etsy, eBay, Amazon Marketplace) to collect sales tax on any taxable sales delivered to a New Jersey purchaser.
However, marketplace facilitators and sellers may contract with each other regarding tax collection. In addition, if a marketplace is audited regarding a specific transaction, generally the seller in that transaction may not also be audited. The New Jersey Division of Taxation recommends that out-of-state sellers continue to monitor developments regarding registration and tax-collection requirements as additional information is be provided. In the wake of Wayfair, businesses face a changing sales tax collection landscape. Several states, including New Jersey, are setting new standards for sales tax nexus. Companies now need to determine the impact of these changes to their tax compliance process, make changes where needed and keep a close watch on further developments. James Bartek, CPA, is a state and local tax partner at KPMG LLP and Andrew Steinhaus, CPA, is a state and local tax senior manager at KPMG LLP. They are both members of the NJCPA State Taxation Interest Group and can be reached at jbartek@kpmg.com and asteinhaus@kpmg.com, respectively. These comments represent the views of the authors only, and do not necessarily represent the views or professional advice of KPMG LLP. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
LEARN MORE JAN. 17, WEBINAR NEW JERSEY SALES & USE TAX
JAN. 18, WEST WINDSOR NEXUS UPDATE
JAN. 18, MOUNTAIN LAKES NEXUS ISSUES Register at njcpa.org/events
READ MORE STATE TAX ARTICLES AND RESOURCES njcpa.org/topics/statetax
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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MANY TAX CHANGES ENACTED WITH THE 2018/19 NEW JERSEY BUDGET By NEIL B. BECOURTNEY, CPA
COHNREZNICK LLP
There were numerous tax changes affecting both individuals and businesses under the New Jersey state legislature budget agreement signed into law by Governor Murphy last July.
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GROSS INCOME TAX (GIT) The Governor had sought to increase the top GIT rate from 8.97 percent to 10.75 percent on taxable income above $1 million, the so-called “millionaire’s tax.” A compromise was reached, whereby a new 10.75-percent rate is imposed on taxable income in excess of $5 million, effective for 2018 and subsequent years. Per the Governor’s office, this measure will impact only approximately 1,760 residents. No penalty will be imposed for insufficient payment of estimated tax that may otherwise be due on salaries and wages received before Sept. 1, 2018, resulting from this retroactive tax rate hike. Whereas the federal Tax Cuts and Jobs Act (TCJA) limits the SALT deduction to $10,000 for 2018 and future years, the New Jersey property tax deduction for taxes paid on a principal residence has increased from $10,000 to $15,000 for years after 2017. The earned income tax credit was increased slightly, and a new child care credit mirroring the federal child care credit was enacted, although the credit is fully phased out if New Jersey taxable income exceeds $60,000.
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
CORPORATION BUSINESS TAX (CBT) By far the greatest number of changes took place in this area. Space limitations preclude all CBT changes from being addressed here, but a temporary 2.5-percent surtax will be imposed on taxpayers (except public utilities) with allocated net income exceeding $1 million for tax years beginning Jan. 1, 2018, through Dec. 31, 2019, which is then reduced to 1.5 percent for tax years beginning Jan. 1, 2020 through Dec. 31, 2021. Mandatory combined reporting is effective for combined groups for periods beginning on or after Jan. 1, 2019, on a unitary basis under rules that, to a large degree, were not formulated when the July 2018 budget agreement was adopted. In fact, on July 20, 2018, the New Jersey Division of Taxation sought quotes from qualified service providers to assist it with drafting regulations and creating CBT forms and related materials to implement the new combined reporting regime in New Jersey. The term “combined group” refers to a group of companies having common ownership and which are engaged in a
unitary business, where at least one company is subject to CBT. For this purpose, “common ownership” exists where more than 50 percent of the voting control of each member of a combined group is directly or indirectly owned by a common owner or owners, either corporate or non-corporate, whether the owner or owners are members of the combined group. The term “unitary business” refers to a single economic enterprise that is made up either of separate parts of a single business entity or of a group of business entities under common ownership that are sufficiently interdependent, integrated and interrelated through their activities. For tax years beginning after 2018, sales of services will no longer be sourced based on where the services are performed. If the benefit of the service is received at a location in New Jersey, the receipts will be sourced to New Jersey. If the benefit of the service is received at locations both within and outside New Jersey, the portion of the sale that is allocated to New Jersey is to be based on the percentage of the total value of the benefit of the service received at a location in New Jersey or a reasonable approximation to the total value of the benefit of the service received in all locations. For customers other than individuals, the service is deemed received at the location from which the services were ordered if the state in which the services were assigned cannot be determined. In instances where the state in which the services were assigned cannot be determined, for an individual, the service is deemed received at the customer’s billing address. No penalties or interest will accrue for underpayment of tax for the provisions applying retroactively to tax years beginning on or after Jan. 1, 2017, that create an additional tax liability. However, the additional payments must be made either as part of the second estimated payment after the enactment, or as part of the first estimated payment due after Jan. 1, 2019 for tax years beginning on or after Jan. 1, 2018.
SALES TAX In late June, the U.S. Supreme Court decision handed down in Wayfair permits states to enact remote seller sales tax provisions. New Jersey enacted legislation effective Nov. 1, 2018, establishing a bright-line standard for sales tax nexus of $100,000 in taxable sales or 200 or more transactions. The law also imposes sales tax collection and reporting requirements on a “marketplace facilitator,” which is defined as any person or business that provides a forum to a retailer to advertise, promote and list the retailer’s products, and that also collects receipts from the customer and remits payment to the retailer. The Governor had sought to restore the sales tax rate to 7 percent. However, it remains at 6.625 percent. Effective Oct. 1, 2018, marketplaces such as Airbnb and VRBO are now required to collect New Jersey sales tax.
Neil B. Becourtney, CPA, is a tax partner at CohnReznick LLP. He is a member of the NJCPA State Taxation Interest Group and can be reached at neil.becourtney@cohnreznick.com.
DO MORE JOIN THE STATE TAXATION INTEREST GROUP njcpa.org/groups
LEARN MORE JAN. 16, BAYONNE NEW JERSEY STATE TAX UPDATE
FEB. 1, SECAUCUS CURRENT DEVELOPMENTS IN STATE TAXES
MARCH 21, WEBCAST ISSUESWATCH LIVE Register at njcpa.org/events
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NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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ACCOUNTING, AUDITING & ATTEST
The Power of Intelligent Automation BY THOMAS KLOCKNER, CPA, KPMG
In the audit profession, we have reached the next milestone in the transition from manually driven activities to processes that are increasingly automated. Most of the traditional tools and techniques continue to experience massive change, as digital tools and, more specifically, intelligent automation take on what has traditionally been handled through manual processes. In this digital world, where information is ubiquitous and data volumes are exploding, auditors are engaging intelligent automation, cognitive technology and other tools to help make sense of it all and fulfill our important responsibilities to the investing public. The practice is widespread. According to the KPMG 2018 U.S. CEO Outlook, 49 percent of CEOs have begun limited implementation of artificial intelligence systems within their companies. Additionally, annual global spending on cognitive systems by 2019 is expected to be $31 billion, a 55-percent cumulative annual growth rate over a five-year period, according to the IDC Worldwide Spending on Cognitive Systems Spending Guide. Cognitive technologies enable analysis of large volumes of data and allow auditors to more efficiently dig deeper into identified anomalies and enhance their professional judgment and decision making. Additionally, the ability to recognize and isolate relevant information regardless of source format, and evaluate the extracted data, has proven helpful to auditors in reaching conclusions. Technology can help enable applications in complex audit areas, such as revenue recognition and evaluation of a bank’s portfolio of loans. Digitizing the audit can assist in delivering sustained high-quality audits, provide richer and more detailed audit evidence, enhance transparency and consistency of audit procedures, and provide management with a more detailed view into the company and its risks, controls and operating environment.
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TABLE 1 Extract facts from credit file > and other sources
Understand facts
Loan Amount: $10M
Payment History: Weak
Purpose: re-finance
PSOR: Strong
Collateral: A properties
Collateral: Strong
Appraised Value: $100M
Guarantor: Weak
>
Assign weights to facts Weighting scale
TACKLING REVENUE RECOGNITION The revenue recognition process of large organizations often involves hundreds, if not thousands, of contractual relationships. Errors in revenue recognition can have severe consequences for regulatory, tax and other compliance matters. Cognitive technologies can use revenue contracts, invoices, trial balances and other data to assist in assessing the completeness and accuracy of the client’s ledger. These technologies can augment what an auditor considers and provide information quickly and consistently. What auditors learn from the additional details and analysis can enhance their ability to apply skepticism, allowing them to ask more precise questions in areas of greater risk, including areas of judgment. BANK LOAN PORTFOLIOS Today, audit procedures frequently rely on a small representative sample of a bank’s loan portfolio with significant manual input to extract facts from the credit file, understand those facts, and interpret them against a client-specific loangrading scale. In the future, technology tools could ingest all required documents to evaluate a commercial loan portfolio. During the training of an intelligent tool, key elements impacting the loan risk rating are
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
>
Translate into a loan rating Auditor and client scales
Auditor reviews potential exceptions
>
Loan #
KPMG Client rating rating
10
AA
1
B
B
9
A
2
C
B
8
A
3
AA
AA
7
Evidence
identified, and a recommendation of risk grade can be generated. The explosion of data in business, along with the increased ability of technology to analyze the information, has fostered unprecedented advances in digital processing power and the capacity to support decision making across multiple activities and operations. To succeed in the face of uncommon opportunities and challenges created by rapid technological advancements affecting financial statements, it is imperative that accounting professionals have an unquenchable thirst for continuous learning and strong critical thinking, as well as analytical, data science and IT skills, to complement their financial and business acumen. Thomas Klockner, CPA, is a partner in KPMG’s audit practice, where he primarily serves clients in the life sciences industry. He can be reached at tklockner@kpmg.com.
DO MORE JOIN THE ACCOUNTING & AUDITING STANDARDS INTEREST GROUP AND/OR THE EMERGING TECHNOLOGIES INTEREST GROUP njcpa.org/groups
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BECOMING A CPA
Secret Sauce for Success on the CPA Exam: Time to Study BY AMANDA CADY, CPA, MARCUM LLP
A CPA license is the accounting profession’s highest standard of competence, and having your license can provide many opportunities for your career. I struggled with passing the exam for many years. I had plateaued at the level of supervisor because having a CPA license was required for being promoted to manager. I wanted more for my career, so I made passing the exam a priority. Preparing for the CPA Exam takes a significant amount of time. A candidate is required to pass all four sections within 18 months of passing the first section. You will have to make some sacrifices — that’s unavoidable — but it is not impossible to maintain a work-life balance while studying for the exam. HAVE A PLAN Based on my own experience, I strongly recommend having a plan and a structured study schedule. Some sections will take more time than others, and it’s important to map out how much time you will need for each part. Determine the order in which you will take the sections, keeping in mind how many study hours each section will require and how much available time you have every month. Don’t forget to factor in downtime as well. Take a vacation or make plans for the weekend, but make sure that all of your downtime is factored into your study calendar. Downtime will not only improve your mood but will allow your brain a recovery period (trust me, you’ll need it!). BUILD A STUDY SCHEDULE Set your target exam dates and build a study schedule. Set your own pace, keeping the 18-month window in mind. Cramming for the exam never works, and while everyone wants to be done with studying as soon as possible, it’s also important to study smart. Cramming the material does not allow time to actually understand the concepts and can lead to having to take a section multiple times. If you take the
proper time to study, chances are you will pass the exam on your first try. Enrolling in a review course can also help. Courses are offered online, in person and self study. Spend time researching what format will work best for you. Online courses provide a structured guide through each section, while also allowing for flexibility in your study schedule. Most online course programs utilize planners where you can enter your target Exam date, and then it will populate a calendar with the number of weeks you need to spend on each chapter. If you like to study at your own pace and are very disciplined, a self-study program may work best. Review courses can be costly; however, it will be one of your best investments in the long run.
percentage of your salary plus full benefits during sabbatical. I took five months off to concentrate on studying, and it made a huge difference. It’s a great way to go if your employer offers something similar. Just be sure you replace the hours that you should be at work with study hours. Even if you can’t take a sabbatical from work, you should explore other arrangements with your employer. Many firms are flexible when it comes to studying for the CPA exam, as your success is also in their best interest. You have to be dedicated and determined to pass the CPA Exam. Put the time in now to study hard so you only have to do it once. You’ll have to make some trade-offs, but you’ll be glad you did when the four parts are done and you have your CPA license!
BALANCING IT ALL Balancing work, study and personal time is definitely a juggling act. If you are currently working full-time, consider speaking to your employer about an alternative work arrangement such as a reduced work week, flexible hours, a work-at-home arrangement or taking a sabbatical during slow work periods. A sabbatical will provide you with the opportunity to focus all of your efforts on studying without the added pressures of a full-time job. I was lucky enough to have this option at Marcum, which provides a
Amanda Cady, CPA, is an assurance services manager in Marcum LLP’s national real estate services group. She is a member of the NJCPA and can be reached at amanda.cady@marcumllp.com.
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NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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BUSINESS ADVISORY SERVICES
Effective Structuring in 2019 to Avoid SALT Exposure BY BARRY HOROWITZ, CPA, AND STEPHEN BASIAGA, JD, LL.M., WITHUMSMITH+BROWN
As states seek to alter and (in most cases) increase their applicable taxes for both individuals and businesses to adjust and incorporate the federal Tax Cuts and Jobs Act (TCJA) as well as meet their budgetary goals, the management and evaluation of such state impact to a company can be just as important, if not more so, than the federal impact of such changes. Changing state tax benefits and detriments can chip away at the profit margins and the competitive advantages of operating in certain states. Effectively evaluating and monitoring these changes is becoming vital rather than optional as the business tax climate in all states becomes more demanding and complicated. Following are some of the key focal points accountants can pass onto their clients to minimize state and local tax exposure and, potentially, avail themselves of certain benefits.
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EVALUATE THE TOTAL TAX PICTURE If the business borders several states, evaluate what taxes the business and the owners/partners/shareholders will be subject to, including: yy Entity-level taxes yy Variations in sales and use taxability on what is sold among several states yy Business personal property taxes and/or other excise taxes unique to the business’s industry yy Excise taxes related to the business or industry A nexus study performed by the company’s internal tax staff or by the CPA firm can provide a comprehensive snapshot of nexus, revenue sales taxability and other associated tax impacts (think New York City’s commercial rent tax) that are rarely given much attention beyond the year of a company’s formation.
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
STATE OF COMMERCIAL DOMICILE Many companies may incorporate or form in Delaware or Nevada, but commercial domicile (think the “residency” of the business) is based on where the locus of decision-making and control is based, which is often the state of headquarters. To the extent that the company has multiple offices where different officers may sit, you need to rest on where ultimate decision and control (and likewise books and records) will reside. Further, note that the company’s industry or location can be tied to a number of changing credits, incentives and economic zone-type programs that are meant to offset the impact of operating and centralizing the business in certain states. SOLICIT REMOTELY OR SEND FOR APPROVAL Even seemingly innocuous business development activities can establish nexus for state tax, particularly if the company
BUSINESS ADVISORY SERVICES
is engaged in the solicitation of services. Further, though Federal Law P.L. 86-272 provides that sole solicitation for the sale of tangible property (under the listed protected solicitation activities, and which does not apply to services) can limit the applicability of income taxes on a company despite their operations, those same states that apply gross receipts, profits or other types of taxes do not prevent the establishment of nexus for those purposes. Often, the same activity that avoids income tax nexus under P.L. 86-272 will nevertheless establish sales tax nexus and along with it collection and remittance on customers based in that state. To the extent that the company can solicit remotely or limit out-of-state activities to trade shows and very intermittent state solicitation, the nexus footprint contracts dramatically. EVALUATE SOURCING METHODOLOGY Whether sourcing the sale of property, services or intangible revenues, companies
often fail to properly source to the state in accordance with their rules. The typical company defaults to sourcing its sales, no matter what is being sold, to the billing address where their invoice is sent. BEWARE THE USE OF AMAZON! The use of Amazon, both as a direct vendor for products (as a third-party logistics provider) and solely as a marketplace seller can establish nexus comprehensively for income, sales and potentially other taxes. Amazon may store a company’s titled property in their warehouses across the country, and their operations as a marketplace provider can at the very least establish sales tax nexus.
Supreme Court as constitutional. Though the law of the land has been for physical presence to be a necessary requirement prior to a state imposing sales taxes upon a company, the case’s result and subsequent implementation by a host of states uses annualized sales of $100,000 or more and/ or 200 or more transactions into a state as the measure of whether a collection and remittance obligation exists. Barry Horowitz, CPA, MST, is a partner with WithumSmith+Brown, PC, and practice leader of the firm’s state and local tax services group. He is a member of the NJCPA State Taxation Interest Group and can be reached at bhorowitz@withum.com. Stephen Basiaga, JD, LL.M., is a tax manager at WithumSmith+Brown, also part of the SALT group. He can be reached at sbasiaga@withum.com.
PAY ATTENTION TO WAYFAIR In addition to the TCJA and independent state needs, states are further following the lead of South Dakota’s economic sales tax nexus law template held by the U.S.
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Graduate Programs at Ramapo College
YOUR FUTURE MATTERS Ramapo College offers graduate degree programs designed to prepare you for the next step in your career. Ramapo’s graduate programs combine classroom and online study to allow students to balance their lives and their education. Ramapo College now offers two options for graduate degrees in Accounting that are designed to prepare students not only to qualify for the CPA exam, but also to excel in today’s complex and rapidly changing financial reporting environment. • 30-credit Master of Science in Accounting (MSAC) Graduate Program • 4+1 Bachelor of Science in Accounting and Master of Science in Accounting (MSAC) Program Learn more at:
ramapo.edu/msac or 201-684-7270 Professor Crawford taks with a student near the Havemeyer Arch
505 Ramapo Valley Road, Mahwah, NJ
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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CORPORATE ACCOUNTING
What to Expect After the Auditor Leaves BY SUZANNE HELLER, CPA, HOLMAN FRENIA ALLISON, P.C.
The conference room is free and your paperwork is once again neatly filed — that must mean the auditors have completed their fieldwork. So, what’s next? The following is what you can expect for the second stage of your audit and how you can keep the process on track to receive timely financial statements. ANSWER FOLLOW-UP QUESTIONS PROMPTLY It is not unusual for the auditor to have follow-up questions after fieldwork. Perhaps information was not readily available on site, details are needed for financial statement note disclosure or the partner has some additional questions after reviewing the workpapers. Whatever the reason, be prepared to answer follow-up questions and provide information and documentation within a day or so of the request. Your prompt response will keep the job on schedule and prevent delays. If you are unable to respond quickly, let the auditors know when you will get back to them or consider delegating the response to another individual if possible. REVIEW THE DRAFTS Within a few weeks, the auditor should be ready to provide a draft of the financial statements. Typically, a PDF document with a watermarked “DRAFT” across all pages is emailed to the CFO, along with the final trial balance, journal entries and a financial grouping report. The financial grouping report shows which individual accounts are contained in financial statement line items. For instance, it shows which bank account balances are included in cash and cash equivalents and which are included in temporary investments. The financial grouping report should be reviewed closely, especially if there have been new accounts added to the trial balance in the past year, to verify that accounts are grouped and reported accurately. A draft of the management letters should also be provided.
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yy The management representation letter is addressed to the CPA firm and signed by members of management, normally the CEO and CFO. The letter is management’s acknowledgement of their responsibility for the financial statements, as well as the information provided to the auditors, and is required under auditing standards. The signed letter must be received by the auditors before they can release the final financial statements. yy The governance letter is addressed to the board, signed by the auditor and is also required by professional standards. The governance letter communicates whether there were any significant audit findings, points out material estimates and key disclosures, describes if there were any difficulties or disagreements during the audit, and outlines any other matters significant to the audit engagement. yy If warranted, a significant deficiencies letter may also be issued by the auditors. This letter is addressed to the board and management to communicate any problem areas uncovered during the audit and the level of severity of those issues. Final approval of the draft can be communicated verbally or, preferably, by email. Let the auditor know how many final copies will be needed and whether you would also like an electronic copy. Return the signed management representation letter, so that the final copies can be released. SCHEDULE AN EXIT CONFERENCE Often the board or finance committee will request an exit conference with the auditors. This is a great opportunity for board members, who may not be present during fieldwork, to personally interact with the auditors. During an exit conference, the auditors typically will review the financial statements, explain key areas of the statements, provide an analysis of financial results and highlight significant changes in activities and disclosures. It is a good time to discuss upcoming accounting
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
pronouncements that may affect future financial statement presentation. An exit conference also provides an opportunity to discuss certain matters that the board has not considered or failed to address. If you have not had an exit conference with your auditors in the past, consider scheduling one every few years, if not annually. OBTAIN FEDERAL AND STATE FILINGS Finally, your engagement may also include preparation of federal and state filings. Typically, these filings are not prepared until after the audit has been approved, so as to avoid errors and revisions. Due dates for these filings depend on your entity status and may be extended upon request. Be aware that there is often other information required to accurately complete these forms that was not necessary for audit procedures, so be prepared to provide additional details as needed. Suzanne Heller, CPA, PSA, FCPA, is an audit manager with Holman Frenia Allison, P.C. She is a member of the NJCPA Nonprofit Interest Group and can be reached at sheller@hfacpas.com.
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FIRM & PRACTICE MANAGEMENT
Three Ways to Keep Up with Standards BY MICHAEL SWANTIC, CPA, CULLARI CARRICO, LLC
The accounting profession is controlled by standards, and regardless of our viewpoints, adhering to these standards is integral to any practice management plan. The primary providers of our professional standards include: yy Financial Accounting Standards Board (FASB) Accounting Standards Codification — the source of authoritative nongovernmental GAAP yy American Institute of CPAs (AICPA), including: yy Statements on Standards for Accounting and Review Services (SSARS) yy Statements on Standards for Tax Services (SSTS) yy Public Company Accounting Oversight Board (PCAOB) and Securities and Exchange Commission (SEC) for public companies yy Governmental Accounting Standards Board (GASB) for governmental entities yy IRS Circular 230 for tax practices These standards, having evolved with economic, industrial and regulatory changes, give users a basis for evaluating our products. Some of our standards came about from financial failures or professional deficiencies (think Enron or the savings and loan failures). The AICPA’s Peer Review Program and malpractice issues further stress the importance of compliance with our professional standards. With so many standards to keep track of, how can you keep up? Here are three ways. 1. LEVERAGE CPE The most common way to keep up with standards is through continuing professional education (CPE). The New Jersey State Board of Accountancy and the AICPA both have mandatory CPE requirements to ensure compliance with professional standards. CPE requirements are further expanded if practice areas include governmental audits and employee benefit plans. Some of the avenues for obtaining CPE are: yy Seminars, webinars and conferences offered by the AICPA, NJCPA or other registered providers
yy NJCPA chapter offerings, such as season pass seminars and annual tax updates yy Membership in the AICPA’s Governmental Audit Quality Center and Employee Benefit Plan Audit Quality Center, when applicable yy Various self-study programs such as “CPE Direct” offered through the Journal of Accountancy Firms can conduct in-house seminars throughout the year and encourage staff to join NJCPA interest groups or other professional groups that offer CPE programs. Firms can also monitor staff ’s CPE and develop plans tailored to practice areas and clients’ industries. With several new accounting pronouncements and reporting standards taking effect, it’s best to emphasize these for audit and attest teams. Needless to say, tax staff should be focused on the Tax Cuts and Jobs Act. 2. USE ENGAGEMENT TEMPLATES It’s important to develop templates for engagement files. Templates assist the engagement teams in meeting the performance and reporting standards for each level of assurance associated with financial statements. They should be utilized during all phases of the engagement and be updated at least annually by a quality control committee. The contents of these templates vary depending on the assurance level of the financial statements and the nature of the client’s industry. They should be used for both GAAP-basis financials and financials prepared using a special purpose framework. They should include checklists, recommended inquiries and analytical procedures (for reviews and audits) and audit programs. There are a number of sources for engagement checklists and guides; our firm uses Checkpoint/PPC and AICPA publications as our primary reference sources. 3. ESTABLISH QUALITY CONTROL All CPA firms have a responsibility to conform to professional standards in financial statement and tax-related engagements.
A firm’s quality control document should state the procedures used to provide reasonable assurance that professional standards as well as applicable regulatory requirements are adhered to. A firm should have a quality control committee that is responsible for monitoring compliance with quality control policies. The committee should perform all engagement quality control reviews prior to financial statement issuance as well as the post-issuance review and inspections. The financial cost of keeping up with professional standards can be significant, including loss of billable hours; fees for attending seminars and webinars; travel expenses for out-of-town events; and subscriptions to reference and research libraries. But the professional and financial costs of not keeping up with standards can be more significant and may lead to negative peer reviews and/or professional liability issues. Michael Swantic, CPA, is a partner at Cullari Carrico LLC. He is a member of the NJCPA State Taxation and Cannabis interest groups. He can be reached at mswantic@cullaricarrico.com.
DO MORE JOIN THE ACCOUNTING & AUDITING STANDARDS INTEREST GROUP njcpa.org/groups
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION
Tax Changes Affecting Family Law BY HENRY RINDER, CPA, SMOLIN LLP
The Tax Cuts and Jobs Act (TCJA) made far-reaching changes including those that are relevant to divorce. Here are some highlights of the TCJA’s tax modifications that affect family law. REPEAL OF ALIMONY DEDUCTION The TCJA repealed the alimony deduction and corresponding income inclusion affecting every new divorce involving alimony after Dec. 31, 2018, and grandfathered in all agreements and court orders dated prior to Jan. 1, 2019. Under the prior law as provided for by IRC Sections 61, 71 and 215, alimony and separate maintenance payments were deductible as an adjustment to gross income by the payor and includible in gross income by the recipient. Under the old IRC provisions, the parties could collectively benefit from the income tax rate differential and tax savings. All divorce or separation instrument executed after Dec. 31, 2018, fall within the scope of the TCJA’s alimony repeal. Any divorce or separation instruments executed on or before Dec. 31, 2018, and modified after Dec. 31, 2018, are also impacted if the modifications expressly provide that the repeal provisions apply. The TCJA also repealed IRC 482 that dealt with alimony trusts. Under the prior law, income of a trust paid to the ex-spouse was taxable to the recipient and not to the grantor. The repeal eliminates that rule.
LOST MISCELLANEOUS DEDUCTIONS Prior to the TCJA, IRC Section 212 allowed a miscellaneous deduction (subject to a 2-percent of AGI limit and a phase out) for legal and accounting fees related to taxable alimony, divorce-related tax planning and related analysis, addressing innocent spouse relief, etc. The TCJA suspends the miscellaneous deductions through Dec. 31, 2025. Taxpayers should consider using retirement funds to pay any professional fees related to splitting of Individual Retirement Accounts or ERISA plans (e.g., QDRO fees).
PERSONAL EXEMPTIONS AND THE CHILD TAX CREDIT Personal exemptions are suspended from Jan. 1, 2018, through Dec. 31, 2025. The TCJA increased the Child Tax Credit to $2,000 (limiting the refundable portion to $1,400 in 2018) for each qualifying child under age 17. A child must have a Social Security number in order to qualify. The income phase-out for the child tax credit increased in 2018 to $200,000 ($400,000 for joint filers).
IMPACT ON VALUATIONS IN DIVORCE Valuations of businesses and business interests for equitable distribution purposes will likely be impacted. The TCJA reduced corporate income tax rates from 35 percent to 21 percent. In addition, a new deduction of 20 percent for business pass-through entities was added. Immediate deductions for capital expenditures spent on equipment, furniture and fixtures and alike are also provided for. This
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JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
means there will be less cash needed for business-related income taxes and more after-tax cash available to the owners/ partners/shareholders. Most business valuations in family law utilize the income approach. The valuation methods under the income approach usually consider either some form of after-tax earnings or cash flows attributable to the interest being valued, and those earnings and cash flows are tax affected. Historically, business analysts used a range of income tax rates for this purpose, relying on various valuation theories. Valuation professionals will need to consider the impact of the additional cash flows resulting from the tax rate cuts and the special 20-percent deduction available to the pass-through entities. Information contained in this article is not intended as a thorough in-depth analysis of fact patterns and issues; it is not a substitute for a tax opinion. Henry Rinder, CPA ABV, CFF, CGMA, CFE, is a member of the firm at Smolin, Lupin & Co., P.A. He was a past president of the NJCPA and can be reached at hrinder@smolin.com.
GOVERNMENTAL & NONPROFIT
Be SMART About Tax Reform BY DEIRDRE O’DONNELL, CPA, KLATZKIN & COMPANY LLP
Raising money has always been the biggest challenge that nonprofit organizations face. Under the Tax Cuts and Jobs Act (TCJA) of 2017, many taxpayers can no longer deduct charitable contributions; this has led many organizations to fear that their donations will dwindle. PERCEIVED IMPACT OF TCJA Beginning in 2018, the TCJA increased the standard deduction to $24,000 for married filing jointly taxpayers and $12,000 for single taxpayers. Individuals whose itemized deductions fall below these thresholds will no longer be able to deduct medical expenses, mortgage interest payments and, most importantly, charitable contributions. Una Osili, professor and associate dean for research and international programs at the Indiana University Lilly Family School of Philanthropy, estimates that approximately 30 million households earning between $50,000 and $100,000 will no longer be able to itemize their deductions. Furthermore, a study conducted by the Lilly School found that 83 percent of individuals who itemize their deductions contribute to charities, while only 44 percent of those who take the standard deduction contribute. These statistics may strike fear into the hearts of many nonprofit organizations. However, there are several ways for organizations to make the most of the new tax regulations. Smart nonprofit organizations will not leave the amount of contributions they receive to chance. They can establish realistic goals and adopt new strategies to build their brand, attract donors and solicit funds. BE SMART SMART is a common acronym used to describe a specific process for establishing and achieving goals. SMART goals are: specific, measurable, attainable, realistic and timely. Establishing SMART goals is the key to running a successful organization. Nonprofits with SMART goals know
exactly where they are going and how they are going to get there. These organizations may find that they are in a stronger financial position now than before TCJA. Let’s explore why. yy Specific goals tell donors (as well as employees, volunteers and the community) exactly what the organization needs and who they need it from. For example, $1 million may need to be raised annually to support operations. Decide on target markets (donors), what percentage of funds are needed from each demographic (e.g., typical households, wealthy individuals, government grants) and what must be done to appeal to each audience (e.g., events, campaigns, grant proposals). From there, an action plan can be developed and implemented to reach these target markets. Specific goals should include details that show potential donors exactly what the nonprofit wants to achieve, why and how this relates to the organization’s mission. yy Measurable goals provide targets to clearly gauge success. One example of a measurable goal would be aiming to raise $25,000 per quarter or increasing key performance indicators such as donor retention rate or average donation size by 10 percent. Setting measurable goals is an easy way for nonprofit organizations to track their performance throughout the year. yy Attainable and realistic goals must be set in order to get a true sense of how the organization is performing and to avoid disappointment at year-end. While it may be unrealistic for an organization to double its amount of contributions in one year, it may be more attainable to increase the number of donations from wealthy individuals by 5 percent. It is important for nonprofits to dream big with their goals, however they must remember to be honest about what can and cannot be accomplished. If an organization sets
goals they cannot reach, they will only be disappointed and feel less motivated going forward when these goals are not met. yy Timely goals encourage nonprofits to achieve milestones and goals within a set timeframe. This can create a sense of urgency and motivate organizations as well as donors. It is important to keep everyone — including administrative staff, donors and volunteers — aware of the timeframe for the goals. One idea to keep in mind when setting timely goals is that many individuals may plan to bunch their donations in order to make the most of their itemized deductions. This means they may double up on contributions in one year to surpass the $24,000/$12,000 mark, then choose the standard deduction in the following year. Creating timely goals and a sense of urgency that align with top donors’ tax plans could greatly benefit the organization. Like any company, nonprofit organizations need to operate as businesses in order to succeed. While the TCJA may present new challenges to nonprofits, setting SMART goals will help organizations attract donors who believe and trust in their mission, regardless of the tax deduction they may (or may not) receive. Deirdre O’Donnell, CPA, is a supervisor at Klatzkin & Company LLP and a member of its nonprofit team. She is a member of the NJCPA and can be reached at 609-890-9189 or dodonnell@klatzkin.com.
DO MORE JOIN THE NONPROFIT INTEREST GROUP njcpa.org/groups
READ MORE NONPROFIT ARTICLES AND RESOURCES njcpa.org/topics/nonprofit
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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LAW & ETHICS
Record Retention for Tax Return Preparers RALPH J. EVANGELISTA, CPA, FRAZER, EVANGELISTA & COMPANY, LLC
The rules on record retention can be complex. This article addresses federal, New Jersey and New York record retention requirements and recommendations for tax preparers. FEDERAL According to IRC Section 6107(b), an income tax return preparer must retain a copy of each income tax return or claim for a refund as well as the name of the individual preparer who was required to sign those returns. This requirement can be satisfied by the retention of a list or card file which contains the name, taxpayer identification number and tax year of the taxpayer for whom the return or claim for refund was prepared and indicating the type of return or claim for refund that was prepared, pursuant to IRC regulation 1.6107-1(b). This information must be available for inspection upon request for a three-year period. If the preparer is a corporation or a partnership which is dissolved before
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expiration of the three-year period, then the responsible parties are all persons under state law who are responsible for winding up the affairs of the corporation or partnership. If no person or persons are designated under state law, the regulations provide that collectively the directors of the corporation or the general partners of the partnership shall be required to retain the records for the required three-year period. If the taxpayer has obtained an extension of time for filing, the three-year retention period begins at the close of the extension period. If a preparer is employed and compensated by a corporation, partnership or other organization to prepare a tax return or claim for a refund or is compensated as a partner or member to prepare a return or claim for a refund, the organization is solely responsible for the recordkeeping requirement, pursuant to IRC regulation 1.6107-1(b). NEW JERSEY Unlike the IRS, the state of New Jersey does not have laws or regulations
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
regarding record retention requirements for a tax practitioner. But it is recommended that a copy of the tax return as well as supporting documentation is retained for the period of time required by New Jersey relating to tax audits. New Jersey tax law generally places a four-year statute of limitation on tax audits unless you approve in writing a consent to audit beyond this timeframe. However, gross income tax returns have a different statute of limitations which is three years from filing of a tax return, pursuant to New Jersey Statute 54:A-9-4(a), as long as the tax return does not involve an omission of income. If income has been omitted, the statute is six years from the filing of the tax return, pursuant to New Jersey Statute 54: A-9-4(d). The statute of limitations does not apply for any period during which a taxpayer failed to file a return, failed to report federal tax changes or if a false or fraudulent tax return was filed.
LAW & ETHICS
When the New Jersey State Board of Accountancy was contacted about record retention requirements, their response was, “your records should be retained for a reasonable period of time.” NEW YORK STATE New York State requires a preparer to keep a completed copy of the income tax return or a claim for a refund for each taxpayer, or keep a list of the name and identification number of each taxpayer for whom a return or claim for a refund was prepared. The completed copy of the return or claim for a refund, or the list, must be available for inspection by the Tax Department upon request. The information stated above must be
kept for a period of three years after the due date of the return (without regard to extensions), or three years after the date the return was presented to the taxpayer for signature, whichever is later. However, a claim for a refund or the list must be kept for a period of three years from the time the claim for a refund was presented to the taxpayer for signature. Ralph J. Evangelista, CPA, CGMA, MS Taxation, is co-managing member of Frazer, Evangelista & Company, LLC, and an adjunct professor in the Accounting and Business Law Department at Seton Hall University. He is a member of the NJCPA Professional Conduct Committee and several NJCPA interest groups. Ralph can be reached at rje@evangelista.net.
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NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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PROFESSIONAL DEVELOPMENT
Networking 101 — A Bit of Work for Young Professionals but Worth It BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR
When landing that first job, young professionals have a myriad of concerns — whether they can do the job, if they are liked by clients and coworkers and how to make it to the next level. In the quest to make it to work on time, handle the workload and start studying for the CPA Exam, they do not always consider networking as a needed part of their routine. But those who do take the time to network at this early stage in their career will see a big payback. Karen Koch Reilly, CPA, a manager at WithumSmith+Brown, recommends jumping right into networking — no matter what career stage a person is in. She explains, “Networking is a long-term investment, so I believe that the sooner you get started, the better. As you grow in your career, networking becomes more and more critical.” And as one gets older, those connections can really help. “Bankers, payroll associates and other CPAs you meet now may not have any pull in their organization today, but they (like you!) are the future leaders and executives in their field. Creating those relationships is fairly low risk early on in your career, but it plants the seeds for your future while also expanding your social circle,” she says. Jake Friedland, staff accountant at Wilkin & Guttenplan, P.C., says that young professionals need to remember that networking is more of a two-way street than just making a name for oneself. To him, networking works best when it’s viewed as “building a friendship and possibly even a partnership instead of wondering what an individual could do for you.” Viewing networking as less of a chore is a gradual perspective, but having the right mindset early on will help, he says. “As you grow in your professional career, it becomes much easier and you truly start to build friendships with many of your networking connections. Eventually, these events will be fun outings with peers rather than calendar events that fill you with dread and anxiety.”
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Shirley Claude, director of market development at Surgent CPA Review, agrees. “Networking should be reciprocal, so young professionals need to seek out ways that they can help the other person reach their goals or be successful.” However, some early career professionals may not fully understand why they need to network at all. As Claude points out, “successful accountants must have people skills to earn clients, keep clients and work with various personalities throughout their career. If they can showcase how approachable yet professional they are, this is one more way that they can earn referrals or be recommended for job opportunities.” But as Evan Gurman, tax accountant at Wilkin & Guttenplan, P.C., notes, networking comes a lot more naturally for some than others. “Networking can be the equivalent of being in your freshman seminar class and having to talk to people who you do not even know. Some people hate it while others thrive on it.” He reminds young professionals that learning how to speak to other professionals and build connections will benefit one’s future in many ways. Networking also involves a lot more work than just attending a social event.
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
“You need to follow up (religiously) after that first meeting for coffee, breakfast or lunch,” explains Anthony Mongeluzo, CEO and president of PCS. This allows one to “dive deeper” into the meeting so the person can better understand the accounting help that can be provided, for example. And opportunities can abound anywhere. “Even if the potential client doesn’t need your services or can’t afford them, they might refer you to someone who can,” he notes. Sharon Bleibtreu, director of human resources at Sax LLP, explains that networking can have considerable benefits in the future even if those are not particularly obvious today. “Not much will be expected of young professionals just starting out, but we have seen time and time again that those who establish and nurture industry relationships with other young professionals early on in their careers reap the fruits of their labor down the road when those contacts fill decision-making roles.”
READ MORE CAREER RESOURCES AND GUIDANCE njcpa.org/mycareer
TAX
The Surprising Impact of the SALT Deduction Limit BY ANN-MARIE LONG, CPA, SKC & CO. CPAS, L.L.C.
As we move through the current tax season, clients will be reminded how the Tax Cuts and Job Act (TCJA) has impacted their tax situation. New Jersey has some of the highest state income and property taxes in the country. When the TCJA was enacted, many of our clients were justifiably concerned that the new $10,000 limit on the deductibility of those taxes on their Form 1040 would negatively affect them. We were equally concerned and began projecting their 2018 tax as their 2017 tax returns were prepared so that we could properly plan for the assumed increase in tax. The results were surprising. (It is noteworthy that the sample size contained only 100
subjects; thus, the results are certainly not statistically valid, but the indications are intriguing nonetheless.)
adjustment, and the software was not easily able to make those computations without manual overrides.
THE PROCESS After completing a client’s 2017 tax return, the tax software was used to subject their exact 2017 tax return to the new 2018 tax rules with zero adjustments. To be clear, all income and deduction items remained unchanged, and the projector used the same income and deductions and subjected them to the new rules and tax tables to compare apples to apples. The additional 20-percent qualified business tax deduction (Section 199A) was not used because there was not enough information at the time to make that
THE RESULTS As expected, most clients experienced an increase in taxable income. In fact, 79 percent had increased taxable income. On average, the increase was 15.64 percent and the median increase was 8 percent. Although a small contributing factor to the taxable income increase was the loss of the domestic production activity deduction, the primary drivers were the reduced SALT deduction and removal of personal exemptions. But even though 79 percent had increased taxable income, only 24 percent of those had an increase in tax. This was an incredible result since it was fully expected that everyone would experience an increase in tax due to the SALT limitations alone. So how could this be explained? The primary purpose of the TJCA was to reform the individual income tax code by lowering tax rates on wages, investment and business income; broadening the tax base; and simplifying the tax code. But with so many variables changed, how is it possible to measure the effect of the changes and identify who the winners and losers are since no two tax returns are ever the same? Also, a full 34 percent of those included in the analysis were in AMT. Since the largest factor that caused them to go into AMT was the SALT deduction itself, were our clients ever really getting the full deduction for their state and local taxes anyway? With the limitation of that deduction to $10,000, it did not create an addback for AMT, so AMT was effectively removed. No change was made to the income range of the lower two brackets, but the stretching of the amount of income
% Change in Taxable Income by Tax Bracket 120
% Change in Taxable Income
100 80 60 40 20 0 -20 -40 -60
10
15
25
28
33
35
39.6
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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TAX
Change in Total Tax by Tax Bracket 15,000
Change in Total Tax in Dollars
10,000 5,000 0 -5,000 -10,000 -15,000 -20,000 -25,000 -30,000 -35,000 10
24
15
25
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JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
33
35
39.6
subjected to tax and the decreased tax rate itself in the subsequent brackets in the new 2018 tax tables caused the reduction of taxes in every bracket except the 10-, 32- and 35-percent brackets in this analysis. There were several drivers that contributed to the changes, but for the New York metropolitan area and our clients, the largest contributor to tax savings seemed to be the new tax brackets themselves. As soon as the 20-percent small business deduction is considered, the winners in the middle to higher brackets are bound to increase. According to the data gathered thus far, our clients will not be as negatively affected as assumed since 81 percent of them achieved a median tax decrease of 12 percent. Of course, every client is different, and no two years will ever be the same. When I told one client of his personal (positive) results he stated begrudgingly, “Well, taxes in New Jersey are still too high.� That, my friend, is a different discussion. Ann-Marie Long, CPA, is a senior tax accountant at SKC & Co. CPAs, LLC. She is a member of the NJCPA and can be reached at amlong@skcandco.com.
TECHNOLOGY & INFORMATION MANAGEMENT
Maintaining Body Health with Use of Technology BY CHRIS CHUDYK, CPA, TRAPHAGEN FINANCIAL GROUP
This could be my favorite article to write to date as it deals with my two favorite topics: technology and fitness! I like to think of myself as a fitness guru as I exercise at least five times a week and have tried every exercise out there. Over the past few years, I have used technology to keep my routines new, exciting and challenging. STEP TRACKING I will begin with the technology most are familiar with — Fitbit. Fitbit is a technology device, usually worn similarly to a watch, which keeps track of your daily steps. It also monitors your sleep patterns and can keep track of your heart rate and even calories burned. My favorite part of Fitbit is that you can compete against others to see who gets the most steps in a day or a week. I once challenged a client, and I edged him out by jogging in place in my living room until midnight; the final daily total was 42,000 steps for me and 41,000 steps for him. The one thing I do not love about these step trackers is that the users focus way too much on steps and will skip out on high intensity interval training workouts since they don’t register as many steps as other forms of exercise. WORKOUT TRACKING Another one of my favorite technologies for fitness are apps that allow a user to keep track of their workouts. Many people bring a notepad and pen to the gym to record their exercises, the amount of weight, the amount of sets and the amount of reps they are doing. But an app can serve the same purpose and provide additional benefits. I recently signed up for the genesis program by Body Spartan, a 12-week workout schedule designed to get you in the strongest shape of your life. They recommended a very inexpensive app — Gym Genius — that you can buy which will keep the above diary/ log for you. The app is able to show me exactly what workout I am doing — what
exercises I need to do and how many sets I’m supposed to do — and keeps track of my sets, reps and time for the entire workout. Yes, I need to enter the information after each exercise, but it’s very easy, doesn’t take much time at all, and now I have all the information I need going forward. This app also keeps track of target goals, weight, body fat percentage and personal records. You can add your own workouts, but Gym Genius also has workout plans of their own such as muscle builder, fat burner and strength. Each one comes with a beginner and an advanced plan. WORKOUTS ON DEMAND Lastly, my favorite technology for fitness is Beachbody On Demand. Beachbody is a company that produces DVD workouts such as P90X, Insanity, Body Beast, 21 Day Fix and countless other workouts. I have been doing Beachbody workouts for over 10 years and love them. Whether looking to put on muscle, lose weight or develop a better core, Beachbody DVD programs have it all. The only downside was that you had to buy the
DVDs and play them in a DVD player on your TV. Now Beachbody is on demand so instead of buying DVDs for each program you want, you can pay a monthly fee to log in from anywhere and stream a video on your smart TV, computer, laptop or other device. I have been using Beachbody On Demand for a year now, and I can choose any workout they have ever produced and can switch up my routine based on what I feel like doing that day. I can write for days on fitness and technology… especially when we combine them. What I have learned from my years working out is to always change your routine, challenge yourself and find ways to keep exercising interesting. Technology makes it easier than ever to do this. Chris Chudyk, CPA, CITP, is a partner at Traphagen Financial Group. He is a member of the NJCPA Student Programs & Scholarships Committee and the Volunteer Relations Committee and is a past president of the Bergen Chapter. He can be reached at chris@tfgllc.com.
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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NJCPA NEWS
Career Night Helps Young Professionals NJCPA’s 2018 Career Night held on Oct. 2 proved to be a success, with more than 160 students in attendance. Nearly 30 exhibitors, representing small and large accounting firms, corporations and academia, were on hand to discuss job opportunities and the benefits of becoming a CPA. The annual event brings students from New Jersey colleges and universities together with accounting professionals to explain how firms or corporations could use the talents of young professionals upon graduation. The night featured informational sessions on how to create a first introduction or “elevator pitch” in looking for a job and how to prepare for the CPA Exam. “Career Night is a great opportunity to introduce students to CPA firm partners and recruiters. It also shows students how to fine-tune their interviewing skills and hear what accounting professionals are looking for from new hires,” said Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director at the NJCPA.
LEADING BY EXAMPLE Luke DiMatteo, CPA, staff accountant at The Curchin Group LLC, knows firsthand the advantages of Career Night — he landed his first job at one. Luke went to Career Night as a student in 2014 and 2015, and by 2018, he was on the other side of the table as an exhibitor. “If it wasn’t for Career Night, I wouldn’t be working at The Curchin Group. The event was how I first came in contact with Curchin,” says Luke. “I think that young professionals can gain a lot from this event. It’s a great opportunity for them to ask questions regarding the next stages in their career,” he says. Going to the event is half the battle, he explains. Making sure one’s resume is up-to-date and distributed at the event is key along with making the most of the time talking with established professionals, he adds. So, what was Luke’s strategy? “I circled the room and visited nearly every table. When I visited the Curchin table, I had a
great conversation with one of their audit managers. Towards the end of my conversation, he told me that he felt like I would fit in with the Curchin staff and that I would love it there. He was right.” This year as an exhibitor himself, Luke was excited to explain his journey to students and encourage the next generation of CPAs. “I enjoyed speaking with young professionals about my experiences in public accounting and tackling the CPA Exam,” he adds, noting that while networking can be a skill (and hard work) it can be fun too. Any words of advice to future CPAs? “Make the most of the night. Visit as many tables as you can. Ask a lot of questions of the exhibitors to learn about their organizations. Ask a lot of questions about the next stages in your professional career,” he says. “They have been where you are and can provide valuable advice.” For additional career guidance and events, visit njcpa.org/mycareer.
Tax Season Survival Tools The NJCPA has the tools and resources that will enable you to survive busy season more confidently and with less stress. These benefits and more are available to NJCPA members:
Tax Regulations and the State Tax Handbook. Visit the NJCPA Member Benefits Marketplace (njcpa.org/ marketplace) to access the store and the members-only priority code.
CPE COURSES ON RELEVANT TAX TOPICS AND TRENDS Upcoming tax-related CPE courses can be found by searching in the taxation category at njcpa.org/events. Then, keep track of your CPE credits through the CPE Tracker at njcpa.org/cpetracker.
FIND PER DIEM AND PERMANENT STAFF Reach the most qualified candidates by posting a per diem or permanent job opening on our online job bank. You can also search for resumes and only pay for the ones that interest you. njcpa.org/jobs.
LATEST NEWS ABOUT TAX ISSUES Keep your areas of interest in your NJCPA member profile (njcpa.org/profile) up to date to receive the most relevant tax articles and information in the biweekly online publication, NJCPA Pulse.
PEER-TO-PEER COLLABORATION Members benefit from the knowledge of other tax experts by joining the State Taxation or Federal Taxation interests groups at njcpa.org/groups.
RELAX AFTER TAX SEASON When busy season ends, find travel deals through Buyer’s Edge, the tri-state area’s premier buying service. Visit njcpa.org/marketplace to learn more.
TAX GUIDES AND MORE Members save 25 percent on any of the more than 175 Wolters Kluwer CCH® tax and accounting publications including U.S. Master Tax Guide, U.S. Master Depreciation Guide, Tax Cuts and Jobs Act: Law, Explanation and Analysis, Income
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JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
Members have 24/7 access to an open forum to discuss and learn from other members about taxation issues at njcpa.org/connect.
CLASSIFIEDS
MERGERS/ACQUISITIONS
An established Central NJ CPA firm is acquiring some suitable accounting/ tax customers for its business expansion. Please contact Jane at 908-342-7953 or email jane.cpa.2011@gmail.com. Bilingual. Local northern Bergen County accounting firm is looking to acquire a small accounting practice from a retiring CPA in our area with a book of business of $100-$150K with predominately business accounts. We have a solid Bergen County reputation and partner/staffing available. Contact sstraubinger@ramsey-cpa.com. Seize a merger/acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas.com; email me, Phillip Goldstein, CPA, Managing Partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation. Local Morris County firm is seeking to acquire practices ranging from $200K to $500K from retirementminded practitioners and/or seeking compatible merger of candidates who have a book of business exceeding $200K. We have partner, manager and staff offices available. Contact Carl Gutt at 973-451-0800 ext. 22 or cgutt@dglcpa.com.
New Jersey practices for sale: gross revenue shown: Warren Co. CPA $245K; N. Essex Co. CPA $320K; Hunterdon Co. CPA $650K; Perth Amboy tax $195: Mercer Co. CPA $380K. For more information, call 800-397-0249 or visit www.aps.net. Essex County retirement-minded CPA seeks CPA to assume his partnership interest and continue with remaining partner at our office location. Retiring partner will remain during transition period. Interested candidates should reply with resume to essexcpa@gmail.com.
Professional offices for lease in Denville, NJ, located directly on Route 10, will suit by needs. Wi-Fi internet available at no extra cost, private entrance, and shared receptionist if needed. First month rent free to offset moving expenses. Please call 973-586-0816 or email gino@integratitle.com.
ADVERTISERS INDEX 24 ACCOUNTING PRACTICE SALES aps.net C2 QUICKFEE quickfee.com/njcpa 15 RAMAPO COLLEGE ramapo.edu/msac
REAL ESTATE
Office space for lease. 142 Livingston Ave, New Brunswick, NJ. Rent includes all utilities, gated parking, security cameras, alarm system and common conference room and kitchen. Ideal for accounting. Please contact Beata at beatagall@hotmail.com or 908-581-3322.
3 RUTGERS BUSINESS SCHOOL business.rutgers.edu/finmaccy 21 USI AFFINITY njcpainsurance.com
To see additional classified listings or to place an ad, visit njcpa.org/classifieds.
NEW JERSEY CPA | JANUARY/FEBRUARY 2019
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MEMBER STORY
How a Mother and Son Chose to be CPAs — at the Same Time BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR
Elena Klarberg, senior associate at Sax LLP, did not take the traditional route to obtaining her CPA. After marriage, divorce, raising three boys and holding a series of part-time jobs, Elena decided she wanted a career. So, in her 40s, she enrolled in Caldwell University’s adult undergraduate program to obtain her bachelor’s degree. In 2018, Elena completed all four parts of the CPA Exam, and she now awaits her CPA license. While passing the CPA Exam was a test of “resilience, fortitude and stamina,” according to Elena, it was well worth the journey. “I started studying and took the first part of the Exam before I started working at Sax,” explains Elena, who is an NJCPA scholarship recipient and a CPA Candidate member. “I was coming home from work and studying. I would study on the weekends all day. My kids basically
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saw my back for months. It was definitely grueling, but I had the goal in my mind. I wanted it done.” Taking an alternative path to an accounting profession and working among younger professionals did not discourage her. According to Elena, “my professor told me that 15 years or so ago, there would not have been a place for a person like me in public accounting.” But today, having already had plenty of experience as a teacher, camp counselor and working in business development for a transport company, Elena brought something different to the table than someone just starting out in the workforce. “The people I’m working with are my son’s age,” she admits. But in a testament to Sax, she says, “I was treated like all the other first years, no special treatment. I’m just like everybody else. It was a fantastic experience.”
JANUARY/FEBRUARY 2019 | NEW JERSEY CPA
More the typical age of a first-year accountant, Elena’s son, Zachary, staff associate at Citrin Cooperman, knows first-hand how determined his mom can be. Having graduated from William Paterson University of New Jersey in 2017 and being well on his way to his own CPA, Zach often studied at the same time as his mom. A familiar sight around their house was them both holed up in their study caves: Elena in her office and Zach in his bedroom. Like most moms, though, she often passed along study notes, but he had some good advice, too. So, what’s it like having one’s son prepare for the CPA Exam at the same time you are? It makes for a very chaotic but quiet household when studying, according to Elena. “There were two separate occasions where we both received scores on the same day,” adds Zach, who notes that they made a point of never taking the same exam section on the same day. And despite their mutual affection for accounting, they ended up in different specialties: tax accounting for Zach and audit and accounting for Elena, who works in the firm’s real estate niche. ALL IN THE FAMILY Elena’s positive take on accounting did hold some sway over her son’s decision to enter the field. As Zach notes, after his mother took some accounting classes, he started getting interested in the topic. “Her decision to get her accounting degree definitely had some influence on me. We both had very positive school experiences, such as good mentors and teachers,” he said. Zach took his last part of the Exam in December and is awaiting his score. Not all of Elena’s sons, however, are headed for accounting, but at least one more Klarberg could be joining them. Her youngest son Matthew, aged 18, is studying finance at Johnson & Wales University in Providence, Rhode Island, and he is considering a minor in accounting. However, her middle son Jacob, aged 21, currently at William Paterson, favors more finance. Both younger brothers have learned not to be in the house when test scores are released.
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