September/October 2017

S E P T E M B E R /O C TO B E R 2 01 7

LIVING AND DOING BUSINESS IN NEW JERSEY

Page 4 LEGISLATIVE ISSUES IMPACTING NEW JERSEY’S BUSINESS COMMUNITY

Page 8 WHAT THE 2017 ELECTION COULD MEAN FOR YOUR BUSINESS AND CLIENTS

Page 6 TRANSPORTATION TRUST FUND ADDRESSED THROUGH TAX CHANGES

Page 10 HOW TO IMPROVE NEW JERSEY’S CREDIT RATING

Page 12 A NEW JERSEY VOTER’S GUIDE TO STATE TAX POLICY

D E S I G N / P R O D U C TI O N / A DV E R TI S I N G THE YGS GROUP 3650 WEST MARKET STREET YORK, PA 17404 Advertising Contact: JASON VRANICH, ACCOUNT EXECUTIVE 717-505-2357 jason.vranich@theygsgroup.com

contents S E P T E M B E R /O C TO B E R 2 01 7

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

RALPH RALPH ALBERT ALBERT THOMAS, THOMAS, CGMA CGMA Chief Chief Executive Executive Officer Officer & Executive & Executive Director Director rthomas@njcpa.org rthomas@njcpa.org ELLEN ELLEN C. C. McM SHERRY, cSHERRY, CGMA CGMA Chief Chief Operating Operating Officer Officer emcsherry@njcpa.org emcsherry@njcpa.org DON DON MEYER MEYER Chief Chief Marketing Marketing Officer Officer dmeyer@njcpa.org dmeyer@njcpa.org RACHAEL RACHAEL BELL BELL Managing Managing Editor Editor rbell@njcpa.org rbell@njcpa.org KATHLEEN KATHLEEN HOFFELDER HOFFELDER Content Content Editor Editor khoffelder@njcpa.org khoffelder@njcpa.org MARC MARC L. L. REIN REIN Multimedia Multimedia Specialist Specialist mrein@njcpa.org mrein@njcpa.org

4 Legislative Issues Impacting New Jersey’s Business Community

The unfunded pension liability continues to be a drag on the state budget, minimum wage bills will surely be reintroduced and the millionaire’s tax is politically popular. All of these will be on the legislative agenda with a new governor in 2018.

6 Transportation Trust Fund Addressed Through Tax Changes

The 23-cent-per-gallon increase in the gas tax will go toward funding an eight-year $16 billion Transportation Trust Fund that will include another $16 billion in matching federal dollars.

Find out how other taxes, such as the sales and use tax and the estate tax, are affected by the legislation.

2 CLOSE UP 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 DIGITAL DIGITAL ATAT NJCPA.ORG/ NJCPA.ORG/ NEWJERSEYCPA NEWJERSEYCPA DESIGN/ DESIGN/ P RODUC P ROD UTCI T ON I ON / / ADVERTISIN ADVERTIS IG NG THE THE YGS YGS GROUP GROUP 3650 3650 WEST WEST MARKET MARKET STREET STREET YORK, YORK, PAPA 17404 17404 Advertising Advertising Contact: Contact: JASON JASON VRANICH, VRANICH, ACCOUNT ACCOUNT EXECUTIVE EXECUTIVE 717-430-2357 717-430-2357 jason.vranich@theygsgroup.com jason.vranich@theygsgroup.com

Looking at the Candidates: Who’s Best for New Jersey Businesses 14 ACCOUNTING, AUDITING & ATTEST

Why You Should Audit Your Employee Benefit Plans Now (Really, Really Now!) 15 BUSINESS ADVISORY SERVICES

10 Strategies to Minimize Your Client’s Taxes 16 FINANCIAL PLANNING SERVICES

Helping Clients Save for College

8 What the 2017 Election Could Mean for Your Business and Clients

From property taxes to paid leave to the minimum wage, when New Jersey’s new governor takes office in 2018 the tax and business landscape could change.

10 How to Improve New Jersey’s Credit Rating

Regardless of which gubernatorial candidate emerges victorious in November, the state’s credit rating, and its implications on business, is and will remain a very serious issue.

12 A New Jersey Voter’s Guide to State Tax Policy This wealth of expertise helps explain why it is almost impossible to have a rational conversation about tax policy.

Here are a few observations to help voters make sense of it all.

18 FIRM & PRACTICE MANAGEMENT

Growth via Acquisition 20 FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

24 TECHNOLOGY & INFORMATION MANAGEMENT

The VPN Way 26 NJCPA NEWS

Three Keys to Effectively Work from Home

yy Diversity & Inclusion Award Recipients yy Emerging Leaders Council Empowers Future and New CPAs yy Get Involved yy NJCPA Helps Candidates Navigate the CPA Exam and Licensure

23 TAX

35 CLASSIFIEDS

A Look at Fair Value Measurement — ASC 820 Level 3 22 PROFESSIONAL DEVELOPMENT

Tax-Related Identity Theft

36 MEMBER STORY

Amy Both, CPA

CLOSE UP

Looking at the Candidates: Who’s Best for New Jersey Businesses

Phil Murphy

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

New Jersey voters have a lot to think about this November. School funding, any kind of tax issue from property to sales to inheritances, as well as pension obligations are some of the issues that voters are faced with when picking a candidate. So, where do they stand on the issues? NJCPA recently hosted the candidates at live Q&A sessions, which represents some of the answers below.

Other answers were taken from recent discussions by the candidates at public forums, in the press or on their websites.

Let’s compare: SCHOOL FUNDING yy Guadagno — She would work to reform the school funding formula so millionaires in certain areas like Hoboken and Jersey City pay their fair share. As a part of her ‘Audit Trenton’ initiative, Guadagno favors auditing all school districts in New Jersey to ensure money is being spent wisely. yy Murphy — He has favored a tax increase on the wealthy to help pay for a revamped school funding plan, recognizing that there are inequities between certain school districts.

ESTATE/INHERITANCE TAX yy Guadagno — “People cannot afford to die here anymore,” she said. yy Murpy — “Do I think it makes sense to be one of two states to have both the estate tax and inheritance tax? No,” said Murphy.

MILLIONAIRE’S TAX yy Guadagno — She maintains that “if you put a tax on the most taxed people in this country, they will leave.” No more taxes, she says. “You have to solve your problems in another way.” yy Murphy — “That’s going to be on the table along with everything else,” said Murphy.

BUSINESS TAX CHANGES yy Guadagno — “Business taxes have been cut enough, unless there’s an outlier,” said Guadagno. yy Murphy — “This state is in deep economic crisis. Everything is on the table — every expenditure and every tax,” said Murphy. On cutting business taxes, he said, “I’m a particular critic of only reaching for the tax lever as the only weapon we have to attract companies or keep them here. I think a low-cost tax environment is not within our future.”

PROPERTY TAXES yy Guadagano — “New Jersey needs to wrestle the highest property taxes in the country to the ground,” said Guadagno.

She proposes capping the school portion of a homeowner’s property tax bill to 5 percent of their household income.

Any amount owed in excess of the 5-percent circuit breaker threshold will be applied directly to the homeowner’s property tax bill as a credit. yy Murphy — He believes in making New Jersey more affordable by easing the

Kim Guadagno

property tax burden by funding our schools, restoring rebates for seniors and low-income residents, and incentivizing towns to share services.

PENSION OBLIGATIONS yy Guadagno — She says that the recent Pension and Health Benefit Study Commission set forth sound principles and ideas for tackling New Jersey’s pension crisis that should serve as the starting point for negotiating a solution. yy Murphy — “This is a state people don’t trust anymore… the state must meet its side of the deal,” said Murphy. New Jersey has the worst-funded pension system in the country.

MINIMUM WAGE HIKE TO $15 yy Guadagno — The minimum wage is not a “living wage” but a stepping stone, she said. A hike in the minimum wage to $15 an hour would lead to more “self-serve” situations. yy Murphy — “I would support it. I’m on record as supporting it but I would do it in a gradual period of years,” said Murphy. “If we increase the minimum wage and it leads to a discernable increase in unemployment and it’s unambiguous, then that’s where we should have the debate.”

READ MORE UPDATES ON NEW JERSEY ELECTION njcpa.org/njelection

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. 65 Copyright © 2017 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.

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SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

THE NEW JERSEY TRIENNIAL ENDS 12/31/2017 YOUR CHECKLIST:

y y y

120 CPE credits New Jersey Law and Ethics Course Annual 20 CPE Credit Minimum

Learn more at njcpa.org/triennialfaqs.

LEGISLATIVE ISSUES IMPACTING NEW JERSEY’S BUSINESS COMMUNITY

By JEFFREY T. KASZERMAN

NJCPA GOVERNMENT RELATIONS DIRECTOR

Most CPAs would agree that New Jersey’s tax and economic policies are not very conducive to economic growth.

For years, New Jersey business owners have been complaining about the impact of high state and property taxes, burdensome regulations and a litigious environment.

Underlying all those problems is a huge unfunded state pension liability that threatens the fiscal integrity of the state and the financial security of hundreds of thousands of public sector workers.

At times, the Democratic Legislature and Republican Governor have worked together to pass significant reforms to reduce the burden on businesses. For example, they repealed the estate tax, placed a 2-percent cap on property taxes, established a stable funding source for transportation infrastructure projects and enacted a series of tax reform measures (e.g., single sales tax factor).

More often though, the Legislature has passed measures opposed by business groups that were then vetoed by the Governor (e.g., Millionaires Tax).

Below we discuss some of the key business issues pending in the Legislature and their outlook for 2018.

FUNDING PENSIONS According to Bloomberg News, New Jersey has an unfunded pension liability

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SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

of $135 billion. This is a tremendous drag on the state budget, and it’s one of the worst pension liabilities in the nation. The liability was caused by a failure of the past six Governors — Democrats and Republicans — to contribute adequate funding to the pension system. In 2011, bipartisan legislation was passed that suspended cost-of-living increases for retirees and increased worker contributions in exchange for a state promise to make increasingly large multibillion-dollar payments over the next seven years. At the time, lawmakers claimed that they had finally “fixed” the pension problem.

In 2014, Governor Christie, citing budgetary constraints, made a significant cut in the required payment. The public worker unions sued, but the New Jersey State Supreme Court ruled in the Governor’s favor.

Shortly thereafter, the bipartisan NJ Pension and Health Benefit Study Commission released a set of recommendations to reduce the state’s pension liability.

Those recommendations would essentially require deep cuts in worker benefits in exchange for a constitutional amendment that would require the state to pay off the pension debt over a 40-year period. It’s

been described as a trade-off of reduced benefits, more in line with private sector benefits, to guarantee solvency of the fund.

The panel’s recommendations were rejected by the unions and many of their Democratic supporters in the Legislature.

The stalemate continues. What will happen in 2018 is anyone’s guess. A lot will depend on who is elected governor. Democratic candidate Phil Murphy is on record as supporting a constitutional amendment that would require the state to make annual multibillion-dollar payments into the pension fund. His opponent, Lieutenant Governor Kim Guadagno, is opposed to it.

The NJCPA is deeply concerned about the unfunded liability and has advocated for all interested parties to work together on forging a solution that uses the Commission’s report as a starting point for discussions. The NJCPA does not support a funding mechanism that is constitutionally mandated. The constitution is not the proper forum for addressing such an issue and would hinder the state’s fiscal flexibility.

INCREASING THE MINIMUM WAGE Numerous bills have been introduced over the past few years to increase the state’s minimum wage to $15 per hour. Many have passed the Legislature only to be vetoed by the Governor. These bills are sure to be reintroduced in 2018, and their fate will largely depend on whomever is elected governor. Murphy supports the hike and Guadagno is opposed.

The NJCPA and other business groups have opposed attempts to hike the minimum wage to $15. While the NJCPA appreciates the Legislature’s efforts to help low-income workers, increasing the minimum wage as proposed would have a negative impact on small businesses. Paradoxically, the hike would harm the workers it is intended to benefit. If enacted, businesses would have only two choices in order to afford a $15 minimum wage: reduce their workforce and/or pass on their increased costs to consumers.

IMPLEMENTING A MILLIONAIRES TAX Over the past decade, there have been numerous attempts to impose a “millionaires

tax” on high-income residents. The parameters and purposes of the measures have varied, but they would all have imposed a higher top marginal rate.

Although all the efforts at passing a millionaires tax have been vetoed by Governor Christie, members of the Democratic majority in the Legislature continue to push for this politically popular measure. The latest proposals would use the revenues raised to fund public pension plans or schools. Guadagno is opposed to the millionaires tax. Murphy has said “everything is on the table” and that he would consider the tax if necessary to fix the state’s fiscal problems.

The NJCPA has always opposed a millionaires tax. The Society believes it would have a negative impact on the business climate by increasing the outmigration of high-net-worth New Jerseyans and would harm thousands of small and medium-sized businesses that are pass-through entities. New Jersey already has enough high taxes, it doesn’t need another one.

EXPANDING PAID FAMILY LEAVE A4927, which was introduced in June, is moving rapidly through the legislative process. This bill would increase the benefits under New Jersey’s paid family leave law, one of only three states that have such a law.

The existing program offers new parents/caregivers up to six weeks of benefits equal to two-thirds of their pay and is capped at $633 per week. A4927 would offer up to 12 weeks and raise the cap to $932 per week. Unlike the current paid family leave law, the bill has no exemption for those who employ fewer than 50 workers.

Business groups oppose the bill because it will hurt small businesses by leaving them without key employees for long periods and by forcing them to hire and train replacement workers or pay overtime to coworkers.

If this bill passes the Legislature this year, and it looks like it will, Governor Christie will likely veto it. It would probably be reintroduced in 2018 and pass the Legislature in some form. Its fate would then depend on who the governor is. While neither candidate has yet taken a position on this specific bill, it is likely that candidate Murphy would be more favorably disposed than Guadagno.

READ MORE NJCPA LEGISLATIVE ACTION CENTER njcpa.org/advocacy

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

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TRANSPORTATION TRUST FUND ADDRESSED THROUGH TAX CHANGES

By BY GREG DEBSKI, ESQ.

HOLMAN FRENIA ALLISON, P.C.

Last fall, the New Jersey legislature passed and Gov. Chris Christie signed into law a bill that funded New Jersey’s tapped-out Transportation Trust Fund (TTF). The legislation combined a 23-cent-per-gallon hike in the state’s gas tax with a reduction of various taxes.

The bill gradually eliminates the New Jersey estate tax; increases the amount of retirement income that is free from state income taxes; provides a new tax cut for veterans; and increases the New Jersey Earned Income Tax Credit (EITC) to 35 percent of the federal benefit amount.

The increase in the gas tax will go toward funding an eight-year, $16 billion TTF that will include another $16 billion in matching federal dollars. “Over the next eight years, a record $32 billion in state and federal funds will be invested in infrastructure improvements and modernizations in New Jersey. This compromise legislation locks in what I called for from the beginning: tax fairness for all residents, leading to a more affordable state and an improved economy,” Gov. Christie said in a statement at the time of the law’s passing.

State Sens. Paul Sarlo (D-Wood-Ridge) and Steven Oroho (R-Sparta), who together sponsored similar legislation earlier last year, were optimistic about this passed legislation. “This is one of the most significant investments in New Jersey’s infrastructure and economy in recent history,” said Sarlo.

The New Jersey Office of Legislative Services (OLS) analyzed the legislation and estimated the gains and losses for the taxes affected, which are shown in Table 1. The following taxes are affected: FUEL TAXES The gas tax rose 23 cents per gallon on November 1, 2016, as a result of the new law, while the diesel fuel tax rose by 27 cents

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per gallon. Should anticipated revenues fall short of projected revenue, the state treasurer has statutory authority to raise the tax in the future without seeking voter or legislative approval.

SALES AND USE TAX REDUCTIONS On January 1, 2017, the sales tax decreased from 7 percent to 6.875 percent. Beginning January 1, 2018, it will decrease further to 6.625 percent.

ESTATE TAX The estates of deceased New Jersey residents are subject to both an inheritance tax and an estate tax in addition to any federal tax owed. While the new legislation didn’t change the inheritance tax laws, it did change the estate tax. Prior to this bill, the first $675,000 of an estate was exempt from tax. Under the new law, the first $2,000,000 of an estate will not be taxed for any resident who dies in 2017. On January 1, 2018, the estate tax will be completely eliminated. A driving force behind this portion of the bill is that many residents were moving to states like Florida which have no estate or inheritance tax, so it will be interesting to see if taxpayer outflow changes as a result of the elimination of the estate tax.

In a 2015 survey of NJCPA members, 74 percent of respondents indicated that they had “advised a client to consider relocation due to New Jersey’s estate and inheritance taxes.” In a follow-up poll conducted by the NJCPA in December 2016, more than one third of the respondents indicated that they

TABLE 1. OLS ESTIMATES FISCAL IMPACT

FY 2017

FY 2018

FY 2019

FY 2020

FY 2021

FY 2022

STATE REVENUE LOSS: GENERAL FUND SALES & USE TAX

($92,400,000)

($382,200,000)

($592,800,000)

($613,900,000)

($633,800,000)

($655,400,000)

ESTATE TAX

(16,000,000)

(116,400,000)

(320,000,000)

(470,100,000)

(521,900,000)

(561,900,000)

PTRF PENSIONS

0

(60,000,000) TO (90,000,000)

(70,000,000) TO (105,000,000)

(80,000,000) TO (120,000,000)

(85,000,000) TO (130,000,000)

(87,550,000) TO (133,900,000)

VETERANS’ EXCLUSION

0

(23,000,000)

(23,000,000)

(23,000,000)

(23,000,000)

(23,000,000)

EITC

(62,000,000)

(63,500,000)

(65,000,000)

(66,500,000)

(68,500,000)

(70,500,000)

(645,100,000) TO (675,100,000)

(1,070,800,000) TO (1,105,800,000)

(1,253,500,000) TO (1,293,500,000)

(1,332,200,000) TO (1,377,200,000)

(1,398,350,000) TO (1,444,700,000)

TOTAL LOSS IN GF (170,400,000) AND PTRF STATE REVENUE GAIN: 12.5% PPGR

694,120,000

1,159,600,000

1,159,600,000

1,159,600,000

1,159,600,000

1,159,600,000

7% NON-MOTOR

20,720,000

31,100,000

31,100,000

31,100,000

31,100,000

31,100,000

4 CENT/GAL DIESEL

0

39,600,000

39,600,000

39,600,000

39,600,000

39,600,000

TOTAL GAIN, FUELS TAXES

714,840,000

1,230,300,000

1,230,300,000

1,230,300,000

1,230,300,000

1,230,300,000

NET TOTAL STATE REVENUE ALL FUNDS

544,440,000

585,200,000 TO $555,200,000

159,500,000 TO 124,500,000

(23,200,000) TO (63,200,000)

(101,900,000) TO (146,900,000)

(168,050,000) TO (214,400,000)

Table from Legislative Fiscal Estimate by Office of Legislative Services of New Jersey 217th Legislature (October 12, 2016)

will be changing their advice to clients now that the estate tax is being phased out.

RETIREMENT INCOME EXCLUSIONS Retired taxpayers over the age of 62 who have gross income of $100,000 or less will have more retirement income excluded from tax as shown in Table 2.

EARNED INCOME TAX CREDIT New Jersey’s Earned Income Tax Credit increased from 30 percent to 35 percent

of the federal Earned Income Tax Credit in 2017 for low- and moderate-income working people if they qualify based upon a number of factors that include income, marital status and number of children.

EXEMPTION FOR VETERANS Veterans who are honorably discharged or released from service under honorable circumstances will be eligible for an additional annual tax exemption of $3,000, starting in 2017. The average benefit for each of the state’s estimated 220,000 veterans with an

TABLE 2. RETIREMENT INCOME EXCLUSIONS

income-tax liability will be worth about $105, the OLS said.

The tax decreases are a welcome and needed approach for New Jersey residents who are among the most heavily taxed in the country, whether alive or dead.

Greg Debski, Esq., CPA, LL.M.-Tax, serves as manager of the tax division at Holman Frenia Allison, P.C. He has 20 years of experience in tax preparation, planning and compliance for complex business and individual clients. Greg can be reached at gdebski@hfacpas.com.

FILER

PRIOR TO THE BILL’S PASSAGE

2017

2018

2019

2020

JOINT

$20,000

$40,000

$60,000

$80,000

$100,000

INDIVIDUAL

15,000

30,000

50,000

60,000

75,000

SEPARATE

10,000

20,000

30,000

40,000

50,000

READ MORE STATE TAX ARTICLES AND RESOURCES njcpa.org/topics/statetax

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

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WHAT THE 2017 ELECTION COULD MEAN FOR YOUR BUSINESS AND CLIENTS

By MELISSA A. DARDANI, CPA, AND LEONARD J. NITTI JR., CPA

WILKIN & GUTTENPLAN, P.C.

Throughout Governor Christie’s entire tenure, he’s shared legislative control with a Democratic-majority Senate and General Assembly. While there is no way to know the outcome of this election today, this article will explore the potential tax policy changes under a new administration should the Democratic candidate win the election.

The New Jersey gubernatorial, Senate and General Assembly elections are set to be held November 7.

Gubernatorial candidates Kim Guadagno (R) and Phil Murphy (D) are each seeking to be the successor of two-term Republican incumbent, Governor Chris Christie.

8

THE “MILLIONAIRES’ TAX” Taxes have been imposed upon high-earning individuals variably throughout New Jersey’s history. In the past, Republican leaders have favored tax breaks to provide incentive to stay in state, and Democratic leaders have maintained these taxes are fair and necessary measures. The tax on the wealthy, also referred to as the “millionaires’ tax,” has been through periods of trial and error. Both Jon Corzine (D) and Jim McGreevey (D) enacted their own form of the tax during their tenures. Conversely, Christie has vetoed several bills proposing similar taxes five separate times while governor. This is something Phil Murphy has mentioned along his campaign trail, so it is possible the discussion will resurface should the Democrats take office.

THE DEATH TAX Under current law, New Jersey estates are subject to tax upon the owner’s death if they are in excess of a certain threshold.

The exemption is designed to protect the beneficiaries of smaller estates from excessive tax. Effective January 1, 2017, the estate tax exemption was raised from $675,000 to $2 million and is scheduled to

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

be eliminated entirely beginning January 1, 2018. This serves as another tax break for wealthy New Jersey residents upon their deaths. On the contrary, Democratic politicians have historically favored shifting the tax burden to those who can afford it. Phil Murphy made the argument in the 2017 primary debate that phasing out the estate tax and lowering the state’s sales tax rate has cost us considerably. Should he take office, it’s possible we see the resurrection of the estate tax.

BUSINESS TAXES The current New Jersey corporate tax rate ranges from 6.5 percent to 9 percent, which has remained unchanged since 1980. Republican leaders have historically been more in favor of sheltering the state’s businesses from increased tax burdens than Democratic leaders. In 2002, for example, under a Democratic governor, Democrat majority house and split Senate, New Jersey underwent one of the largest business tax reforms in the state’s history. The result introduced the partnership filing fee, the business alternative minimum assessment, a nonresident partner withholding requirement and a throw-out rule for state apportionment.

On the other hand, Christie has made preventing tax increases a key component of his administration, with the hopes of attracting and retaining more business in state. Christie exercised his veto power to dismiss a 15-percent surcharge on corporate business tax liabilities twice during his last term in office. Additionally, in 2017,

the New Jersey sales tax rate was reduced under Christie from 7 percent to 6.875 percent, to be further reduced to 6.625 percent effective January 1, 2018. During the Democratic primary debate, all candidates were of the mindset that Christie’s approach on business has hurt the state.

With a Democratic leader in office, it’s possible we will see additional changes to the business tax landscape in New Jersey.

MINIMUM WAGE INCREASE The minimum wage in New Jersey has been increased by a total of $8.44 over the course of the last 28 years, $2.19 of which is attributable to a Republican governor and the remaining $6.25 that of a Democratic governor, despite Republicans holding office four years longer during the period of observation. During Christie’s tenure he twice vetoed legislation supporting increases in the minimum wage, with the most recent and substantial being a five-year, progressive increase to eventually settle at $15 per hour. The Governor argues that the measure will hurt local businesses, as they will struggle to successfully maneuver the increased labor costs. Phil Murphy has made minimum wage a center

component of his campaign, therefore it is possible it could be pursued again under new administration.

PAID SICK LEAVE MANDATE Paid sick leave allows employees to earn sick days to use in taking care of themselves and their families. There is currently no state mandate in New Jersey to provide this benefit to employees, however certain jurisdictions, including Jersey City, Newark and Trenton, have their own ordinances in place requiring it.

Legislation concerning paid sick leave was first introduced to the State House and Senate in 2013. When observing the history of how New Jersey legislators voted, the partisan lines of the issue are clear. Democrats have sponsored proposed legislation and have mostly been in favor of it while most Republicans either opposed or abstained on the issue. Since no bill has made it to Christie’s desk, we may not get the chance to see how he would respond to the proposed legislation. He has, however, spoken out against mandating businesses to pay for what many on the Democratic side consider to be a great benefit for employees. It is possible we will see the issue

progress through the lawmaking process should Democrats take office in 2018.

CONCLUSION In addition to what is outlined above, other pieces of the business and tax landscape may undergo changes should we see a Democratic administration, such as property tax reform. However, much like there is no way to predict the outcome of the upcoming election, there is no way to know what tax policy changes will be implemented by a new administration.

Melissa A. Dardani, CPA, focuses on tax and accounting compilations, as well as related tax services, at Wilkin & Guttenplan, P.C. She is a member of the NJCPA and can be reached at mdardani@wgcpas.com.

Leonard J. Nitti Jr., CPA, MST, is a principal at Wilkin & Guttenplan where his major areas of concentration in taxation include real estate, partnership, and state and local tax. Len is a member of the NJCPA State Taxation and Federal Taxation interest groups and can be reached at lnitti@wgcpas.com.

READ MORE UPDATES ON NEW JERSEY ELECTION njcpa.org/njelection

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

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HOW TO IMPROVE NEW JERSEY’S CREDIT RATING

By SEAN STEIN SMITH, CPA

LEHMAN COLLEGE

One of the issues that is of top concern to the business community, small business owners, aspiring entrepreneurs and government employees is the state of New Jersey’s credit rating, which has been downgraded 11 times during the last eight years.

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Regardless of which gubernatorial candidate emerges victorious in November, the state’s credit rating, and its implications on business, is and will remain a very serious issue. As of the writing of this article, only Illinois has a lower rating than New Jersey, and one just has to review headlines to see the woes facing that state. Currently, New Jersey has been downgraded to an A3 credit rating by Moody’s, an A- with a negative outlook by S&P, and an A coupled with a stable outlook by Fitch. Examining this issue from an apolitical perspective, there are several core drivers among the many issues facing the state budgeting and spending processes that should be the focus of comprehensive financial review and planning to improve the state’s credit rating.

IMPROVING THE ACCURACY OF BUDGETING An issue that has been cited by numerous credit rating agencies, media stories and public debates is a lack of accuracy and consistency in the budgeting and forecasting process. One example, and something that surely played a role in the downgrades, is the fact that the current fiscal year revenue collections have come up $527 million short of earlier estimates1.

As every businessperson knows, a lack of accuracy in the forecasting process will lead to consistently inaccurate decisions and, ultimately, budget revisions. Such revisions are bad enough for a private business, whether in the for-profit or nonprofit sector, but it has even broader implications when such gaps exist in a governmental

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

budget. Improving the forecasting accuracy of operating budgets, revenue and the state of the pension would assist decision makers and ratings agencies in making more accurate decisions. Even if the reality of more accurate forecasts creates some short-term pain and awkward conversations, improving the accuracy of such information will create a better long-term environment for decision making.

TACKLING THE PENSION LIABILITY Speaking of pension debt, the budget gap — projected by Moody’s to reach $3.6 billion2 by fiscal year 2023 when taking into account pension and other economic issues — is a serious issue for the state’s credit rating. Clearly, the chronic underfunding of the pension is an issue that spans administrations and political lines, is virtually always a contentious issue debated around election time, and has medium- to long-term effects on the financial condition of the state. Akin to how chronic debt levels, and not paying off these debt levels over time, will have a detrimental impact on the credit score of an individual and make borrowing additional funds more expense, a similar effect has occurred to the state over time. A step along the critical path toward addressing this issue, in an apolitical manner, is to come to terms with what can be done to address this shortfall.

CPAs and other financial professionals can approach this issue from an objective manner, have the capabilities to analyze the situation and can recommend tactics

to address this ongoing issue. An issue as complicated as pension funding at the state level involves many stakeholders and is impacted by multiple economic forces beyond the control of any one administration or group, but it is something that must be addressed. Ignoring the state pension issue, or proposing solutions that will not ultimately be workable, is not productive.

Such potential acrimony, however, also presents an opportunity for CPAs who are educated and informed on this issue to recommend logical and sustainable solutions.

TAX POLICY AND UNCERTAINTY A consistent theme and issue for business owners, individuals and rating analysts alike is the uncertainty related to tax rates, tax policy and the effects that changes in taxes will have on business development, economic growth and the likelihood of individuals remaining in the state. While tax rates and tax policies are a routine, and almost chronic, issue in New Jersey and other states, the increased uncertainty related to federal tax policy has only amplified this existing uncertainty and wariness.

Specifically, the proposed elimination of the tax deductibility of income taxes paid

by workers is one of a series of tax issues that potentially distort business activity and investment. Uncertainty linked to this issue only compounds uncertainty and existing concerns linked to items such as the estate tax and property taxes. Clarifying these issues, putting together objective financial proposals that address the financial ramifications of potential changes, and documenting said changes represent areas where CPAs can add value to the conversation in an objective and apolitical manner.

MOVING FORWARD The financial condition of the state, including the downgrade of the state’s credit rating, is not a situation that developed overnight, nor will it be solved overnight. Regardless of who emerges victorious in the upcoming election, there are a host of issues waiting for the new administration to address. New Jersey has suffered multiple downgrades over the last administration, but these are simply symptoms of larger issues that continue to negatively affect the creditworthiness and financial future of the state. Inaccuracies in budgets and forecasts, uncertainty with action on the

pension issue, and tax policies that might change on both a federal and state level represent both challenges and opportunities for administrators and professionals who live and work in the state. CPAs, in particular, have the skills and mindset to analyze, address and recommend potential solutions to the contentious issues.

Working within organizations, external stakeholders and government representatives allows CPAs, both individually and through the NJCPA, help address these complex issues. njspotlight.com/stories/17/05/16/this-years-budget-blunder-projected-527-shortfalladministration-is-scrambling-to-fill/ 2 njspotlight.com/stories/17/05/25/moody-s-keepsnj-s-a3-credit-rating-but-says-state-needs-to-raisetaxes-cut-spending/ 1

Sean Stein Smith, CPA, DBA, M.S., M.B.A., CMA, CGMA, is an assistant professor at Lehman College.

He is a member of the NJCPA Content Advisory Board, Student Programs & Scholarship Committee, Emerging Leaders Council, Nonprofit Interest Group and Accounting & Auditing Standards Interest Group. He can be reached at drseansteinsmith@ gmail.com.

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

11

A NEW JERSEY VOTER’S GUIDE TO STATE TAX POLICY

By ANDREW SIDAMON-ERISTOFF

Every four years, like a scene from “Groundhog Day,” candidates for New Jersey governor serve up a warmed-over menu of policy platitudes. My favorites concern taxes.

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No issue that touches so many people invites more political obfuscation, misrepresentation and outright nonsense. Here are a few observations to help you make sense of it all: Everyone is a tax expert. Over the course of my 25 years in public life, I have never met anyone in or out of government who is not a tax policy expert. After all, everyone pays taxes. This wealth of expertise helps explain why it is almost impossible to have a rational conversation about tax policy.

We’re talking about state tax policy.

Most state candidates make arguments that are more appropriate to a discussion of national tax policy than state tax policy. As a practical matter, the relatively small size of the state budget and revenue base compared to their federal counterparts means that cutting or raising state taxes has a relatively limited impact in spurring growth or reducing inequality, respectively.

It’s all relative. New Jersey competes for investment and jobs with its regional neighbors. State tax policies play a critical role in both the perception and reality of regional competitiveness. In this context, it is more important to focus on relative rather than absolute tax burdens.

Tax policy is a lousy offensive weapon. Do tax cuts and tax incentives “work?”

Maybe, but only some of the time and, even then, for a limited time. New Jersey’s various efforts to gain a competitive advantage through tax cuts and tax incentives hardly qualify as an unmitigated long-term success. Apart from unresolvable questions about what would have happened in the

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

absence of a tax cut or particular incentive, history suggests that employers are skilled in playing jurisdictions off against each other and that our competitors, particularly New York City and New York State, have the will and capacity to counter New Jersey’s every move. The resulting “race to the bottom” starves the state of needed revenue and leaves an uneven and unfair distribution of tax burdens, even within industries, as some firms qualify for incentives and others don’t.

AVOID SELF-INFLECTED INJURY First, do no harm. The focus of New Jersey’s tax policy should be to avoid being notably uncompetitive, particularly within our region. That means keeping New Jersey firmly within the regional mainstream and avoiding negative outlier status. For instance, it made sense to raise the gas tax to fund the Transportation Trust Fund because we still compare favorably to our neighbors. Similarly, raising the estate tax exemption from a totally uncompetitive $675,000 to match some of our competitor states was important, but eliminating it completely wasn’t necessary to shed our negative outlier status within the region, and I fear that the competitive advantage gained will prove temporary as a function of other states’ countermoves or backsliding in the face of ongoing fiscal pressures.

Finally, since New Jersey already has the highest marginal income tax rate in the region, imposing a new millionaires’ tax may be great politics — who cares about a tax that someone else pays? — but it will

also increase the volatility of our revenue base and push wealthy New Jerseyans into the arms of tax advisors.

Millionaires and moving. Will imposing a new top income-tax rate result in a flood of millionaires picking up and moving to Florida or some other tax-friendly state?

Probably not. Will it push taxable income and thus revenue out of New Jersey? Probably yes. For instance, a wealthy New Jersey resident taxpayer with a house in Florida doesn’t have to sell out and physically move to Florida to be treated as a tax resident of Florida. She or he only need establish domicile in Florida and be very careful to stay out of New Jersey for 183 days during the year.

She or he may still pay some nonresident tax to New Jersey, but it will be minimal because, as a wealthy individual, the likelihood is that most of her or his income is from investments not subject to nonresident income tax. Tax advisors would be committing malpractice not to point these facts out, especially if their client is planning the sale of a business or another transaction likely to generate large capital gains.

TALKING TAXES New Jersey’s low-yield income tax. Thanks largely to the fact that thousands of New Jerseyans commute to high-paying jobs in New York City, New Jersey grants about $3.5 billion a year in credits for taxes that our residents pay to other jurisdictions. After offsetting credits for taxpayers who commute to New Jersey, approximately $2.2 billion a year flows out of New Jersey to other states, mostly New York. This is a huge amount com-

pared to the $13.9 billion that the income tax is expected to raise in fiscal 2017.

State property-tax relief doesn’t work.

It is an article of faith among New Jersey politicians that more state-level property-tax relief, funded mainly with income tax receipts, will somehow reduce local property-tax burdens. Sorry, but history suggests otherwise. The state adopted the income tax in 1976 specifically to provide property-tax relief. Four decades later, notwithstanding an income tax that has grown from about 13 percent to over 40 percent of state revenue, New Jersey retains a firm grip on the No. 1 spot in residential property tax burdens.

NONEXISTENT LOOPHOLES There are no loopholes, just policy choices. What exactly is a “loophole?” Is it an unintended or inadvertent flaw in the tax law that allows some taxpayers to pay less than they should? Or is it a tax break that the Legislature deliberately created or has declined to change in the face of changing economic circumstances? If the former, how do we determine the amount that “should” be paid? If the latter, do we know why the Legislature acted or failed to act? The tax law may have plenty of flaws but few, if any, are truly unintended and inadvertent.

Characterizing a feature of the tax law as a “loophole” is an easy way to obscure political accountability and ignores the fact the entire tax law reflects policy choices.

Taking people off the tax rolls is a mistake. Politicians love to take credit for raising income thresholds for the requirement to

file a tax return. Although this may sound like a good idea, it’s not. First, this rhetoric confuses the fact that low-income people need to file a return to qualify for valuable tax credits such as the Earned Income Tax Credit. Second, exempting people from the task of filing a return undermines the culture of voluntary compliance that is the cornerstone of our tax system.

Tax dedications: a metric of democratic failure. In recent decades, it’s rare to see a major tax increase proposal that doesn’t feature some sort of voter-approved dedication to a favored cause such as education or transportation. Politicians know that voters distrust them to spend their money wisely, so they sweeten the pot with a dollop of direct democracy. Trouble is, dedications decrease fiscal flexibility and make our elected representatives less accountable for setting and managing priorities with limited resources. Over time, we’ll wind up with more dedications and less accountability, a recipe for continuing democratic frustration and alienation.

This is an abridged version of the article. To read the full opinion piece, go to njcpa.org/newjerseycpa/septoct17.

Andrew Sidamon-Eristoff is a former New Jersey state treasurer. He has held cabinet-level appointive offices in New York City and New York state as well as New Jersey. He is also a former member of the New York City Council.

Reprinted with permission of NJ Spotlight, njspotlight.com

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

13

ACCOUNTING, AUDITING & ATTEST

Why You Should Audit Your Employee Benefit Plans Now (Really, Really Now!)

BY LEWIS D. BIVONA JR., CPA

During fiscal year (FY) 2016, the Federal Government won or negotiated over $2.5 billion in health care fraud judgments and settlements, and it attained additional administrative impositions in health care fraud cases and proceedings. As a result of these efforts, as well as those of preceding years, in FY 2016 over $3.3 billion was returned to the Federal Government or paid to private persons. Of this $3.3 billion, the Medicare Trust Funds received transfers of approximately $1.7 billion during this period, and $235.2 million in federal Medicaid money was similarly transferred separately to the Treasury as a result of these efforts.

Of the approximately $31 billion returned by the Health Care Fraud and Abuse Control (HCFAC) account to the Medicare Trust Funds since the inception of the Program in 1997, over $17.9 billion has been returned from 2009 through 2016.

The question remains, why do private employers not seem as interested as our government in compliance auditing to uncover excessive or inappropriate claims payments? Another question is why do their trusted advisors — CPAs — not counsel employers to audit their benefit plans as a matter of maintaining profitability? Employers have a fiduciary duty to their owners, shareholders and employees to pay only for appropriate and necessary services, otherwise the following things can happen: yy Becoming non-competitive in the market place. If a company’s benefit costs are unnecessarily higher than their competition, they are at an economic disadvantage. yy Costs incurred that don’t relate to treatment. Why pay for prescriptions that have no correlation to what’s wrong with your employees (off-label uses)? yy Price creep in areas such as brandname drugs being filled when generics were ordered; acute pharmacy used instead of the mail formulary; incompati-

14

ble tests ordering; inpatient admissions when outpatient services are more appropriate; and preferred provider network coverage is not adequate resulting in higher costs to the company and the employee. yy Disgruntled employees. Employees share in the costs of premiums and deductibles; therefore, if the plan is not delivering optimum results, your employees will be subject to unnecessary financial strains. This also gives your competition an advantage in recruiting your best and brightest. yy Ineligible persons on your benefit plan. Statistics show that on average 3 to 5 percent of dependents are ineligible for coverage. Removable of ineligible dependents will reduce claims and possibly lower your stop loss risk.

Looking beyond the outright shysters, payment errors can occur for a multitude of reasons, such as: yy Complex contracting arrangements create opportunities for overpayments. yy High-cost claims tend to be more error prone due to the sheer volume of services provided. yy For plans offering prescription drug coverage, there can be serious overpricing of drugs and/or inappropriate calculation of rebates that employers may not be aware of at all. Even more concerning is that the medical claims and prescription drug claims generally operate in separate closed-loop systems that never compare if the drug being ordered has any relation to a valid medical condition. yy Small errors can add up to big errors.

A large volume of a company’s medical claims can be for services less than $250, however small errors that happen consistently in a large population will add up to a major amount of money. yy Not all errors go in your favor. If providers are underpaid, they can still come back to your employees and your company for payment.

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

yy Not all dependents are dependents.

While some TPAs indicate that they check eligibility annually or more frequently, it does not always happen.

With health care now comprising a major portion of a company’s budget, CEOs and CFOs cannot afford to overlook the potential impact on their financial statements. It is important to monitor compliance and performance of ERISA-based benefits. While ERISA plans offer employers many levels of savings and freedom from multiple jurisdictional regulations, it does not relieve them of the responsibility to exercise fiduciary duties.

Benefit plan audits are not as expensive as sponsors may think, but the consequences of not auditing your benefit plan can be more expensive than you expected. Ask yourself, “Why am I not auditing my own benefit plan when the government has increased its audits with a yield of $5 for every dollar expended?”

Lewis D. Bivona, Jr., CPA, AFE, is a national health care subject matter expert performing both regulatory and consultative services across the United States. He is a member of the NJCPA Accounting & Auditing Standards Interest Group and can be reached at ldbcpa@verizon.net.

READ MORE

EMPLOYEE BENEFIT PLAN

AUDITS ARTICLE AND RESOURCES

njcpa.org/topics/epbaudits

BUSINESS ADVISORY SERVICES

10 Strategies to Minimize Your Client’s Taxes

BY MARTIN C. MCCARTHY, CPA, MCCARTHY & COMPANY

Tax professionals are always looking for ways to help clients save money on their taxes. Here are 10 tax planning strategies to consider that may not be top-of-mind: 1. Conduct a marginal rate analysis — See if the difference between your client’s marginal tax rate and effective tax rate will push him into a higher tax bracket if he earns more money. If so, your client can defer income or accelerate deductions to avoid paying taxes at a higher rate.

2. Shift AMT triggers to another year — If your client is subject to the Alternative Minimum Tax (AMT), see if one or more of the items causing him to be over the AMT threshold can be done in a different year to avoid paying the tax. The AMT thresholds for 2017 are: $54,300 for single filers, $84,500 for married taxpayers filing jointly, $42,250 for married taxpayers filing separately and $24,100 for trusts and estates.

3. Offset capital gains with tax loss harvesting — If your client is going to realize a capital gain on a qualified investment, he can offset short-term capital gains with short-term losses and long-term gains with long-term losses.

Consider if your client will have a capital loss carryforward (either short- or long-term) that could be used to shelter gains. Note that the “wash rule” prohibits a tax-deductible loss on the security if your client repurchases the same or a similar one within 30 days of the sale.

4. Buy tax-exempt state and municipal bonds — The 3.8-percent Net Investment Income Tax (NIIT) is not levied on interest and dividends excluded from federal income tax.

This includes interest earned on tax-exempt state and municipal bonds.

Since interest and dividends are not included in modified adjusted gross income (MAGI) for NIIT, it could

ACA is repealed, the NIIT could be abolished. The 0.9-percent Medicare Hospital Insurance surtax on incomes above $250,000 could also be eliminated.

keep your client under the threshold of $200,000 for a single taxpayer and $250,000 for married taxpayers.

5. Exchange property instead of selling — Capital gains and NIIT can be deferred if your client does a like-kind exchange (Section 1031) until the final property is sold.

6. Actively participate in business ventures — Interest, dividends and royalties from a trade or business are generally considered as passive income subject to NIIT. If your client owns the business and materially participates in it, paying NIIT can be avoided. Material participation is defined as working 500 or more hours per year, performing most of the services or demonstrating a consistent work history in the business.

7. Rent property to their business — Rental income is typically considered as passive income for income tax purposes and subject to NIIT. The NIIT is not, however, levied on property rented to a business your client owns. Self-rentals are generally not subject to NIIT. 8. Lend money to their business — Interest on a loan a client makes to his own business is not subject to NIIT. 9. Watch for the passage of healthcare reform — Many of the proposed changes to reform healthcare will have a significant impact on taxes. The NIIT was introduced in the Affordable Care Act (ACA). If

10. Use the Pease limitation phaseout — The American Taxpayer Relief Act of 2012 reinstated the Pease limitation phaseout for itemized deductions.

The threshold limits for adjusted gross income (AGI) for 2017 are $261,500 for a single taxpayer and $313,800 for married taxpayers filing jointly. Allowable deductions can be reduced by 3 percent of the amount exceeding these thresholds (capped at 80 percent).

There are, of course, many additional planning strategies you can use to reduce a client’s tax obligation. It will be interesting to see how the Trump Administration’s tax plan will change the tax law and how those changes will impact tax planning. Time will tell if the strategies CPAs have traditionally used to help clients save money will still make a difference or be available.

Martin C. McCarthy, CPA, is the managing partner of McCarthy & Company, a leader in construction accounting. He can be reached at 610-828-1900 or Marty.McCarthy@MCC-CPAs.com.

LEARN MORE OCT. 24, 2017, ROSELAND SLASHING TAXES FOR YOUR SMALL BUSINESS CLIENTS: CORPORATIONS, PARTNERSHIPS & LLCS Register at njcpa.org/events

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

15

FINANCIAL PLANNING SERVICES

Helping Clients Save for College

BY JEFFREY S. HANSON, CPA, TRAPHAGEN FINANCIAL GROUP

Many clients rely on CPAs for advice when saving for college and want to know the best approach. There are several effective methods.

529 PLANS A great vehicle to save for college is a 529 plan. There are two types of 529 plans: prepaid tuition plans and education savings accounts. A prepaid tuition plan allows you to prepay your tuition at eligible colleges and is limited to the actual amount of higher education costs for the beneficiary.

The second and more common 529 plan is the education savings account which allows you to contribute to an account established for paying a student’s qualified education expenses at an eligible educational institution. The education savings account growth is tax free if used solely for higher education expenses (post high school). Only the profit distributions not used for post high school qualified higher education expenses would be subject to tax and penalty. Qualified expenses include tuition and fees, books, supplies, qualified equipment, and room and board.

One of the benefits of the 529 plan is the high contribution limits ranging by state with certain states exceeding $400,000 for contribution limits per

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beneficiary. You are allowed to open a 529 plan in any state you wish. If the contribution is more than $14,000 per person, a gift tax return must be filed to report the gift. An election of five times the annual exclusion may be made to spread the gift over five years to avoid using your federal estate exemption on the gift. If the beneficiary decides not to attend college or receives a scholarship you still have options. If the beneficiary receives a scholarship or other tax-free

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

educational assistance, you are eligible to distribute the 529 plan penalty free up to the amount of the scholarship or other tax-free educational assistance.

The 529 plan will count as the owner’s asset (not the beneficiary’s) for financial aid calculations. Parent’s assets count towards the expected family contribution at a rate of 5.64 percent compared to the student’s assets which count at a rate of 20 percent. A higher family contribution will reduce the financial aid eligibility.

FINANCIAL PLANNING SERVICES

COVERDELL EDUCATION SAVINGS ACCOUNTS The Coverdell Education Savings Account has become outdated due to the creation of the 529 plan in 1996. The Coverdell has an annual contribution limit of $2,000 per year per beneficiary, and the growth is tax-free if used for qualified education expenses. The main benefit that the Coverdell has over the 529 plan is the ability to use the funds for elementary, grammar and high school as well as qualified colleges, universities, vocational schools or other postsecondary educational institutes.

UTMAs, UGMAs AND ROTH IRAs Parents who are not sure if their child will be attending college and want to avoid the potential 10-percent penalty if a 529 plan or Coverdell account is used may consider other vehicles. In this situation a Uniform Gift to Minors (UTMA)/Universal Transfer to Minors (UGMA) or Roth IRA may be used.

The UTMA/UGMA is a custodial account owned by the minor child with the parent or other guardian listed on the account. This type of account would count as a student’s assets for financial aid calculations. The income earned by a UTMA/UGMA would also be reported on the child’s tax return. For 2017, investment income of $2,100 would have an effective tax rate of only 5 percent federally. Income in excess of $2,100 would be subject to the “kiddie tax” and would be taxable at the parent’s tax rate.

A Roth IRA is a retirement account funded with after-tax money, and the growth is tax-free if held for five years and the taxpayer is age 59 ½ or older. The contributions can be withdrawn first with no tax or penalty. Roth IRAs do not count as an asset for financial aid calculations. The growth in a Roth IRA would be subject to income tax if used for education expenses when under age 59 ½ but would be exempt from

the 10-percent penalty if used for qualified higher education expenses. Contributions to a Roth IRA are limited to the lesser of earned income or $5,500 for taxpayers under age 50.

Your clients’ specific circumstances would dictate which educational funding option is best for them. When deciding the account type and investment allocation, one should consider timeframe, risk tolerance and other factors including financial aid considerations.

Jeffrey S. Hanson, CPA, PFS, AEP, CFP, is a financial advisor at Traphagen Financial Group, specializing in individual, trust and estate tax returns and wealth management services. He is a member of the NJCPA and can reached at jeff@tfgllc.com.

READ MORE FINANCIAL PLANNING SERVICES ARTICLES AND RESOURCES njcpa.org/topics/pfp

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NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

17

FIRM & PRACTICE MANAGEMENT

Growth via Acquisition

BY JOSEPH A. TARASCO, ACCOUNTANTS ADVISORY GROUP, LLC

Most accounting firms reach a point in their life cycles where their ability to generate growth internally falls short of their profitability goals and objectives. Mergers and acquisitions (M&A) have proven to be far more productive and much more successful than building growth organically, which can be a painfully slow process (especially for small firms) and requires significant investments in marketing and practice development efforts and strategies.

In addition, as market demand for specialty services is continuing to increase, firms are seeking to use M&A to obtain industry and niche specializations and to support succession planning voids.

The most successful firms that use M&A as a growth strategy start with small deals and target larger M&A prospects in the future based upon strategic growth models focused on industry specialization, types of value added services, niche development and geographic expansion.

A FASTER WAY TO GROW Growth through M&A is a quicker and less expensive path to growth than marketing one new client at a time in a highly competitive environment. With many clients selling their businesses and the challenges of continuously increasing clients’ fees, it can easily take a new “gross” business rate of 10 percent to achieve a 5-percent net growth rate after taking into account client losses. Growth through M&A, too often considered a strategy only for the top 150 firms, is actually a more viable option for small firms facing significant growth challenges. Additionally, M&A provides opportunities to realize synergies between the combined firms that will allow them to cross-sell to existing clients more effectively.

The first question in a growth-oriented deal is whether the growth opportunity is realistically attainable and the combined firms can capture that growth within a reasonable amount of time after closing the deal. In assessing M&A growth-related opportunities, it is important to involve the

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partners early on in the deal negotiations who will ultimately be accountable for obtaining growth results. Some of the desired results to consider are: yy The ability to generate new leads by adding complementary service lines, niches and industry specialization. yy Increasing the number of practice development-oriented partners and staff. yy Becoming more competitive in the local marketplace by eliminating some of the competition and creating a stronger brand with prospective clients and referral sources. yy Creating a more attractive option for other local firms to merge in their practices and create additional growth. yy Expand geographically into potentially higher economic growth areas. yy Provide the combined firm’s clients with additional value-added services.

INCREASING CAPACITY FOR GROWTH The number-one challenge for most firms is the ability to attract and retain talent to service current and future clients. While much has been written about the objectives and success rates of M&A, historically there has been a general complacency over the talent acquisition elements of the transaction. Many firm partners are now at full capacity which is a major obstacle to engaging new clients. Bringing in new skills and competencies via M&A, also known as acqui-hires, is progressively becoming a driver of M&A transactions. M&A presents the potential opportunity to team up with talented accounting professionals and provide the ability to leverage those talents to increase future revenue streams by freeing up partners to concentrate on practice development and higher levels of client services.

Talent-centric firms are focusing more closely on combining with other firms to gain access to the best and brightest partners and staff to support future growth opportunities. In this highly competitive environment for talent, and the aging of

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

the profession, acquiring talent in an M&A transaction is key to the deal’s success.

Knowing the growth drivers of any deal and evaluating the combined firm’s potential to identify and realistically achieve higher sustained levels of growth is essential in the transaction’s due diligence process. The public accounting marketplace is changing quickly, and M&A is a significant factor to consider in your firm’s future. The growth strategies that made a firm successful in the past may not make it successful in the future. Yogi Berra once said, “The future isn’t what it used to be.”

Joseph A. Tarasco consults to CPA firms and is the president of Accountants Advisory Group, LLP. He is a member of the NJCPA Content Advisory Board and can be reached at joe@accountantsadvisory.com.

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FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

A Look at Fair Value Measurement — ASC 820 Level 3

BY STEPHEN McCARTHY, CPA, THE PRESIDENTS FORUM AND PETER L. LOHREY, PHD, PARITZ & COMPANY, PA

Amazon went public in May 1997, with an initial share price of $18 and a valuation of $440 million. Twenty years later, Amazon’s shares crossed the $1,000 mark, and the company has a valuation of $478 billion. This raises the question, “How is value determined?”

The Financial Accounting Standards Board’s (FASB) topic ASC 820-10-20 sets the standard for Fair Value Measurement and Disclosure: “Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

ASC 820 defines fair value, establishes a framework for measuring it and expands disclosures about fair value measurements. This ASC defines fair value as the price to sell an asset or liability (exit price) not the price to acquire an asset or liability (entry price).

ASC 820 HIERARCHY The ASC 820 fair value hierarchy is outlined in Table 1. Its goal is twofold: 1. Valuation, to ensure that specified assets and liabilities are recorded at fair value 2. Disclosure, to increase consistency and comparability in reporting fair values Obviously, level 3 transactions are the most complicated because the value of the asset or liability requires the professional judgment of unobservable inputs.

ILLUSTRATION OF AN ASC 820 LEVEL 3 ASSERTION A U.S. publicly traded company (Company A) owns a 100-percent interest in a pharmaceutical company (subsidiary) located in China (Company B). In a negotiated, arms-length transaction, Company B acquires three patents from a Chinese competitor (Company C). In return, Company A pays to Company C, 3 percent of the stock of Company B. Hence, valuation experts, hired by Company A, must determine two separate values: the value of the patents acquired and the value of the common stock of Company B. This situation presents three challenges for the auditor who must validate the client’s assertions: 1. What is the value of the common stock of Company B? 2. What is the value of the three patents?

3. How should the U.S. publicly traded parent company report this transaction in its next SEC filing?

APPROACH AND TECHNIQUES In an Accounting Standards Update in May 2011, the FASB issued clarification on the valuation approach and techniques to be used under ASC 820 as outlined in Table 2. The goal of Company A’s experts is to utilize a valuation approach that maximizes the value of observable and unobservable inputs. However, in this case, the use of Lev-

TABLE 1

ASC 820 HIERARCHY

HOW VALUE IS DETERMINED

METHOD

LEVEL 1

Quoted prices available

Objective

LEVEL 2

Quoted comparable prices

Quasi-Objective

LEVEL 3

Various models

Subjective

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SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

el 3 unobservable inputs is the only way to value the three patents, hence, the valuation professional must mark the value to a model and not to the market.

FAIR VALUE ACCOUNTING ASSERTIONS The required disclosure of the valuation approach must reflect methods that are consistently applied. The disclosure also needs to explain a change in either the approach or technique if necessary. Level 3 assertions should be supportable especially if they are material.

WHAT SHOULD AN AUDITOR DO? The auditor should refer to newly issued guidance, utilized by the valuation profession’s newest credential — Certified in Entity and Intangible Valuations (CEIV) given by the AICPA — along with two international valuation professional organizations. This document, entitled “Application of the Mandatory Performance Framework, Version 1.0,” was issued in January 2017.

Specifically, Section A3 of this document, “Valuation of Intangible Assets, Certain Liabilities, and Inventory Guidance,” provides an auditor with guidance about the type of documentation that must be provided.

FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

In short, the answer to this ASC 820 Level 3 example is: 1. The common stock of the private, wholly-owned Chinese subsidiary should be valued using IFRS 3.

2. The value of the three patents should be determined by their relative value to each other, with their total value being compared to 3 percent of the value of the wholly-owned Chinese subsidiary’s common stock.

3. The U.S. publicly traded parent should report this transaction under ASC 805 and not IFRS 3.

Value is determined by quoted prices, comparable prices or various financial models.

U.S. publicly traded companies, like Amazon, have quoted prices which provide these companies value under level 1 assertion.

Level 2 and 3 assertions are subjective which makes the valuation more complicated. Use of a valuation professional is required.

TABLE 2

APPROACH

TECHNIQUE EXAMPLE

Market

Comparable Transactions of Comparable Assets

Income

Present Value Models including BSOM, Monte Carlo Simulation

Cost

Transaction Price of Replacement Cost

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Stephen F. McCarthy, CPA, CGMA, M.B.A., is the owner of The Presidents Forum. He is also a lecturer in accounting at Kean University. Steve is a member of the New Jersey Society of CPAs and can be reached at stevemccarthy@thepresidentsforum.com.

Peter L. Lohrey, PhD, CVA, CDBV, is the director of the forensic and valuation services department at Paritz & Company, PA. He is also an assistant accounting professor at Montclair State University and can be reached at plohrey@paritz.com.

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21

PROFESSIONAL DEVELOPMENT

Three Keys to Effectively Work from Home

BY JEANETTE GRIBBIN, MAZARS USA, LLP

Working from home is a great opportunity to achieve work/life balance, however it also takes a lot of discipline. What if a client needs you? What if a colleague needs you? How do you sit down and focus on work when there’s a sink full of dishes in the kitchen or a load of laundry that needs to be folded? Here are some mental and technological tools you can use to achieve balance and establish a routine.

1. CHOOSE THE RIGHT WORKSPACE First, a dedicated workspace needs to be established — a quiet place where you can sit that is separate from your personal space. A home office is ideal, however, if that is not an option, the corner of a room can also work. The idea is to keep your personal and work spaces separate, so places like the dining room table are not suggested. Mentally, this establishes a boundary between your work and personal life so that you don’t always feel like you’re at work.

2. ESTABLISH A ROUTINE Take care of anything that would distract you (dirty dishes, clutter, walking the dog) before you begin your workday.

Eliminating these distractions will help you to focus. Plan your week. Manage your workload by setting daily goals.

Whether you write them in a planner, make post-its or track them on your favorite device, make lists that you can stick to and that hold you accountable. Communicate your workload with your team members, and schedule internal deadlines together to stay on track. Sometimes there is an “out of sight, out of mind” mentality.

Let your team know that you are available to answer questions. Use the tools below to help you establish your presence, even when you’re not in the office.

3. LEVERAGE TECHNOLOGY Now that you’ve got your workspace and routine in place and are ready to be productive, how do you interact with your col-

22

leagues and clients in an efficient manner?

With today’s technology, there’s no reason to postpone projects or work because someone isn’t in the office. Below is a list of tools I use to stay productive and keep communication open between myself, my colleagues and my clients: yy Call Forwarding. I forward my work phone to my cell phone for several reasons: 1) It’s almost the end of the day when you suddenly realize you hadn’t checked your voicemail all day.

Now you need to return client and coworker calls and potentially work on an immediate-need assignment that you hadn’t planned on. 2) I don’t have to give out my cell phone number to every client and coworker. 3) It provides your clients and coworkers one central way to contact you, rather than them having to track you down by calling several different numbers. 4) I answer the phone. My clients and coworkers rarely have to leave voicemails and wait for my call back. yy Screen Sharing. My firm uses Microsoft Lync. It’s a great tool for instant messaging someone in my office, and it provides a way for my colleagues and I to work through questions and issues together by looking at work papers and tax returns. I can easily answer questions and show a staff person how to do something as though I was sitting next to them.

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

yy Paperless Work Environment. My firm is paperless — a major contributing factor to being able to work from home. A paperless environment enables employees to access files at any time, from anywhere. Assignments can be made regardless of where the employee performs the function. Work doesn’t need to be delayed because the files are only in one place. yy Remote Time Entry. Time entry is an essential part of our business, and tracking and entering time on a daily basis is critical. Remote time entry via the web, Citrix or an app ensures accurate and timely entry of hours.

Working from home can be a great benefit to both employees and employers.

The keys are discipline and communication. Make sure your clients and colleagues know that you are available, establish your routine and stick to it.

Jeanette Gribbin is a manager with Mazars USA, LLP. She was the co-chair of the firm’s paperless initiative which resulted in a shared network between offices and significantly reduced the amount of paper the firm uses. Jeanette can be reached at jeanette.gribbin@mazarsusa.com.

WATCH MORE MANAGING YOUR WORK-LIFE BALANCE bit.ly/ManageWorkLife

TAX

Tax-Related Identity Theft

BY BARRY S. KLEIMAN, CPA, UNTRACHT EARLY

Tax-related identity theft occurs when an individual uses another person’s name and social security number (SSN) to file a fraudulent tax return, usually to claim a refund or to obtain tax benefits. The victim may be unaware that this has happened until they file their tax return and discover that a return has already been filed under that same SSN. It can then take the victim months just to prove their identity to the IRS, which in turn delays the processing of legitimate refund claims.

While instances of tax-related identity theft continue to increase each year, so do efforts to both prevent it and assist those affected. As of March 2016, the IRS had identified 42,148 tax returns with $227 million claimed in fraudulent refunds.

Conversely, the IRS prevented the issuance of $180.6 million in fraudulent refunds.

IRS PROCEDURES The IRS uses various detection systems to identify tax returns involving identity theft and to prevent fraudulent refunds from being issued. There are currently more than 175 filters used to identify potentially fraudulent tax returns. The identity theft filters incorporate criteria based on characteristics of confirmed identity theft tax returns, including amounts claimed for income and withholding, filing requirements, taxpayer age and filing history. Once identified by these detection systems, tax returns are held from processing and the IRS sends a notice to the taxpayer at the address on record. The notice requests that the taxpayer confirm his or her identity with the IRS. If the taxpayer’s identity is confirmed, the IRS removes the hold on the tax account which allows for the processing of the tax return to continue and the issuance of any refund. If the taxpayer’s identity is not confirmed, the IRS removes the tax return from further processing and places an identity theft indicator on the taxpayer’s account for future reference.

THE TAX PREPARER’S ROLE The IRS, state tax agencies and the tax industry are working to prevent and detect

identity theft as well as reduce the time it takes to resolve these cases. Tax professionals also play a critical role in assisting clients who are victims of tax-related identity theft.

Tax professionals may be unaware a client is a victim of identity theft until an attempt is made to file the tax return and it is rejected as a duplicate return. Other indicators include receiving notification that more than one tax return was filed using the client’s SSN, collection action being taken for a year in which no return was filed or IRS notification that the client received wages from an unknown employer.

If a client’s SSN has been compromised, whether from a data breach, computer hack or stolen wallet, and they have reason to believe they are at risk for tax-related identity theft, clients and their tax professionals should take the following steps: yy Respond immediately to any IRS or state notice received. yy Follow identity theft reporting procedures provided on the client’s state revenue agency website. yy Complete IRS Form 14039, Identity Theft Affidavit, to alert the IRS that there is a potential tax-related identity theft issue. yy Contact one of the three credit bureaus and place a fraud alert on the account. yy Obtain a free credit report and review for any unusual or unrecognized accounts or charges.

Once the IRS identifies or has been notified of tax-related identity theft, an Identity Protection PIN (IP PIN) may be issued and must be entered on all federal income tax returns and any delinquent returns filed during the current calendar year. A new IP PIN will be provided every year before the start of filing season. The IP PIN is a six-digit number assigned to eligible taxpayers to help prevent the misuse of their SSN on fraudulent income tax returns. Federal income tax returns filed electronically without an IP PIN will be rejected, and paper returns filed without an IP PIN will be subject to additional screen-

ings to validate identity and will delay any expected refund.

Victims of tax-related identity theft may feel violated and the process of resolution may be frustrating, especially when tax refunds are delayed for many months. It is imperative that tax professionals educate clients and, to the extent possible, facilitate the resolution process.

TAX-RELATED IDENTITY THEFT RESOURCES yy IRS Identity Theft Unit — 1-800-908-4490 yy Publication 5199, Tax Preparer Guide to Identity Theft yy Publication 5027, Identity Theft Information for Taxpayers yy Publication 4600, Safeguarding Taxpayer Information yy TransUnion.com/fraud, 1-800-680-7289 yy Experian.com/fraudalert, 1-888-397-3742 yy Equifax.com/CreditReportAssistance, 1-888-766-0008 yy annualcreditreport.com, 1-877-322-8228

Barry S. Kleiman, CPA, is a principal at Untracht Early LLC. He is a member of the NJCPA Content Advisory Board and the State Taxation and Federal Taxation interest groups. Barry can be reached at bkleiman@untracht.com.

READ MORE TAX FRAUD AND ID THEFT ARTICLES AND RESOURCES njcpa.org/topics/taxfraud

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

23

TECHNOLOGY & INFORMATION MANAGEMENT

The VPN Way

BY ANTHONY MONGELUZO, PCS

It’s the secret of being there without being there. In the digital world, we call that the virtual private network, or VPN, as most people refer to it. What it does is fairly simple. It allows people to enter into their computer network and engage in the tasks for which they are authorized — without physically being in the office.

The reality is that accounting has changed, and many clients expect an answer any time, all the time. With a VPN, you can offer those answers (presuming, of course, that’s how you intend to do business). In its simplest terms, a VPN allows you to connect to your office network securely no matter where you are, providing you have a computer and an internet connection. But it isn’t only connection.

A VPN allows for an extra layer of security and features that become more appealing as we read about cyber-attacks and network breaches.

IT expert Evan Dashevsky explains the entire concept of a VPN nicely, noting that it provides greater control of how you’re identified online. “A VPN creates a virtual encrypted ‘tunnel’ between you and a remote server operated by a VPN service. All external internet traffic is routed through this tunnel, so your ISP (or anyone else) can’t see your data. Best of all, your computer appears to have the IP address of the VPN server, masking your identity.” This keeps your client’s data safe and secure.

IS THERE ANY DOWNSIDE TO A VPN? Some people report a slight decrease in computing speed, but that rarely happens if you have a solid connection and equipment that isn’t dated. Also, there is a cost. You need to ensure that you invest in the hardware and software to enable this service. If you are a smaller firm that lacks a large technology budget, do not fret. Many modern firewall and router solutions offer a secure, builtin VPN option for $500 or less that is ideal for a firm with 15 or fewer team

24

members. VPNs in particular offer an added layer of privacy that you shouldn’t dismiss. The newer kid on the block is RDP, or remote desktop protocol, which Microsoft server platforms now call RD Gateway. It’s a matter of preference and features, but they both protect against brute force intrusion. With Microsoft, you will need a Windows Server and have to purchase some additional licensing. This works great for larger firms, and the technology is cutting edge.

ADDED SECURITY MEASURES Nearly everyone uses passwords to maintain privacy. However, using a brute force program, an intruder can scan through tens of thousands of potential passwords until they key onto the correct one, and bingo, they’re in. In an accountant’s world, that means the intruder is not only prowling through your private information but your clients’, too. It is imperative that you use strong and complex passwords that are regularly updated. And it is strongly recommended that you look into cyber insurance. The threats are real, and any time you open up your network for VPN or RDP access you are inviting or tempting hackers to try to break down your door and literally try to strike gold in the form of information they can use for identity theft or fraud.

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

Security is of the utmost importance if you have any remote access, either through a traditional VPN or an RDP version. Costs can vary, and your information technology professional is the best person to provide direction about whether a free, bare-bones model for your practice makes sense or if your accounting practice needs a full-fledged system.

Anthony Mongeluzo is the CEO and president of Moorestown, N.J.-based information technology service firm PCS. He can be reached at Anthony@ helpmepcs.com or on Twitter @PCS_AnthonyM.

READ MORE TECHNOLOGY PLANNING ARTICLES AND RESOURCES njcpa.org/topics/technology

LEARN MORE

OCT. 11, 2017, ROSELAND

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NOV. 14, 2017, ROSELAND PLANNING AND MANAGING YOUR TEAM’S TECHNOLOGY Register at njcpa.org/events

Changed Specialties?

Earned a Promotion?

Taken on New Challenges?

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Update your professional profile at njcpa.org/profile.

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NJCPA NEWS

Join us in congratulating these professionals who are DIVERSE in the hiring, retention and promotion of CPAs and in the elevation of accountants to leadership positions.

Read more about the recipients at njcpa.org/diversity.

MARIA ALCALDE, CPA

KENNETH BOUYER, CPA

SHAUN LEIGH BUDNIK, CPA

JAIME CAMPBELL, CPA, M.B.A., CTT, MCT

VICE PRESIDENT, INTERNAL AUDIT AT PRUDENTIAL FINANCIAL

AMERICAS DIRECTOR OF INCLUSIVENESS RECRUITING AT ERNST & YOUNG LLP

AUDIT PARTNER/ NATIONAL AUDIT INNOVATION LEADER AT KPMG LLP

CFO AT TIER ONE SERVICES LLC

Maria consistently practices diversity and inclusion in her management style, which involves a mentoring relationship with each member of her team.

Seeking to retain underrepresented minorities, Ken and other staff created EY Unplugged, which brings together thousands of black, Latino and Asian staff to discuss leadership paths at EY.

Shaun served as the National Director for the Retention and Advancement of Women at Deloitte and now serves on KPMG’s Women’s Advisory Board.

26

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

Jamie promotes diversity of gender, race, age, religion and skillset across the firm and is involved in a number of boards and nonprofit organizations related to diversity.

At EY, we believe in setting high standards, reaching new heights and empowering high performers.

We’re pleased to congratulate Ken Bouyer for winning 2017 NJCPA’s Diversity & Inclusion Award. Onward!

© 2017 Ernst & Young LLP. All rights reserved. | 1701-2164686 NJCPA | ED None

High-performing.

It’s who you are.

CAROLYN J. D’ANNA, CPA

ELIZABETH C. EKMEKJIAN, CPA, J.D.

DEVELEEN FREDERICKS

LARRY GIL GARCIA, CPA

PARTNER AT COHNREZNICK LLP

PROFESSOR AT WILLIAM PATERSON UNIVERSITY OF NEW JERSEY

DIRECTOR OF HUMAN RESOURCES AT MAZARS USA LLP

OWNER AT LARRY GARCIA CPA LLC

Lisa works to enhance awareness of diversity issues in the accounting profession and has performed a literature survey of diversity in the accounting industry.

Under Develeen’s leadership, many of the firm’s initiatives, such as Woman@Mazars and Mazars Women’s Network, its mentoring program, took shape.

Carolyn founded CohnReznick’s professional women’s program, a Collaborative Advocacy Network (WomenCAN), which addresses personal and career objectives with diverse learning and development opportunities.

As an immigrant himself, Larry understands the value in hiring diverse staff and interns to assist the melting pot of residents that need accounting services.

Mazars USA LLP congratulates Develeen Fredericks on receiving the 2017 NJCPA Diversity and Inclusion Impact Award. We celebrate the remarkable contributions of Develeen and her commitment to advancing diversity within the workplace and the accounting profession.

28

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

VICTORIA I. GHAFOOR, CPA, MACC

SALLY GLICK

AUDIT MANAGER AT EISNERAMPER LLP

PRINCIPAL AND CHIEF GROWTH STRATEGIST AT SOBEL & CO. LLC

Victoria leads several of the diversity recruiting and retention initiatives for the firm and was recently awarded for facilitating student relationships at the National Association of Black Accountants.

EDWARD I. GUTTENPLAN, CPA, MBA, CGMA

Although not a CPA herself, Sally is one of the staunchest advocates of diversity initiatives, with a particular emphasis on women.

DEBRA E. HAHN, CPA

MANAGING SHAREHOLDER AT WILKIN & GUTTENPLAN, P.C.

MANAGING DIRECTOR, INDEPENDENCE STANDARDS AT GRANT THORNTON LLP

Ed has created Wilkin & Guttenplan’s NexGen learning program, developed its Future Council, and consistently embraces female leadership at the firm with six female partners.

As a developer of Grant Thornton’s “Safe Space” program, Debra established a way for employees to discuss issues related to diversity and inclusion without any repercussions.

Congratulations Edward Guttenplan, CPA, MBA, CGMA on receiving the Diversity & Inclusion Impact Award from the NJCPA Your commitment to inclusion and diversity has always been highlighted by your dedication to multigenerational problem-solving, and we’re proud to celebrate this recognition of your accomplishments!

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NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

29

BRIDGET HARTNETT, CPA

JOAN KAMPO

KAREN J. LEE, CPA

CYNTHIA LUBIN, CPA

PARTNER AT SOBEL & CO. LLC

DIRECTOR OF HR AT WITHUMSMITH+BROWN

AUDIT MANAGER AT DELOITTE

PRESIDENT AT C LUBIN CPA LLC

Karen is the main coordinator of Deloitte’s CPA Career Awareness program, seeking volunteers to team up with high school students and encourage students to apply for NJCPA scholarships.

As president of the National Association of Black Accountants Northern New Jersey, Cynthia encourages diversity in all parts of her job.

As the partner in charge of the social services team at her firm, Bridget works to develop employees’ unique and diverse skills.

Joan is a member of the Steering Committee of WithumSmith+Brown’s Women’s Leadership Development Initiative, whose mission is to attract, retain and advance women leaders in the firm.

Congratulations to all of NJCPA 2017 Diversity and Inclusion Impact Award Winners Especially our Partners, Bridget Harnett and Sally Glick

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SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

ALISON MCKILLOP

UGOCHI OGUH, CPA

BAYAAN A. OLUYADI, CPA

ANN MARIE REYHER, CPA

SENIOR MARKETING ASSOCIATE AT SMOLIN LUPIN

AUDIT SENIOR AT WISS & COMPANY, LLP

SENIOR TAX ASSOCIATE AT COHNREZNICK LLP

WEALTH SOLUTIONS STRATEGIST AT LOMBARD INTERNATIONAL

Ali promotes diversity in every task that she performs and recently rebranded the firm to highlight all of its diverse personalities.

As a member of the National Association of Black Accountants and a pro bono accountant for Rutgers African-American Alumni Association, Ugochi has a long history of promoting diversity.

Bayaan is a mentor both inside and outside of his firm. He participates in Union High School’s USuccess program, where he speaks with students about the accounting profession.

Ann Marie began a diversity team building “lunch and learn” program with employees from different backgrounds to encourage discussions and idea generation.

Smolin proudly applauds its very own

Alison McKillop

as NJCPA honors her hard work and dedication to the marketing efforts of Smolin Lupin.

Collaboration is at the core of our approach.

New Jersey • New York • Florida 973.439.7200 • www.smolin.com

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

31

AINSLEY A. REYNOLDS, CPA, CGMA DIRECTOR OF ACCOUNTING AT STATE OF NJ DIVISION OF INVESTMENT

Ainsley cofounded a program called Mentoring and Leadership Equals Success (MALES) that encourages the importance of education for at-risk young males.

ATIT M. SHAH, CPA

C. DANIEL STUBBS, CPA

RALPH ALBERT THOMAS, CGMA

AUDIT MANAGER AT COHNREZNICK LLP

DIRECTOR - MASTER OF ACCOUNTANCY, FINANCIAL ACCOUNTING AT RUTGERS BUSINESS SCHOOL-NEWARK

CEO & EXECUTIVE DIRECTOR AT NEW JERSEY SOCIETY OF CPAs

As a co-leader of the firm’s Junior Rainmaker’s program, Atit works to ensure participants from all diverse backgrounds share their ideas and get involved in the firm.

Dan promotes diversity and inclusion at Rutgers University and has served as a faculty advisor for the National Association of Black Accountants.

As an original member of the AICPA’s National Commission on Diversity and Inclusion, Ralph promotes diversity and inclusion in all aspects of his professional and personal endeavors.

CohnReznick is an independent member of Nexia International

32

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

LUCY TURNAGE, CPA, CGMA VICE PRESIDENT AT THE CIT GROUP

In conjunction with the National Association of Black Accountants, Lucy works to encourage students to become CPAs.

VIBERT A. WAILOO, CPA, MBA, CMA, CFF, CGMA PROFESSOR OF ACCOUNTING AT KEAN UNIVERSITY

Bert regularly works with new CPA students, newly established accounting clubs and diverse groups on campus.

He was recently among those honored for advancing student-faculty research.

JENNY XIE, CPA OFFICER AT SUMITOMO MITSUI BANKING CORPORATION

Jenny participates in her company’s SMBC Connect diversity team, where she organizes many inclusion events.

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

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NJCPA NEWS

Emerging Leaders Council Empowers Future and New CPAs The NJCPA Young CPAs Council recently changed its name to the Emerging Leaders Council. New Jersey CPA asked council chair Jay Lauretta, CPA, about the change.

WHY NOW? Identifying ourselves and those we serve as “young CPAs” felt exclusionary. “Emerging leaders” better describes who we are as a council and the idea that we want to empower others to follow in our footsteps by challenging the status quo and giving back in a meaningful way. We want all accountants to realize they have something to contribute to the profession.

WILL THE COUNCIL STILL SERVE THOSE UNDER AGE 35?

We’re now focused on career stage rather than age. Those who are entry-level and early career, in the first 10 years of their career, will likely fall in the “under 35” crowd. But we’re also here for the CPA who started in the profession later.

WHAT ABOUT NEW CPAs WHO DON’T CONSIDER THEMSELVES “EMERGING LEADERS?” Our goal is to empower future and new CPAs with a greater sense of purpose.

There are numerous ways to be a leader in the accounting profession. Don’t focus on

the “emerging leader” label. Instead look to the emerging leader initiatives to help propel your career and to give back to the profession in way that is meaningful.

WHAT WILL THE COUNCIL BE FOCUSING ON? The council’s goal is to support the NJCPA strategic plan which means offering more in the way of collaboration, education, and staying on top of the challenges and trends our industry faces.

To get involved with the council’s activities, update your volunteer profile at njcpa. org/volunteer. You can contact Jay at jason. lauretta@icloud.com.

NJCPA Helps Candidates Navigate Get Involved the CPA Exam and Licensure The CPA license is one of the most difficult professional credentials to obtain; however, those who pass the CPA exam and obtain their license will tell you that the long hours of study and preparation were worth it both personally and professionally. The NJCPA supports CPA Candidate members in their pursuit of the CPA designation in several ways. yy CPA review course discounts.

Taking a review course significantly increases your odds of passing.

Recognizing that one size or option does not fit all, NJCPA members have access to discounts on three review courses: Becker, Roger CPA Review and Surgent CPA Review. Learn more at njcpa.org/examprepcourses. yy CPA exam application explained.

Applying to sit for the exam can be a confusing process. The information provided at njcpa.org/cpaexam walks you through the process and lists all of the fees, contact information and other information needed to successfully apply and sit for the exam.

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yy New Jersey Law & Ethics course. You will be required to take a four-hour New Jersey Law & Ethics course within six months of receiving your New Jersey CPA license. Dates and locations for the NJCPA’s ethics course are posted at njcpa.org/ethics. yy Job opportunities. By attending NJCPA Career Night (njcpa.org/careernight) in September, you can talk to more than 25 firms and companies that offer internships and entry-level positions. You can also post your resume for free on the NJCPA Job Bank (njcpa.org/jobs). yy Questions answered. If you have questions about the CPA exam, requirements to become licensed or any of the benefits mentioned above, contact us at 973-226-4494 or membership@njcpa.org.

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

You’ll get the most out of your NJCPA membership when you get connected to the people, programs, information and resources that can help you succeed in your career. Below are some opportunities for involvement in the coming months: NOVEMBER yy Career Awareness Presentations.

Volunteer to promote the CPA profession at your local high school or alma mater. njcpa.org/careerpresentation yy NJCPA Food Drive. Host a drop-off location or volunteer at the Community FoodBank of New Jersey. njcpa.org/fooddrive DECEMBER yy Evaluate scholarship applicants. Volunteer to grade essays or interview scholarship applicants. njcpa.org/volunteer yy Mentor college students. The mentor application opens in January. Mentors will be matched with scholarship winners in March. njcpa.org/mentor View additional opportunities at njcpa.org/volunteer.

CLASSIFIEDS

MERGERS/ACQUISITIONS

New Jersey CPA practice for sale: South Jersey. Retirement-minded partners with a long established business and individual practice, grosses in excess of $2,500,000.

File No. 1295 Essex County retirement-minded CPA seeks CPA to assume his partnership interest and to continue with remaining partner at our office location. Retiring partner will remain during transition period. Interested candidates should email resume to essexcpa@gmail.com, principals only.

Passaic County CPA firm seeks CPA with a book of business for association possibly leading to partnership. We currently provide tax and accounting services only with a few SSARS21 compilations. We would consider adding additional higher end services. Interested parties should respond to njcpafirm1000@gmail.com. We are not looking for a buyout.

Morris/Somerset CPA looking to slow down. Seeking merger, buy-out or association for tax, consulting practice with excellent clientele. Now in office-share arrangement with low overhead. File No. 1300 New Jersey CPA practice for sale: Warren County CPA firm with two retirement-minded partners. Long established excellent business and individual practice.

Grosses about $460,000 Contact njcpafirm4sale@gmail.com.

CPA practice for sale in Central Jersey, $600K, very profitable with value add for high fees, highly efficient, almost runs autonomously, can move, for comprehensive details, contact Larry at 954-536-1269 or larry@4mergers.com.

CLASSIFIED ADVERTISING

New Jersey practices for sale: Princeton, NJ metro CPA, gross $135K, tax (83 percent), accounting (17 percent), excellent cash flow (70 percent); Mercer Co. CPA, gross $498K, 80 percent from businesses, strong fee structure, cash flow about 50 percent. For more information, call 800-397-0249 or visit www.aps.net.

Thriving $750K Monmouth CPA firm expanding organically and via acquisition seeks small business accounting/tax sole practitioner to combine synergies.

Affiliation sought with either early stage or mature practices. Reply in confidence to hrdeptcpa@yahoo.com.Retirement-minded Bergen County CPA, looking for a CPA to take over my firm. Gross $750K+. Must have strong tax background. Small existing client base is a plus. Excellent opportunity.

Northwestern New Jersey CPA practice for sale. Gross billings approximately $400K. Call or email Pat for details at 908-684-8300 or patbent4343@yahoo.com.

Established Paramus CPA firm seeking acquisition of accounting and tax practices. Have completed successful acquisition with 99 percent client retention.

Flexible transition plan options. Please call Jerry at 201-655-7411 or email gshanker@krscpas.com.

ADVERTISERS INDEX 19 ADP adp.com/njcpa 17 ACCOUNTANTSWORLD accountantsworld.com 16 ACCOUNTING PRACTICE SALES accountingpracticesales.com C2 AFFORDABILITY SUMMIT opportunitynj.org C4 CAMICO camico.com 25 CAPSTAN TAX capstantax.com 32 COHNREZNICK LLP cohnreznick.com 27 ERNST & YOUNG LLP ey.com 19 HEADQUARTERS ADVISORY GROUP hqadvisorygroup.com 28 MAZARS USA mazarsusa.com 21 PAYCHECK payx.me/njcpa-accounting-professionals C3 RUTGERS BUSINESS SCHOOL business.rutgers.edu/finmaccy 31 SMOLIN smolin.com 30 SOBEL & CO. LLC sobel-cpa.com 29 WILKIN & GUTTENPLAN, P.C. wgcpas.com 33 WITHUM withum.com

REAL ESTATE

650, 1,100 or 1,400 square-foot office for rent. 225 Demott Lane, Somerset. Reception area surrounded by office suites.

Second floor, elevator. Call Roger 973-376-8260.

Replies to ads with files numbers should be sent to: File_____, New Jersey CPA Classifieds, 425 Eagle Rock, Suite 100, Roseland, NJ 07068. To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2017

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MEMBER STORY

A Different Kind of Client

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

When Amy Both, CPA, is not up to her eyeballs in spreadsheets and client meetings, a different type of client is keeping her busy — the four-legged kind. After providing audit, tax and consulting services all day to clients at Neral & Co, PA, of Wall, Amy often begins her next shift managing the needs of fish, reptiles and exotic birds.

That’s because she and her husband run an exotic pet shop in Jackson called Major League Exotic Pets.

It’s not easy juggling clients and family life with husband, Allen, and daughter, Addison, age 11, along with helping to look after the latest chameleon or hedgehog that enters her family’s pet shop, but the combination keeps things interesting. On any given day, snakes, reptiles or African cichlids may need her help. Growing up,

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Amy always had dogs in the house or a pet hermit crab by her bed but the decision to step up to exotic pets was solely her husband’s influence.

Amy sees both kinds of businesses as a good fit for her. “I love to help customers,” she says, which is particularly the case during tax season. Amy established her niche at Neral, where she caters to nonprofit organizations, cases related to the Employee Retirement Income Security Act (ERISA) and issues related to the U.S. Department of Housing and Urban Development (HUD). It’s in these sectors she believes she can truly roll up her sleeves and help the small to medium-size business customers effectively.

Similarly, her desire to help guide the work of other nonprofit groups com-

SEPTEMBER/OCTOBER 2017 | NEW JERSEY CPA

pelled her to become more involved at the NJCPA. She joined the organization’s Nonprofit Interest Group in 2008 and eventually became the leader of the group.

Well-versed in government audit standards from Neral, she became an effective member of the group, advising on exposure drafts and new accounting standards, and developing roundtable discussions.

Amy currently serves on NJCPA’s Board of Trustees and is a member of the Audit Committee and Student Programs & Scholarships Committee.

That same kind of involvement can be seen in how she helps manage the pet shop. Knowing what it takes for a family to take a pet into their home, particularly a nontraditional one, she and her husband have raised the bar on how they sell pets. Her family’s pet shop matches up the best kind of customer with the appropriate pet, and even turns down business if the fit is not likely to be appropriate for both the pet and the customer. Often a customer may think they want a certain kind of pet until they know what is involved with the upkeep and maintenance. “You have to take into account the interest of the fish/reptiles and the customer, and you want a good match for the pet,” she says. Making sure everything works smoothly is important, she adds.

PAYING IT FORWARD Despite her interest in animals, Amy also has a knack for numbers. She began her “love” of numbers while in high school.

With two of her grandparents and an aunt becoming accountants, she was taught at an early age about the virtues of the profession — lessons she still carries with her today.

Amy is adamant about making sure current students have that same interest in accounting. On occasion, when she’s able to speak at her alma mater, Manchester Township High School, and tout the profession, she jumps at the chance. “To be able to give back to the high school where it all started for me is great. When an opportunity comes up to speak, it’s great to be able to give back. It’s my high school; it’s my town,” she says.

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