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Page 4 HOW SMALL FIRMS CAN STAND OUT AMONG THE CROWD Page 6 THE CHANGING LANDSCAPE OF STAFF RECRUITMENT AND RETENTION
FOCUS ON SMALL CPA FIRMS Page 8 GROWING OR PHASING OUT YOUR SMALL FIRM Page 10 HOW SMALL ACCOUNTING FIRMS CAN KEEP UP WITH TECHNOLOGY
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NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
contents N OV E M B E R / D E C E M B E R 2 0 1 8
THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
RALPH RALPH ALBERT ALBERT THOMAS, THOMAS, CGMA ChiefCPA Executive (DC), Officer CGMA &Chief Executive Executive Director Officer rthomas@njcpa.org & Executive Director rthomas@njcpa.org ELLEN C. McSHERRY, CGMA Chief ELLEN Operating C. McSHERRY Officer emcsherry@njcpa.org Chief Operating Officer emcsherry@njcpa.org DON MEYER Chief Marketing DON MEYER Officer dmeyer@njcpa.org Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing RACHAEL Editor BELL rbell@njcpa.org Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER KATHLEEN Content Editor HOFFELDER khoffelder@njcpa.org Content Editor khoffelder@njcpa.org MARC L. REIN Multimedia MARCSpecialist L. REIN mrein@njcpa.org Multimedia Specialist mrein@njcpa.org
4 How Small Firms Can
8 Growing or Phasing
Stand Out Among the Crowd
Small CPA firms and sole practitioners have had to do more with less for years. But with increased automation and enhanced advisory services popping up every day, small firms need to compete on the ways they can — client relations, retention and growing their own practices.
6 The Changing Landscape
of Staff Recruitment and Retention
Workgroup’s Path to Partnership Urges Action THE THE NEW NEW JERSEY JERSEY SOCIETY SOCIETY OFOF CERTIFIED CERTIFIED PUBLIC PUBLIC ACCOUNTANTS ACCOUNTANTS 425 425 EAGLE EAGLE ROCK ROCK AVENUE AVENUE SUITE SUITE 100, 100, ROSELAND ROSELAND NJNJ 07068 07068 973-226-4494 973-226-4494 | NJCPA.ORG | NJCPA.ORG #NJCPAMAG #NJCPAMAG READ READ NEW NEW JERSEY JERSEY CPA CPA ONLINE ONLINE ATAT NJCPA.ORG/ NJCPA.ORG/ NEWJERSEYCPA NEWJERSEYCPA DEDE S IGN/ SIGNP/RODUCTI P RODUCT ON I ON / / A DVERTISING ADVERTISIN G THE THE YGS YGS GROUP GROUP 3650 3650 WEST WEST MARKET MARKET STREET STREET YORK, YORK, PAPA 17404 17404 Advertising Advertising Contact: Contact: LAURA LAURA GAENZLE GAENZLE ACCOUNT ACCOUNT EXECUTIVE EXECUTIVE 717-430-2351 717-430-2351 laura.gaenzle@theygsgroup.com laura.gaenzle@theygsgroup.com
10 How Small Accounting
Small firms need to be creative in attracting and retaining employees from Millennials to Gen Z and beyond. Flexible work schedules, new learning opportunities and growth potential are high on employees’ wish lists. Find out how branding and beating your drum can help.
2 CLOSE UP
12 ACCOUNTING, AUDITING & ATTEST
Breaking Down Bitcoin 13 ADVOCACY & LEGISLATIVE ISSUES
Heathcare Reform: What Does Change Mean for the Industry?
Out Your Small Firm
Whether small-firm owners are looking to consolidate and merge or are heading towards retirement, they need to consider their clients, staff and what involvement they hope to play in the future. Will remaining staff be able to bring in business? What’s the best way to prepare for a sale?
Firms Can Keep up with Technology
Technological advances in automating accounting functions have given firms the tools they need to provide more services to clients at a faster speed with more accuracy and efficiency. Smaller accounting firms may feel overwhelmed. What do they need to do to compete?
18 CORPORATE ACCOUNTING
Transforming Accounting — One Spreadsheet at a Time 19 FINANCIAL PLANNING SERVICES
Creating a Family Office Helps Keep Focus on the Business 20 FIRM & PRACTICE MANAGEMENT
Managing the Compression of Tax Season Work
14 BECOMING A CPA
21 GOVERNMENTAL & NONPROFIT
Thinking Creatively About Your CPA License
Does Your Nonprofit Have UBTI?
16 BUSINESS ADVISORY SERVICES
22 PROFESSIONAL DEVELOPMENT
Do New Tax Laws Mean It’s Time for a New Identity?
Work/Life Balance — Flexibility vs. Invasion of Off Time
24 TAX
The Classification of Workers in the Era of Tax Reform 26 TECHNOLOGY & INFORMATION MANAGEMENT
Creating an IT Plan for 2019 28 NJCPA NEWS
yy Products and Services to Help You Succeed yy Emerging Technologies Interest Group to Focus on Practical Applications yy NJCPA Publishes Audit Report 31 CLASSIFIEDS 32 MEMBER STORY
Timothy J. Shore, CPA
CLOSE UP
Workgroup’s Path to Progress Urges Action BY RALPH ALBERT THOMAS, CPA (DC), CGMA, NJCPA CEO AND EXECUTIVE DIRECTOR
The New Jersey Economic & Fiscal Policy Workgroup, which I have the pleasure to be a part of, made several recommendations in its “Path to Progress” report in August on how the state can best correct its problems in the areas of pensions, taxes, and municipal and school efficiency. The group, which is co-chaired by Senator Paul Sarlo, Senator Steven Oroho and Assemblyman Louis Greenwald, targeted the following five specific areas of improvement for the state: y Pension and benefit reform y Education reform at the administrative level y County and municipal government reform and shared services y State and local government tax structure y Leveraging assets to stabilize the pension system TACKLING TAXES High taxes have been a key reason individuals and businesses have left the state in droves. To address the serious burden of property taxes, the group recommended the following: y Enabling S corporations, LLCs and partnerships to pay state taxes equivalent to the gross income tax obligations of their owners and partners, which would make state tax payments deductible on federal taxes. y Split revenue from payments in lieu of taxes among municipalities, school districts and counties based on current property tax ratios.
y Undertake a comprehensive analysis of New Jersey sales tax exemptions to simplify the tax code. y Revise New Jersey’s property tax relief program to ensure that relief is provided equitably. y Establish a permanent Economic and Fiscal Policy Review Commission made up of economists, academics and tax experts. y Permit a gross income tax deduction for charitable donations to New Jersey-based charitable organizations. y Focus additional tax incentives towards small businesses to support more entrepreneurs. y Permit a revenue-neutral county or multi-county/regional 1-percent sales tax option paid partly by out-of-staters to be used to potentially cut property taxes by more than $1 billion if all counties participate. PENSION SYSTEM REVAMP As outlined in the report, the Pew Charitable Trusts rank the condition of New Jersey’s pension system among the most underfunded in the country. New Jersey’s combined pension and retiree health benefit liability of $151.5 billion is four times the size of the state’s annual budget and more than three times the size of the state’s bonded debt. So, what is the solution? The workgroup is recommending a hybrid pension system that would do the following: y Preserve the current defined benefit pension system for non-uniformed
state, county and municipal government and school district employees who have five years of service and vested contractual pension rights. y Create a blended defined benefit/ defined contribution plan for new non-uniformed state, county and municipal government and school district employees and those with less than five years of service. y Provide an option allowing employees in the blended system to opt out of the cash balance account in favor of a 403(b) or 457 Plan. y Increase the retirement age for full benefits for all new and non-vested employees to the retirement age required in that year for the collection of full Social Security benefits. y Change the pension system to require retirees returning to government service in a full-time or high-paid capacity to suspend their pensions, be reenrolled in the pension system from which they retired, make their pension and health benefit payments, and accrue additional years of service during that time that will increase their future pension benefits. These and other recommendations regarding shared services and the need for administrative education reform should help the state find a better footing. READ MORE PATH TO PROGRESS REPORT pathtoprogressnj.org
New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068. Issue No. 72 Copyright © 2018 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues. Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.
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NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
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HOW SMALL FIRMS CAN STAND OUT AMONG THE CROWD By KATHLEEN HOFFELDER
NJCPA CONTENT EDITOR
Small CPA firms, those with fewer than 10 employees, are accustomed to operating with less and tapping into more of their resources.
CONTRIBUTORS
In order of appearance
DAVID LOPEZ, CPA Managing Member David A. Lopez and Company, LLC 4
To keep up with large and mid-size CPA firms that have staff ready to help with everything from fielding routine tax calls to niche advisory services, small firms need to compete on what they can — client relations, retention and growing their own practices. CLIENT RELATIONS While larger is not always better, the sheer size of large CPA firms enables them to offer more services and develop niche practice areas. But that does not always mean “better” service. Relationships still matter, and that’s where small firms can have an advantage. A long-term customer will only keep coming back until they see value elsewhere. Therefore, small firms need to still sell their value to customers all the time — even ones that have been there since the practice first started. While small firms may be able to compete on price in some instances, they cannot rely on that discrepancy forever as
SALLY GLICK Principal and Chief Growth Strategist Sobel & Co, LLC
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
BENJAMIN ASPIR, CPA Manager EisnerAmper
more large firms pass down certain savings to customers as they merge, expand services and operate certain areas, such as tax, more cheaply. In short, as larger firms keep using their size to find better economies of scale, small firms will have to find their own ways to hold onto business. So just how do small firms make themselves irreplaceable to clients? By offering the best service around. Small firms can use a “personal touch,” agrees David Lopez, CPA, David A. Lopez and Company, LLC. “New clients often complain that large firms are stuck in their ‘stiff ’ pinstriped-suit personality. Small firms often have less internal ‘red tape’ and can be more nimble.” Some tend to identify themselves more as business people and not just CPAs, he says, which makes them attractive to a large pool of potential clients — typically those younger in age. According to Sally Glick, principal and chief growth strategist, Sobel & Co, LLC,
DAVID RUBIN Managing Director Credit Management Group
ANDREW GOLE President Bombadil LLC
how a firm gains a competitive advantage is taking the “time and commitment to pamper clients, to visit regularly, to call when there is something to share (e.g., alert clients regarding the latest cyber scam — helping them avoid a major compromise and the financial hit or the community embarrassment that could result).” This, she says, sets small firms apart since larger firms have many internal responsibilities, administrative tasks and other roles that may distract from client service. And it’s important that entry-level staff, in particular, understand the value of good client relations. Young professionals in a small firm, notes Benjamin Aspir, CPA, manager, EisnerAmper, are often the ones who work directly with small-business clients. This can be daunting at first, so a partner or manager at a firm should make an effort to introduce the staff member to a business owner when the opportunity strikes, he says. These same staff members should also not be afraid to admit they do not know something; it’s acceptable to tell a client “I am unsure. I will get back to you.” RETAINING CLIENTS Maintaining good relations and retaining clients go hand in hand. To maintain good relations, small firms must offer great services. But to retain clients, small CPA
firms must prove their value, not simply justify their fee, and continuously make sure clients are satisfied. Proving one’s worth involves making sure you stack up highly against the competition and all their specialty niche areas. “One of the greatest competitive advantages of a small practice is that partners and managers are flexible enough to spend quality time with clients. They have a presence at the client,” says Lopez. And even though accounting is becoming more automated in parts, Glick notes the personal touch is still the better way to do business. “The best way to retain a client is to find out exactly what they value most. The firm’s leaders can actually ask ‘What are we doing that you most appreciate? What do you least care about? What should we be doing that we aren’t?’” David Rubin, managing director of Credit Management Group, adds that clients who realize a return on their investment in your services are more likely to remain a client. If you can help a client grow their business and make more money, they will value the relationship that they have with you. “A wise consultant once told me if you do one thing that someone values, you will have a client, two things and you will enrich the relationship you have with that client, three things and you will cement the relationship and have a client for life,” he says.
GROWING YOUR PRACTICE Small practices do not have large marketing and advertising budgets, so they need to rely more on referrals and word of mouth to increase their number of clients. “For any service business, there is a magic moment of access when you can and should ask for referrals or introductions,” says Andrew Gole, president, Bombadil LLC. Referrals are key, adds Glick. “Staying in front of bankers, attorneys, other CPAs, consultants, trade association directors and others with influence helps to maintain ‘top-of-mind awareness’ so that the firm is best positioned should an opportunity arise.” Knowing when to grow a practice is almost as important as how to grow. Putting time and effort into gaining new customers can be a challenge. As Gole reminds, setting and holding oneself to goals is essential to success. Particularly for partners of small CPA firms, it’s wise to set a goal of making one introduction per week to a prospective client, he says. And if someone misses a week then he or she must introduce themselves to two next week. “We call this a ‘do or die approach’ as compared to a ‘best efforts’ approach,” says Gole. READ MORE ARTICLES AND RESOURCES FOR SMALL FIRMS njcpa.org/topics/smallfirms
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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THE CHANGING LANDSCAPE OF STAFF RECRUITMENT AND RETENTION By ROBERT J. TRAPHAGEN, CPA, CGMA
TRAPHAGEN FINANCIAL GROUP, LLC
Recruiting and retaining qualified talent are two of the top-five issues affecting all CPA firms according to a 2017 American Institute of CPAs survey.
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With the demand for good talent at an all-time high, small firms must develop creative strategies for staff recruitment and retention. NEXT GEN Millennials (ages 24-35) and Generation Z (ages 18-23) will soon comprise most of the workforce. According to the Huffington Post, “By 2020, Gen Z also known as iGen will account for one-third of the U.S. population…and is positioned to become a major catalyst of change in their future workplaces.” These generations focus on the use of social and emerging technologies and require new recruiting tactics and a different workplace culture to retain them. When asked about the top motivators for Millennials and Gen Z, one of Traphagen Financial Group’s (TFG) interns, Nicole-Lynn Garcia, said, “1) Flexibility, 2) learning, developing and growth, and 3) firm culture.” She added, “I want to know there is a clear career path and to be successful in my career, but I also want to have a social life. I want to know that with the right technology I can get my work done from anywhere…including the beach!.”
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
RECRUITMENT Gen Z and Millennials have grown up with technology; it is second nature to them. Candidates interested in a firm will review their websites and online social media presence before they make career decisions. So, the key to attracting these groups is to actively manage your brand online. We recently revamped the look and feel of our website to capture the benefits of mobile technology and to emphasize our distinct culture. What do we believe in? For us, it is our core value of caring; it is a passionate commitment to our clients, associates and community — a commitment to education beyond credentials for our clients and a tailored personal and professional development program for our associates. Craig Sikora, a senior TFG accountant who has taken advantage of this, says, “Traphagen has helped me to develop personally as well as professionally. I had the opportunity to attend Strictly Business: The Dale Carnegie Immersion Seminar.” It is also our philanthropic contributions to our community. “We were amazed that all of your firm members showed up in sub-freezing temperatures to work on our Habitat Program,” said Gary Khul, director
of construction for Habitat for Humanity of Bergen County. The key is defining your firm and your culture to the public which will be critical in attracting the next generations. An engaged associate is your best recruiter to attract the next generation. We have an employee reward program for associates who refer candidates to our firm. Best of all, you will not only be engaging your current employees, but you will be building the culture of your organization with like-minded personnel — the last three associates of our firm were from employee referrals and were all next gen. Small firms also need to attract talent much earlier than in the past, as college juniors are already placed at Big Four “universities.” To counteract this, we established a college ambassador program. Our ambassadors have TFG “swag” to attract and represent us with the next generation of talent; they speak with students about their experiences as well as what their experience could be at our firm. And showcasing that experience through social media, a video or an inside look at “a day as an intern,” also helps. GET ON BOARD Onboarding is critical. This starts before day one with a welcome email followed by a firm announcement introducing the new employee to the team. We set up a meeting with the managing partner to communicate our vision and core values on day one. We also assign a “buddy” to each new hire during their first 90 days to assist with cultural integration and orientation. RETENTION According to Aaron Levy, CEO and founder of Raise the Bar Consulting, “a Gen Z employee will trust and want to work for an accounting firm that values their development and career advancement as much as they do.” In our firm, each new team member is given our Competency Performance Management model (CPM) which establishes a clear career progression along with personal and professional goals, and expectations. This allows employees a pathway to success — a pathway that builds trust and retains staff.
Another important aspect to support our culture of inclusion and collaboration is our Associates Action Committees, which even includes interns. This has increased employee engagement and fostered generational collaboration with one another. It also gives authority to “own” part of an operational activity by having the freedom to make recommendations to improve social media, technology and recruitment. We want our team members’ input, and we listen to their recommendations. For example, through committee recommendations, we have improved our overall internal communication by implementing instant messaging, as well as an intra-communication platform. Their input is not only valuable, it is valuable in retaining them. Another trending issue is flexibility. According to Gallup’s State of the American Workplace, “If leaders want to compete for a modern workforce, they should consider weaving some element of flexibility into their culture.” The need for flexibility is an ongoing challenge for all employees as they are trying to balance the demands of their careers with their personal commitments. Let’s talk about the elephant in the room; the greatest fear of firm leaders considering flexible operating models is losing control. However, with the right technology in place, a well-managed flex program will attract the best talent and retain skilled
and experienced employees. Statistics indicate that flexible working arrangements support greater productivity and employee engagement. The reality is that just because someone is in the office doesn’t necessarily mean they’re productive. Small CPA firms have a distinctive advantage in attracting the next generation of associates who are seeking engagement and inclusion, and who want to make an impact. Their contributions are more visible, and associates become “impact players” with the ability and opportunity to influence change and direction within a firm. We live in challenging but exciting times. Remember to promote your brand, showcase it through social media, have fun with your perks and embrace your culture. Then, “bang your drum” LOUDLY! Robert J. Traphagen, CPA, CGMA, is the managing partner at Traphagen Financial Group, LLC Certified Public Accountants & Consultants. He is a past president of the NJCPA and a member of the Accounting & Auditing Standards Interest Group and Volunteer Relations Committee. Robert can be reached at robert@tfgllc.com or 201-262-1040 x225.
READ MORE EMPLOYEE MANAGEMENT ARTICLES AND RESOURCES njcpa.org/topics/employees
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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GROWING OR PHASING OUT YOUR SMALL FIRM By EDWARD MENDLOWITZ, CPA WITHUMSMITH+BROWN
Many small-firm owners — both sole practitioners and partners — start to become concerned about organizing their practices for a sale as they get closer to retirement age.
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There are three clear alternatives for smallfirm owners approaching retirement: yy Prepare the practice for a sale yy Organize the practice to have staff acquire it yy Do nothing PREPARING THE PRACTICE FOR A SALE There is not much you need to do to prepare your practice for sale other than not dropping any clients since purchase prices are primarily based on gross revenues not net profits. If you have low-profit clients, people acquiring the practice might not care if their motive is to sell the clients annuities and similar investment products. However, buyers interested in maintaining the practice will take the profitability into account when making the offer, so too many low-profit clients might result in a lower offer. Further, hanging on to unfavorable clients for an eventual sale might not make sense from a practice management standpoint. When ready, you can sell the practice outright and stick around just long enough to introduce the buyer to your clients; you can come back and work tax season; or
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
you can work full time for a fixed period such as two, three or four years after which time you will retire. If the buyer will get an SBA-guaranteed loan, then the seller would be precluded from working for the practice for more than a short period. Selling means retiring, so you would sell when you want to stop working. Until then, it should be business as usual. The reality is that working until you drop will result in the most dollars for you. Your time would be spent in the practice, but the dollars are maximized this way. While there will be an erosion of the ultimate value, you will be pulling funds out of the practice for as long as you work, and this could be for many more years than the buyer’s payout. The choice is working or time to do other things. ORGANIZING FOR A SALE TO A SUCCESSOR There is often a conflict between wanting the best deal when you exit and wanting the best arrangement during the time you are working. Most people generally cannot have both. Accepting that, the practitioner should decide whether to set up their
business in the manner that best fits their personal desires, work styles and maximizes their present income, or in a way that potentially maximizes the back-end value. For example, if you were to “build” the practice in a way that maximizes your exit price, it would most likely cost you more currently and inhibit the way you might want to work. You would need staff suitable to buying you out which are usually more-experienced and higher-salaried people qualified to become partners at some time in the future. With a current strategy, you and the staff work within an overhead structure you are comfortable with. Your choice of staff would suit your work habits, lifestyle and desire to optimize your current income. If you let an exit strategy drive the decisions, you might end up working under less-than-ideal conditions while waiting for your exit to kick in. With the exit strategy, you need to spend time evaluating staff on how well they can bring in business, carry on in your absence and grow into being an owner, as well as how able they would be to make payments to you when they
buy you out. There are also increased costs to all of this that likely would not be recouped in a transfer to the successors as well as no guarantee that it would work out. You would also be making the big assumption that the right people are available and just waiting to come to work for you for five to 10 years and then want and be able to buy you out when you decide to retire. Assuming you have the right person or people, wouldn’t they be trying to push you into making them a partner sooner and having you commit to an exit time? Employing an exit strategy in some manner puts a ceiling on the length of time you could work. DO-NOTHING STRATEGY Don’t do anything special. Work the way you want and how you want. When it comes time to set aside your pencil, see what opportunities are available. Probably the best course then will be selling the practice. Retiring or phasing out is a personal lifestyle decision and only you, or possibly you and your spouse, can make that decision. Because of this, I suggest the money be a secondary concern. However, opportunities
always pop up so be aware if they do. It’s best if you contemplate what you really want to do, make a clear decision and then take steps to either implement it or just carry on as usual if that is your decision. And if you want, work until you drop! Edward Mendlowitz, CPA, ABV, PFS, CFF, is a partner at WithumSmith+Brown, PC. He is a member of the NJCPA Forensic & Valuation Services Interest Group and can be reached at emendlowitz@withum.com.
LEARN MORE NOV. 1, JAMESBURG MERGER AND ACQUISITION PLANNING AND BEST PRACTICES JAN. 16, EAST BRUNSWICK READY. SET. MERGE: WHAT TO CONSIDER WHEN MERGING AND WHY YOU SHOULD BE THINKING ABOUT THE FUTURE Register at njcpa.org/events
READ MORE SUCCESSION PLANNING ARTICLES njcpa.org/topics/succession
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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HOW SMALL ACCOUNTING FIRMS CAN KEEP UP WITH TECHNOLOGY By MARK JENSEN
NISIVOCCIA LLP
While outsiders may perceive accounting as a stagnant profession, the differences within the industry today compared to 50, 20, 10 or even five years ago are remarkable. The rise of technology has played a leading role in the reformation of the accounting profession.
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Due to advances in technology, firms are able to provide more services to clients at a faster speed with more accuracy and efficiency. Smaller accounting firms that may feel overwhelmed by the ever-changing technology standards have several options to keep their firm on the leading edge.
tion among your staff will begin to heighten during the implementation of new technologies being introduced to them all at once. Gradually incrementing changes as technology improves will avoid hefty overhaul costs and distraught employees, as well as develop a culture of change within your practice.
DO NOT WAIT TO IMPLEMENT Think of implementing new technology into your firm similarly to renovating your home. You have an idea of what you want the complete renovation to look like, but there are several steps to take before you have the finished product. There are two ways you can go about modernizing: You can either fix, replace and upgrade everything in the house all at once — inevitably costing you a fortune and a feeling of overwhelming stress — or you can gradually make changes to your house over a period of time to spread out costs and focus on each project one by one. The plan you decide to go with when renovating your home is up to you. But when it comes to executing and introducing new technology into your firm, it is best to go with the latter strategy. You should adapt to a culture of change and implement technologies throughout your firm incrementally as necessary. If you wait too long to upgrade existing technology or implement new technologies/processes, the cost you will incur to catch up will be significantly more than if you had remained current all along. Not only will costs increase, but confusion and dissatisfac-
FORM A TECHNOLOGY COMMITTEE Depending on the number of partners at your firm, it may be overwhelming for one or two staff to convince a group of superiors why technological changes need to be made within the firm. Forming a Technology Committee consisting of a few tech-savvy partners, managers and staff may make presenting and approving/disapproving executive technological decisions more cohesive and efficient. Once a plan is created within the Technology Committee, it can then be presented by the group to the remaining partners.
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
HAVE A SEAT AT THE PARTNER TABLE It is crucial for a representative from the Technology Committee to have a seat and a voice at the table during executive meetings. This gives the committee a chance to present a road map for the firm, including updating the infrastructure, hardware, security and software, not only to conduct day-to-day business, but to ensure you are compliant with regulatory guidelines and protecting your clients’ data. Individually, partners may broadly understand technology
and the security needed for your business but being a part of that group discussion is a chance for the team to learn about new technological advances, ask questions and then decide what is best for the firm. INTERACT WITH STAFF AND CLIENTS Engage with your staff regularly and ask what may help them work more effectively and efficiently, whether they are in the field or in the office. The additional input you obtain from your staff will not only improve the efficiency of your processes but show the value of their employment. Also, keep in contact with clients frequently. This will lead you to develop better methods of obtaining client information electronically, as opposed to having clients send their information in the mail and your staff manually entering the data into your application(s). This will also increase efficiency and accuracy within your firm. BECOME PART OF A NETWORKING GROUP Joining a networking group comprised of other small firms is a great way to discuss and collaborate about modern technology within the industry. Groups such as NJCPA, AICPA, BKR International and CPA Firm
Management Association present the opportunity for your organization to brainstorm the best technology for your organization through these networking groups. You can talk to other professionals and hear what their firms are implementing, compare it to what your organization is using and explore how different applications, processes and equipment are or are not working for your firm. BUILD RELATIONSHIPS WITH YOUR VENDORS A great way to remain current with technology and cybersecurity is to develop relationships with your vendors. A strong relationship built on trust will certainly pay dividends in a variety of ways when implementing any technology. Be sure that the vendors you choose understand your practice. A vendor that will listen and understand your business, as opposed to just closing a sale, is a recipe for success in any implementation. There are plenty of reputable vendors willing to engage with your organization. It is also important to be sure that the vendor has security as a primary focus. Ask about redundancy, contingency plans and question if the company has undergone any type of Service Organization Controls (SOC) reporting. Utilizing an outside vendor’s services can assist in the protection and confidentiality of your
information, as well as your most valuable asset — your clients’ sensitive data. In today’s accounting world, we aim to be more efficient than ever before. To be a successful, competitive firm, it is crucial that you provide your staff with the most current tools to do their jobs and manage the day-to-day operations. Keeping abreast of technological trends will attract more staff and clients to your business, allowing continuous growth throughout your firm. By continuously implementing software, security and equipment upgrades, educating the executive team on the latest technology, interacting with staff and clients and joining a networking group, your firm will be able to stay on the leading edge. Mark Jensen is the director of IT at Nisivoccia LLP. He can be reached at mjensen@nisivoccia.com or 973-298-8500.
READ MORE TECHNOLOGY ARTICLES AND RESOURCES njcpa.org/topics/technology
DO MORE JOIN THE EMERGING TECHNOLOGIES INTEREST GROUP njcpa.org/groups
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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ACCOUNTING, AUDITING & ATTEST
Breaking Down Bitcoin BY DIANE OPUDA, CPA, ROTENBERGMERIL
The topic of Bitcoin can be confusing and controversial. Bitcoin is still in the development stage, and some people are skeptical that it will survive. However, the use of Bitcoin is prevalent enough today that accounting professionals should be aware of what it is, how to account for it and some of its most important implications. WHAT IT IS Although the symbol commonly used for Bitcoin is an image of a coin, a “bitcoin” is not a physical token. It is a unit of virtual “cryptocurrency” that is transacted electronically using encryption technology. It can be exchanged for fiat currencies (legal tender) or used to pay for goods and services. Bitcoin is not backed by any commodity, government or bank. It derives its value by relying entirely upon the mutual trust and acceptance of its users. It was purportedly created with the intention of making centralized banking obsolete by allowing direct payer-to-payer transactions, requiring lower fees and providing faster transaction times. However, eliminating a central bank also has the effect of circumventing measures put in place to prevent illegal activities, such as identification and reporting requirements. As a result, it has been criticized for being an instrument of criminals and for posing a threat to global security. In addition, its complexity has made it difficult for users to understand and properly handle their accounts, making it vulnerable to theft. Those who suffer losses from theft or the failure of a Bitcoin exchange have no recourse because the U.S. government does not regulate Bitcoin. HOW IT WORKS To transact in bitcoins, you must have a software “wallet” accessed by pairs of electronic keys. “Hot” wallets can be maintained on a cryptocurrency exchange via the internet, while “cold” storage wallets are more safely maintained offline. The public key is like your payment address while your private key allows you to access your bitcoin. Public keys are meant to be
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used only once, so transactions are not easily traceable back to the individual. “Miners” are people who compete to process blocks of bitcoin transactions in exchange for fees and rewards of new bitcoins. The protocol limits the total creation of new bitcoins to 21 million, making it inherently deflationary. It also regulates their rate of introduction by halving the number of new bitcoins created with each block verification every four years. Bitcoin transactions are recorded in a blockchain, a digital ledger described as “distributed” because transactions are public and everyone in the worldwide network has a synchronized copy of it. An algorithm takes transaction information and encrypts it into a standard-length output known as a hash. The hash of a new block of transactions always contains the hash of the previous block, thus “chaining” the blocks together and making the chain very difficult to alter. A block must be validated by a miner who has successfully completed the security procedure called the proof-of-work. The blockchain ledger is an important advancement with the potential to be used beyond applications like Bitcoin because of its ability to maintain a high level of data integrity. Due to the unique way bitcoin is transacted, special audit techniques are required, and auditors should be given additional training. SPECULATIVE ASSET In general, businesses have been slow to accept bitcoin as a form of payment, which has limited its ability to scale as a form of currency. However, it has gained popularity as a speculative asset traded by investors. The IRS has determined that bitcoin should be treated like property, subject to capital gain or loss treatment. Bitcoin held for resale would incur ordinary gains or losses. Bitcoin exchanged for goods or services should be measured by its fair market value in USD at the date of the transaction and treated as any other form of payment. Therefore, bitcoin given as compensation is subject to employment taxes and is reportable on
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
a W-2 or 1099. Failure to comply with tax laws will have taxpayers facing penalties, though, predictably, the lack of government regulation over cryptocurrencies like Bitcoin has resulted in widespread tax avoidance. Should regulation occur in the future, it is likely to lessen Bitcoin’s market volatility, but also its appeal. It is clear that Bitcoin has the potential to have a substantial impact. Although the future of Bitcoin is unknown, its innovativeness warrants our attention. Diane Opuda, CPA, is a manager at RotenbergMeril. She is a member of the NJCPA and can be reached at dopuda@rmsbg.com. LEARN MORE DEC. 4, SOMERSET CRYPTOCURRENCY/ CYBERSECURITY MAY 9, PATERSON BITCOIN/BLOCKCHAIN Register at njcpa.org/events
READ MORE DIGITAL CURRENCY ARTICLES njcpa.org/topics/blockchain
DO MORE JOIN THE EMERGING TECHNOLOGIES INTEREST GROUP njcpa.org/groups
ADVOCACY & LEGISLATIVE ISSUES
Healthcare Reform: What Does Change Mean for the Industry BY SUSAN REED, CPA, SAX LLP
The only constant in healthcare is change. Legislation on the national and state levels continues to reform healthcare. There are many moving parts, but, regardless, we are witnessing an evolution. Thus, it is important for healthcare providers and professionals in the industry to keep up. On a national level, the drive toward value-based care (hospitals and physicians being paid based on patient health outcomes) is solidly underway. Both Medicare and private insurers are aligning reimbursement with quality metrics rather than paying based on volume alone. The Tax Cuts and Jobs Act (TCJA) also brought about significant change to the healthcare industry. TCJA slashed rates for those companies that are organized as C corporations. However, it specifically excluded most practices that operate as pass-through entities. Closer to home, out-of-network providers in New Jersey are dealing with onerous new regulations. Those looking to branch out into telemedicine have draft regulations to guide them. Lastly, New Jersey became the second state in the country to require individual health insurance mandates. Here are some specific updates to what healthcare reform currently looks like: yy Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The Act, which changes the payment system for doctors who treat Medicare patients, continues to evolve. The 2018 final rule increases the data completeness requirements and begins to assess providers on cost measures. The penalties for non-compliance continue to increase. In 2018, more providers qualified for Advanced Alternative Payment Models (APM), allowing more practices to enter risk-based programs. The comment period for the 2019 final rule ended in September 2018, and the final rule should be published before year end. Private insurers are following suit and developing their own riskbased and quality programs.
yy Tax Cuts and Jobs Act. In large part, the TCJA ignored those that practice as pass-through entities. Those that file joint returns with taxable income under $415,000 may qualify for a benefit. Practices that are organized as C corporations do benefit from the TCJA. The flat tax for personal service corporations is reduced from 35 percent to 21 percent. yy New Jersey Out-of-Network Bill. After languishing for nearly a decade due to strong opposition from the physician community, this bill was signed into law on June 1, 2018. It imposes notification and disclosure requirements for out-ofnetwork providers. These providers need to provide cost-of-care estimates to patients as well as detail the patient’s financial responsibility. Additional disclosure requirements are required by physicians who utilize other physician services for their patients’ care, such as anesthesia, lab work, pathology and radiology. The bill also includes a state-regulated binding arbitration process for the settlement of an out-of-network bill for disputes in excess of $1,000. yy New Jersey Telemedicine Law. Enacted in 2017, this law states that healthcare services may be provided to clients “using electronic communications, information technology or other electronic or technological means to bridge the gap between a healthcare provider who is
located at a distant site and a patient who is located at an originating site.” Draft regulations, which were approved in June 2018, further define the practice of telemedicine in the state of New Jersey. yy Individual health insurance mandate. In response to Congress’ repeal of the federal mandate established under the Affordable Care Act, effective Jan. 1, 2019, all New Jersey residents are required to have health coverage or pay a penalty. The state expects to collect between $90 and $100 million in penalties which will fund a reinsurance program. Challenges for healthcare professionals will continue into next year with MACRA compliance and penalties increasing. Private payors will continue the move toward risk-sharing models. With more employers moving to self-funded insurance plans, practices will need to develop new skill sets to navigate through this growing reimbursement model. Private equity will continue as a disruptor in healthcare. Rest assured, change is here to stay, but with change comes new opportunities. It is important to adapt and evolve with the fast-changing times instead of playing catch-up. Susan E. Reed, CPA, CFP®, is a partner with Sax and is head of the firm’s healthcare practice. She is a member of the NJCPA and can be reached at sreed@saxllp.com.
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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BECOMING A CPA
Thinking Creatively About Your CPA License BY DR. SEAN STEIN SMITH, CPA, LEHMAN COLLEGE
Obtaining a CPA license is something that is widely recognized as a differentiating factor in the marketplace. No matter where practitioners travel and regardless of the specific industry they are employed within, the CPA license helps them stand out as a subject matter expert in the areas of accounting, attestation, tax and/or reporting. However, especially true for early to mid-career CPAs, the very strengths most commonly associated with the CPA license can also artificially narrow the career paths and engagement opportunities for these practitioners. Having a CPA puts a licensee in a better position to be able to understand and articulate the implications of quantitative information, which is important as today’s business environment is increasingly dependent on more data and analytics. Let’s take
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a look at some of the opportunities available to those with a CPA license that might have previously flown under the radar: NONFINANCIAL REPORTING The concept of nonfinancial reporting is nothing new, but it is arguably more important than ever before. While in the past the idea of nonfinancial reporting was limited due to the lack of availability of nonfinancial data, current technological trends including artificial intelligence (AI) and the Internet of Things means that more information is available at nearly every budget price point. Regardless of how big a firm is, or the size of a client company, there are AI and automation tools for every budget. CPAs, leveraging existing competencies linked to analyzing and communicating the meaning of data, should take full advantage of this trend.
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
DATA SECURITY There certainly is a fair amount of excitement surrounding the increased digitization, automation and technological integration sweeping the business landscape, but with every opportunity there will also be associated challenges. Virtually every week there is a headline about some sort of data breach, hacking incident or a leak of information into the marketplace. With more and more information being stored in electronic formats, transmitted almost instantly and in some cases processed automatically (leveraging automation and AI tools), CPAs can certainly add value. Developing robust controls, managing the flow of information between internal and external users and ensuring all involved parties are up to date fall well within the expertise of accounting professionals.
BECOMING A CPA
CRYPTOASSET EXPERTISE A conversation and analysis of possible opportunities for accounting professionals would be incomplete without at least a brief mention of the cryptocurrency and cryptoasset space. While cryptocurrencies may represent a new and exciting investment opportunity for individuals and organizations, every new opportunity also carries risks. In the case of cryptocurrencies there are two distinct risks that might trip up you, your clients or your firm: yy First, the regulatory uncertainty in the cryptocurrency space, even with the June 2018 statement from the Securities and Exchange Commission on the treatment of certain cryptocurrencies as securities versus treatment as commodities, is something every financial professional needs to be aware of. CPAs, already used to parsing regulatory updates, should take advantage of this uncertainty to develop new lines of business.
yy Second, and more directly linked to what CPAs already do, are the tax questions connected to the cryptocurrency space. In addition to publicly stating that cryptocurrency enforcement will be a priority starting with the 2018 tax year, the IRS has also stated that, given available resources, guidance and advice will most likely be issued on a continuous basis versus a comprehensive framework issued once. It is not a stretch to imagine more and more clients turning to CPAs for up-to-date advice on these matters. These topics may seem intimidating, but current and future clients are going to expect CPAs to be informed about cryptocurrency issues. While this will require some self-education and learning, being well informed on these topics will position proactive practitioners to succeed and create value in this emerging area.
Having a CPA license is, without a doubt, something that will add value to you, your firm and your clients going forward. Thinking creatively about how to use that license — connecting existing competencies to emerging trends — will help you build rewarding career path. Dr. Sean Stein Smith, CPA, DBA, CMA, CGMA, CFE, 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.
READ MORE CAREER RESOURCES FOR ACCOUNTING STUDENTS njcpa.org/mycareer
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BUSINESS ADVISORY SERVICES
Do New Tax Laws Mean It’s Time for a New Identity? BY ROBERT L. GILBERT, CPA, CITRIN COOPERMAN
When business owners see headlines proclaiming a 14-percent drop in the highest corporate tax rate, it’s only natural for them to assume that they can benefit from such a significant opportunity. The federal corporate tax rate, now at a flat 21 percent, has been significantly reduced from the previous top corporate rate of 35 percent. CPAs getting calls from clients saying “we need to convert my company to a C corporation to take advantage of this” already know that the tax code is never that simple, and the response should be something to the effect of “let’s run the numbers first.” RUNNING THE NUMBERS An important consideration when running the numbers is that C corporations are not the only taxpayers that are benefiting from tax reform. Pass-through entities, which include partnerships, LLCs, sole proprietorships and S corporations, now benefit from a new Qualified Business Income (QBI) deduction. This can be up to a 20-percent deduction on QBI. Table 1 shows a simple example of how a business owner’s income would be taxed for a pass-through entity versus a C corporation. This overly-simplistic example shows that the cash available after tax in the C corporation is lower than a partnership with QBI. From a strictly cash-flow perspective, this is a simple choice. However, when comparing a partnership without QBI to a C corporation, the after-tax cash
is effectively the same so other factors need to be considered including state income tax implications, flexibility in exchanging ownership, anticipation of future income or losses, anticipation of distributing accumulated earnings, whether corporate dividends would be subject to net investment income tax, the expiration of the QBI deduction in 2025, and several other factors that have always had to be considered when analyzing entity selection. WHAT IS QBI? QBI is the net amount of qualified items of income, gain, deduction and loss with respect to a qualified trade or business
TABLE 1 PASS-THROUGH ENTITY WITH QBI
PASS-THROUGH ENTITY WITHOUT QBI
C CORP
Business Income
$1,000,000
$1,000,000
$1,000,000
QBI Deduction
(200,000)
-
-
Taxable Income
800,000
1,000,000
1,000,000
Entity-Level Tax
-
-
210,000
1,000,000
1,000,000
790,000
Owner-Level Tax
296,000
370,000
158,000
After-Tax Cash
704,000
630,000
632,000
Distributable Cash
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NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
that is effectively connected with the conduct of a business in the United States. However, some types of income, including certain investment-related income, reasonable compensation paid to the taxpayer for services to the trade or business, and guaranteed payments are excluded from QBI. A highly questionable exclusion from QBI is income from a “specified service” trade or business: those involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees. When you consider the value of the reputation or skill of a company’s employees, things can get very tricky. Service providers such as hair stylists, personal trainers, handymen, masseuses and mechanics make up a small sample of professions that would proudly say that their employees, as service providers, are the most valuable piece of their business…except when it means they have to pay more in taxes. As a result, in August 2018, the IRS proposed and
BUSINESS ADVISORY SERVICES
submitted for approval regulations that limit the meaning of the “reputation or skill” clause to: (1) earnings for endorsing products or services; (2) earnings for licensing the use of an individual’s personal brand; or (3) appearance fees. The proposed regulations also clarify several other questions prompted by the enactment of the QBI deduction. WHAT ARE THE DIFFERENCES IN ENTITIES? If it is determined that a pass-through entity is more advantageous than a C corporation, consideration then needs to be given to whether the entity should be taxed as an S corporation or a partnership. Below are a handful of differentiators between S corporations and partnerships: y Ownership of an S corporation is limited to 100 members and some owners,
y
y
y
y
such as foreign residents, cannot qualify as S corporation shareholders. Partnerships can have different classes of ownership; all of the S corporation’s stock must have the same economic rights. Partnership income allocation does not necessarily have to correspond with equity ownership as it would with an S corporation. Partners can generally increase their basis for partnership liabilities, which may allow them to deduct business flow-through losses on their individual returns. S corporation owners can only increase their basis with loans they make directly to the corporation. An individual can receive a “profits interest” in a partnership for services performed with a tax consequence. This would be taxable if an individ-
POWERED BY
PARTNERSHIP
ual receives an ownership share in exchange for the services. The choice of an entity, one of the more important decisions to be made right after deciding to start a business or consider a structure change, is not an easy selection. The decision depends on the client’s individual circumstances and how to maximize benefits to the owners. Robert L. Gilbert, CPA, is a director at Citrin Cooperman where he specializes in federal, state and local tax planning, profit analysis, systems streamlining and implementation, and cash flow projections. He is a member of the NJCPA and can be reached at rgilbert@citrincooperman.com. READ MORE BUSINESS ADVISORY SERVICES ARTICLES njcpa.org/topics/business
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CORPORATE ACCOUNTING
Transforming Accounting — One Spreadsheet at a Time BY DALE TUTTLE, WITHUM DIGITAL
Modern analytical tools like Microsoft Power BI, Tableau, Qlik, Looker and others are literally transforming the accounting profession — enabling CPAs to use advanced technology solutions to transform their company’s internal operations. These new tools are powerful, easy to use and flexible enough to give individual stakeholders the information they need when they need it. There are several ways these tools are being used to change the CPA profession. SPREADSHEET USE It’s ironic that most organizations have not stopped using spreadsheets as the primary means of communicating financial performance even though most have modernized their backend financial systems. Even in this time of advanced computing and cloud technologies, spreadsheets are still the most common way companies internally report on financial performance. As CPAs, we see this all the time. Everyone complains about using spreadsheets but breaking this dependency has been difficult. They are easy to use, and most systems create reports in comma-separated values (csv) format which is easily ingested by Excel. A report can be created from the general ledger and the output saved in csv. So, what’s the problem? The biggest issue with spreadsheets is that the data is out of date pretty much as soon as you hit save. Data is flowing in and out of backend systems all the time, but the spreadsheet is a snapshot of something that happened in the past. While that may be good enough, many companies want to base their decisions on current data. Accuracy is also a big problem. Once the spreadsheet is created, the information is then sliced and diced for consumption by different stakeholders. The same spreadsheet is often emailed around and modified to create meaningful views for each department, stakeholder group or individual. So, what is the solution? How are some companies doing things differently?
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LEVERAGING ANALYTICS TOOLS It’s very common for companies to take those old spreadsheets and create interactive, visually appealing web-based representations of them using tools like Power BI. In fact, that’s a great first step; it lets the CPA get familiar with working with interactive web-based tools using the spreadsheets that everyone is comfortable with. However, the underlying issue of stale data is not addressed using this approach. So, what’s next in this evolution? The next step is to connect directly to your company’s financial system or some sort of data repository that is updated directly from those systems. This data, coupled with interactive analysis tools like Power BI, lets each stakeholder have their own view of fresh data allowing for direct, interactive analysis via the web. What’s even more interesting is that this approach lets business users create their own reports and dashboards. Now they can get exactly what they need when they need it. In short, everyone gets what they need and always see up-to-date, real-time information. This is a huge step forward; decisions can be made with actual information
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
instead of educated guesses made from stale information. More than ever, financial performance can be understood, shared and acted upon. This is truly transformative and a huge step forward from basic Excel and text-based reports. Dale Tuttle is a partner and practice leader for Withum Digital. He operates the firm’s data analytics and cloud transformation businesses and can be reached at dtuttle@withum.com.
LEARN MORE NOV. 8, JAMESBURG DATA ANALYTICS FOR CPAS
DEC. 10, ROSELAND DATA ANALYTICS AND BUSINESS INTELLIGENCE — WHAT YOU SHOULD KNOW
DEC. 11, ISELIN ANALYTICS AND BIG DATA FOR ACCOUNTANTS Register at njcpa.org/events
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FINANCIAL PLANNING SERVICES
Creating a Family Office Helps Keep Focus on the Business BY WARREN ABKOWITZ, CPA, KPMG LLP
Owners of a closely held business generally spend the majority of their time focused on growing and managing the business. As a result, the management and knowledge sharing around financial matters among extended family members is sometimes neglected. A family with significant wealth and investments in various real estate and other assets often needs to create a “family office,” which entails establishing an entity to handle the affairs of the family and is managed in a similar fashion to a “for-profit” business. Asset management, accounting services and managing family affairs become the primary responsibilities of the family office. OPEN COMMUNICATION Once a family office has been established, it is critical for a family to develop investment and succession plans to ensure their wealth is passed on to generations to come. Open and honest communication among family members is critical to the successful transfer of wealth between generations. Oftentimes, wealthy families wait to educate their children about their wealth and how it should be managed. This can be a detriment to the family should a patriarch or matriarch become ill and children are not informed about the family’s affairs. For example, one family I had the opportunity to work with over the years had young children who were always sheltered from the business and finances even after the closely held business was sold. However, as the parents aged, a serious need arose to work out a succession plan for the family and educate their younger members on managing the finances to ensure prosperity for generations. It became critical to define roles and responsibilities for each member to ensure minimal disagreements and to protect the accumulated wealth. As a family office evolves, there is often a need for a diverse team of advisors to work together and support the family. Legal, insurance, investment and accounting
specialists are typically involved. In recent years, psychologists have become important team members as well. CHANGING REGULATIONS A family office must maintain budgets and projections outlining income and expenses from the business for the life expectancy of the parents as well as the income and asset needs of the balance of the family. This is not an easy undertaking and will change over time. A family’s needs will evolve, as will the economic and tax policies that may impact the family’s wealth. For example, as a result of the recently enacted federal tax reform, there was an increase in the federal estate tax exemption from $5 million to $10 million (unadjusted) per person. This increase allows families to make additional gifts for the benefit of their children. Careful planning around this regulatory change is critical to maximize potential benefits. Another important change to consider is the new limitation, for individuals, placed on the amount of deductions allowed for state and local taxes. This $10,000 limitation has created a lot of buzz around the economic costs of living in high-tax states. Depending on a few factors, this change could cause an overall increase in federal taxes for many moderate- to high-income families. As a result, some families are considering their overall costs of living in a high-tax state versus the benefits received and may consider moving to a lower-tax state. In summary, no two families work or operate the same. Differing needs always influence a family’s overall financial planning and goals. Parents, understandably, like to stay in control as long as possible. But the more lead time they provide, the more their children can begin to undertake some of the changes needed for a successful transition — which will ultimately yield better results for the entire family over the long term.
Warren Abkowitz, JD, CPA, is a tax partner with KPMG LLP. He manages the High Net Worth Individual and Investment Management Company tax services group within the Alternative Investment Industry Practice. He can be reached at 212-872-3851.
LEARN MORE NOV. 2, JAMESBURG ESTATE AND LIFE PLANNING ISSUES FOR THE MIDDLE-INCOME CLIENT Register at njcpa.org/events READ MORE FINANCIAL PLANNING SERVICES ARTICLES njcpa.org/topics/financialplanning
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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FIRM & PRACTICE MANAGEMENT
Managing the Compression of Tax-Season Work BY THEODORE WESTHELLE JR., CPA, MAZARS USA LLP
Tax season can be a very trying and stressful time for accounting professionals. Most firms complete a high percentage of their work in a short timeframe. Employers are required to furnish their employees with form W-2 by Jan. 31, but other required tax information such as Form 1099Bs and K-1s are received later. That results in roughly an eight-week period to file most individual tax returns. The Cumulative 2017 Filing Season Information for Tax Returns Processed by the IRS showed that approximately 150.3 million tax year 2016 personal tax returns were processed by Nov. 23, 2017. And, as of May 17, 2017, 134.6 million personal tax returns had already been processed. It’s safe to assume that most of the returns that were processed as of this date were not extended, and thus prepared by the April filing deadline. That would equate to roughly 90 percent of all individual tax returns being filed in a two-month period. Most tax returns that get extended are more complex and require a lot more time to be prepared. But the bottom line is that an incredible amount of work is produced in a short period. Business tax returns are also prepared during this work-load compression period. Calendar year S corporations and partnerships are due by March 15. Calendar C corporations are due by April 15. There are many ways a firm can prepare in order to reduce stress and manage the work compression of a busy tax season. These include the following: yy Evaluate your clients. Is there a business purpose to continue to service clients that produce low realization? yy Train new staff early. yy Roll over files and update software. yy Utilize technology, such as scanners, workflow software and client portals, to help you work more efficiently. yy Send out organizers or information requests early. yy Identify the appropriate staff or resource for each client before the work is available. This will enable the firm to maximize its resources. Don’t assign staff to an
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engagement just because he or she did it last year. yy Set expectations with staff. yy Identify and explain procedures. yy Communicate the number of hours they are expected to work (if that is a firm policy). yy Assign clients to staff so they can familiarize themselves. yy Communicate the urgency of turning work around as quickly as possible. Explain to them that a few extra hours worked early in the season could ease the burden at crunch time. yy Frontload any work possible. yy E-file all zero extensions as soon as software is available or government permits. If you have partnerships you know are going on extension, there is no need to wait until close to the due date. yy File extensions for corporations that you know will be in a loss position. Calculate any minimum state taxes and file these as well. Anything that can be done early will help. yy Request partial information early. Even if a client does not have their books closed in early January, there is a pretty good chance that they could provide a schedule of any fixed asset additions that were made during the year. Request the information early and get the assets entered into the tax software.
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
yy Set expectations with clients. yy Establish a reasonable timeline of when you expect your clients to provide their information and communicate it to them, preferably in writing. yy Communicate any cut-off date the firm might have. For example, the firm cannot guarantee the completion of any tax return for which the information is not provided by April 5 (choose whatever date you deem appropriate). This will motivate at least some clients to provide it earlier. yy Start pushing clients who have a reputation for being last minute early in the process. Put the importance of hitting these deadlines in their head. Remember, a squeaky wheel gets the oil. yy If appropriate, offer a discount for work that can be done off-season. yy Consider alternative resources, such as hiring per-diem staff or outsourcing to other firms or offshore services. Theodore Westhelle Jr., CPA, is a tax director at Mazars USA LLP in Edison NJ. He is a member of the NJCPA and can be reached at theodore. westhelle@mazarsusa.com.
DO MORE JOIN THE STATE TAX OR FEDERAL TAX INTEREST GROUP njcpa.org/groups
GOVERNMENTAL & NONPROFIT
Does Your Nonprofit Have UBTI? BY MICHELLE S. MARTIN, CPA, KLATZKIN & COMPANY LLP
Even though a nonprofit organization may be exempt from taxation on income related to its exempt purpose, it is subject to tax on any unrelated business taxable income (UBTI). The IRS regulations are complex in this area, so you must carefully consider if income should be treated as UBTI. First, look at the organization’s mission as reported to the IRS and the IRS code section that is the basis for its exemption (e.g., 501(c)(3), 501(c)(7)). This information about the organization will help you determine if it has UBTI. Income considered UBTI for one organization may not be UBTI for another. For the majority of organizations, income is UBTI if it is from a “regularly carried on” trade or business that is not substantially related to the organization’s exempt purpose and not excluded from UBTI by IRS regulations. This definition applies to organizations other than those exempt under code sections 501(c)(7), (c)(9), (c)(17) and (c)(20). The rules for these types of organizations are outside of the scope of this article. REGULARLY CARRIED ON Business activities are typically considered “regularly carried on” if they are frequent, recurrent and pursued in a manner comparable to similar commercial activities. TRADE OR BUSINESS Generally, the IRS defines a trade or business as an activity conducted for the production of income from selling goods or performing services. The activity must be conducted with the intent to make a profit. NOT SUBSTANTIALLY RELATED The IRS considers how the organization earns income, not how the organization utilizes income, when determining if income is substantially related to the organization’s exempt purpose. Just because income was used to further the organization’s exempt purpose does not mean it is related to the organization’s exempt purpose.
AVAILABLE EXCLUSIONS The most commonly used exclusions from UBTI include interest, dividends or similar income, royalties, rents from real property, gains or losses from the disposition of most property, volunteer labor, conventions/trade shows, and member’s convenience. Generally, income excluded from UBTI cannot be debt-financed. AREAS REQUIRING SPECIAL CONSIDERATION The IRS has issued special rules or regulations on certain types of income including, but not limited to, advertising, qualified sponsorship income, mailing list income, affinity income and rental income. These types of income require additional research to determine if they are UBTI. BE PROACTIVE Organizations contemplating a new income stream should consider if UBTI could be an issue. A little planning could go a long way. IRS Publication 598 provides an example of how two schools with a tennis club on school grounds have a very different tax result. School One operates a tennis club open to the general public during the summer utilizing tennis courts and locker rooms that are used in the education program during the school year. School employees run the club. School Two leases the same type of facility to an unrelated individual who runs a summer tennis club. The lease is for a fixed fee and is not dependent on income or profits. Both of these activities are unrelated to the school’s mission. School One has taxable income while School Two does not. Why? School One is providing services, while School Two is receiving rental income from real property. Rental income from real property is one of the items excluded from UBTI by the IRS (as long as the property is not financed by debt). WHAT’S NEW? The 2017 Tax Cuts and Jobs Act altered the UBTI landscape. For tax years beginning after Dec. 31, 2017, UBTI is now separately computed for each trade or business activity.
Losses from one unrelated trade or business may no longer be used to offset income from another unrelated trade or business. THE BOTTOM LINE It may be difficult to determine if income should be treated as UBTI. A lot depends on the type of organization and its mission. Consider how the income was earned. Research thoroughly. Document the rationale behind each decision, and keep a record in a permanent file. Most importantly, stay updated on the latest developments in the UBTI arena. Michelle S. Martin, CPA, is a manager with Klatzkin & Company LLP. She is a member of the NJCPA and can be contacted at 609-890-9189 or mmartin@klatzkin.com.
LEARN MORE DEC. 6, EDISON NONPROFIT CONFERENCE Register at njcpa.org/events
DO MORE JOIN THE NONPROFIT INTEREST GROUP njcpa.org/groups
READ MORE NONPROFIT ARTICLES njcpa.org/topics/nonprofit
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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PROFESSIONAL DEVELOPMENT
Work/Life Balance —Flexibility vs. Invasion of Off Time BY BAILEY FRUMEN, MSW, LCSW
Picture this: You wake up feeling well-rested and eager to start the day. You have a healthy breakfast, enjoy time with your family, explore hobbies and interests, and always have a vacation scheduled on the horizon. You also have a flourishing practice. Your time is always in demand, but your priority client is you. Let’s also run a second scenario: You’re exhausted, feeling burnt out and overwhelmed. When it comes to time with your family, you’ve got nothing left to give at the end of the day and end up crashing on the couch. Your practice is flailing and just can’t seem to bring in consistent numbers or clients. You’ve put on weight, worry about your blood pressure and can’t remember the last time you took a vacation. After reading these two scenarios, what if you were to learn that these stories came from the same person —
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the stressed-out “before” scenario and what life looks like “after” having done the work to create a healthy work/life balance? There’s a strong camp of people who believe that the concept of work/life balance is impossible. These people are both 100-percent correct and 100-percent wrong. Here’s why: When we fail to take the time to define and design what our professional and personal lives look like, we will always be left feeling unfulfilled, overwhelmed and disappointed. To confidently step into work/life balance and a deeper sense of work flexibility, it is essential to consider these four steps: 1. DEFINE YOUR WORK/LIFE BALANCE It will always seem impossible and unattainable to achieve optimal living when you have not taken the time to clear-
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
ly define what it is that you are looking for. Start by getting clear about what is not working in your life. Then begin to develop a working definition for work/life balance that will help to anchor you into designing a healthier life both personally and professionally. 2. DESIGN YOUR WORK/LIFE BALANCE Like any good plan, achieving your work/life balance requires some research, design and development. Start to design what you want your life to look like, how you want to spend your time, who you want to spend your time with, and what passions and projects are of interest to you. Consider the vacations you want to take, goals you want to set and where you want your business to grow in the next 12 to 24 months.
PROFESSIONAL DEVELOPMENT
3. SHARE AND DECLARE YOUR WORK/LIFE BALANCE Research has shown that we are 76 percent more likely to achieve our goals when we declare what we want to another person and check in with them regularly as we work toward our goals. This is why coaching works. Having a mentor is helpful, and telling the people in your world about the changes that you are making leads to achieving your goals. People want to see you have success, and it is far easier to achieve our state of optimal living with support. 4. ENCOURAGE OTHERS TO DISCOVER THEIR WORK/ LIFE BALANCE In his book, One Minute for Yourself, Dr. Spencer Johnson shares that one of the most important tools in taking care of
yourself is encouraging others to take care of themselves. We can get caught up in feeling guilty about taking care of ourselves or feel frustrated by others around us who are not living up to their potential both personally and professionally. When this happens, it is likely that they have not been taking time out to take care of themselves. Encouraging others in your life to take better care of themselves leads to higher levels of satisfaction, productivity and support. Creating the life you want is within your grasp. Get clear about the life you want to live, figure out what’s holding you back and enlist support to keep you successful as you work toward a life that is more fulfilling, rewarding and ultimately more lucrative both personally and professionally.
Bailey Frumen, MSW, LCSW, is a therapist, speaker, coach and author of Own Your Power: Your Guide to Feeling Powerful, Fearless, and Free (ownyourpowerbook.com). She can be reached at bailey@baileyfrumen.com. READ MORE OWN YOUR POWER: YOUR GUIDE TO FEELING POWERFUL, FEARLESS AND FREE bit.ly/OwnPower TIME MANAGEMENT FOR EARLY CAREER PROFESSIONALS njcpa.org/mycareer/early-career WATCH MORE MANAGING YOUR WORK/LIFE BALANCE bit.ly/WorkLifeNJCPA
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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TAX
The Classification of Workers in the Era of Tax Reform BY MARCUS DYER, CPA, ESQ., WITHUM
Federal and state governments impose a wide array of taxes and other burdens on businesses with employees. As an employer you are required to withhold income, Social Security and Medicare taxes from your workers’ salaries. You pay the employer’s share of these taxes plus federal unemployment and state employment taxes. Left with the choice of paying these taxes or bearing the risks associated with treating employees as independent contractors, many employers opt for the latter. In fact, the IRS once estimated that employers misclassify millions of workers nationally as independent contractors. Some commentators believe the recently enacted Tax Cuts and Jobs Act of 2017 (TCJA) could lead to even more misclassified employees. How big is the employee misclassification problem today, and what is the government currently doing about it?
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THE PROBLEM Generally, an employer/employee relationship exists “when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished.” Treas. Reg. Sec. 31.3121(d)-1(c). When a worker is misclassified as an independent contractor, the costs to society are considerable. The employee loses federal and state employment protections and benefits. The unlawful business whose taxes are illegally lowered is placed at an unfair advantage over the competition. And the government is deprived of substantial tax revenues. In a 2009 report, the Government Accountability Office estimated in one year alone, the federal government lost out on $2.72 billion in Social Security,
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
unemployment and income taxes because of employee misclassification. To make matters worse, a new tax deduction in the TCJA could further contribute to employment tax losses. Effective for tax years beginning after Dec. 31, 2017, owners of partnerships, limited liability companies, S corporations, trusts, estates and sole proprietorships are generally entitled to a deduction of 20 percent of the taxpayer’s qualified business income under IRC Sec. 199A. Because Section 199A ties the availability of a deduction to some form of business ownership, some employees may seek to be treated as independent contractors or partial owners for tax purposes. ENFORCEMENT In an effort to prevent the misclassification of workers, the government employs a multi-faceted approach. The IRS detects
TAX
misclassified workers primarily through the following sources: y The Determination of Worker Status (Form SS-8) Program. Under the Form SS-8 program, employers or workers may request that the IRS determine the status of an individual. y The Employment Tax Examination Program (ETEP). The ETEP allows the IRS to use specific criteria to identify companies likely to have misclassified employees. y General employment tax examinations. A general examination of an employment return may draw the IRS’s attention to a classification issue. y The Questionable Employment Tax Practices (QETP) program. Through the QETP, the IRS and states share worker classificationrelated information. Over time, the IRS has compiled a list of 20 factors from court decisions to
determine worker status. These 20 factors, cited in Rev. Rul. 87-41, have been compressed into three general categories: y Behavioral control y Financial control y The relationship of the parties No one factor should stand alone in making a determination.
Companies longing to save taxes may want to think twice today before employing a strategy that entails misclassifying employees. Marcus Dyer, CPA, Esq., is co-leader of tax controversy at Withum, providing tax and business advisory services. He is a member of the NJCPA Federal Taxation Interest Group and can be reached at mdyer@withum.com.
CONSEQUENCES If a company has been found to have misclassified workers, it could be required, at a minum, to pay 100 percent of the employer’s share of Social Security and Medicare taxes, plus an additional 40 percent on the same obligations and 3 percent of wages under IRC Sec. 3509. Well-intentioned employers that have consistently treated workers as independent contractors may be able to lesson the consequences through the safe harbor of IRC Sec. 530 or the IRS’s Voluntary Classification Settlement Program.
LEARN MORE NOV. 9, JAMESBURG OR NOV. 26, VOORHEES THE COMPLETE GUIDE TO PAYROLL TAXES AND 1099 ISSUES Register at njcpa.org/events READ MORE FEDERAL TAXATION ARTICLES AND RESOURCES njcpa.org/topics/fedtax
ADVERTISE WITH THE NJCPA Reach influential accounting and financial executives and a readership of more than 24,000 in 2019 when you advertise in the award-winning publication, New Jersey CPA! Don’t miss the digital opportunities to connect with NJCPA’s community online: • Connect (online community) • Pulse (e-newsletter) • njcpa.org
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NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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TECHNOLOGY & INFORMATION MANAGEMENT
Creating an IT Plan for 2019 BY ANTHONY MONGELUZO, PCS
Accountants are known for reviewing budgets and fiscal planning before a new year begins, but sometimes they forget that a similar rule should apply to their information technology (IT) structure. Pay attention to your IT plan now or risk playing catchup in 2019. Following are the solid fundamentals that will protect your business, increase your efficiency and protect your clients’ businesses, too: SET A BUDGET You say this to your clients frequently but you should also follow your own advice. Try to determine what you can spend and what is the most profitable approach. Surprisingly, even smart accountants forget to view their IT costs as a profit center, NOT simply as an expense. Besides your knowledge, time is one of your most precious assets. Review with your IT person (or outside IT vendor) what you are doing manually to determine if there is a mechanism to automate it. Ask your staff what task(s) take the most time, which they fervently dislike or what costs the most money. CONDUCT AN IT AUDIT I had a smart CPA from an Ivy League school ask me: “Anthony, you’re always talking about setting my IT budget, but how do I understand what I need to compare with what I have? What’s the formula?” The answer is familiar to accountants. Have your IT person conduct an audit. A qualified IT person can assess your system’s strengths and weaknesses, and the results will provide an outline of how to proceed. CALL A MEETING I find it incomprehensible that owners and managers of an accounting practice don’t meet with their IT person on a quarterly basis. The usual contact is a screech from the
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top when a system goes down or malfunctions. It doesn’t have to be that way. Again, this is similar advice you are probably sharing with your clients. Questions to ask include: yy Are there any new IT or software developments that might be important to the accounting profession? yy Are there any IT best practices for the industry that we’re not following? Possibly one of the most important elements in this meeting is to connect and discuss strategic moves — an acquisition or opening a new location — with your IT personnel.
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
CONSIDER MIGRATING TO THE CLOUD The year 2019 is the perfect opportunity to consider cloud-based services. You have more protection, and it is more affordable than ever. I know of a one-person accounting firm, and she’s ecstatic over Office 365 and the cloud version of QuickBooks. “I pay one modest fee monthly and don’t have to think about it,” she says. There is a caveat. Microsoft will always download the latest software version, which might not be compatible with your system. Talk to your IT person to ensure they work well together.
TECHNOLOGY & INFORMATION MANAGEMENT
TIPS AND SHORTCUTS I have a medium-size client whose IT person meets with all the support staff a few times each year. He takes the time to show them a few simple tips on their computing processes. He’ll also take the time to explain any changes in software updates that might look the same but perform differently. This way, the staff becomes familiar with him and when a problem arises, he isn’t a stranger. SECURITY You have arguably the most precious information of each person’s business: their financial records. You must make them secure because failure to do so not only could result in the loss of a client, but possibly a legal issue and
potentially bad public relations. For example, you must conduct a threat assessment and penetration against your system to ensure that it’s sound. The downside of avoiding this effort leaves you at high risk if someone penetrates your business. And, no, it doesn’t always happen to someone else. The physical security and cybersecurity of your systems are paramount. Ensure that the costs for the best protection are part of your 2019 plan. Anthony Mongeluzo is the CEO and president of Moorestown, New Jersey-based PCS. He can be reached at Anthony@helpmepcs.com or @PCS_AnthonyM on Twitter.
LEARN MORE NOV. 12, CHERRY HILL CYBERSECURITY AWARENESS
NOV. 14, ROSELAND SECURITY FOR DIGITAL INFORMATION/COSO ENTERPRISE RISK MANAGEMENT FRAMEWORK Register at njcpa.org/events.
DO MORE JOIN THE EMERGING TECHNOLOGIES INTEREST GROUP njcpa.org/groups
READ MORE TECHNOLOGY PLANNING ARTICLES njcpa.org/topics/technology
NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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NJCPA NEWS
Products and Services to Help You Succeed Several resources for small businesses are available at the NJCPA, from payment processing and shipping information to lead generation. Check out the following tools to help reduce the cost of doing business. BUSINESS DEVELOPMENT yy Find-A-CPA. Generate new client leads for free. Enroll your firm in the Find-A-CPA directory. findacpa.org yy Matters of Management. Grow and improve your business with practice growth and marketing services. njcpa.org/marketplace/ mattersofmanagement CPE TRACKING yy CPE Tracker. Members save time and money by tracking their NJCPA and outside-provider CPE credits in one place. njcpa.org/cpetracker PAYMENT PROCESSING yy Merchant Advocate. Get lower rates on credit card processing and eliminate hidden fees without switching credit card processors. njcpa.org/ marketplace/merchantadvocate yy QuickFee. Eliminate merchant fees and streamline collections with multiple payment options from a secure, online location. njcpa.org/ marketplace/quickfee PAYROLL yy ADP. Free standard payroll processing for your firm and discounts on payroll processing services for your firm’s small business clients. njcpa.org/ marketplace/adp yy Paychex. Receive unique benefits for your firm as well as discounts on integrated payroll, retirement or HR services for your firm’s small business clients. njcpa.org/marketplace/paychex SHIPPING yy UPS. Save up to 36 percent on shipping services including air, international and ground services. njcpa.org/ marketplace/ups
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TAX AND ACCOUNTING PUBLICATIONS yy Wolters Kluwer. More than 175 CCH® publications including tax and accounting books are available for a 25-percent discount. njcpa.org/ marketplace/wolterskluwer TECHNOLOGY yy Netgain. Netgain’s IT Cloud is the premier solution for CPA firms requiring stringent security protocols and optimized application hosting inside a robust IT environment. njcpa.org/marketplace/netgain
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
yy Emerging Technologies Interest Group. Stay informed about the latest technology trends in accounting and business by joining this group. njcpa.org/groups UTILITIES yy Energy Plus. Members receive 3 to 5 percent cash back on electricity and natural gas supply charges each year. njcpa.org/ marketplace/energyplus
NJCPA NEWS
Emerging Technologies Interest Group to Focus on Practical Applications After a series of meetings held over the summer, members of the NJCPA’s new Emerging Technologies Interest Group (ETIG) said one of the main priorities for the group will be to address the practical applications of emerging technologies on the accounting profession. Members agreed to specifically focus on understanding cryptocurrency and digital assets, and what they mean for the accounting industry; how automation will disrupt/alter audit and tax compliance; and what technologies firms are using in relation to audit/tax practices to increase efficiency. These are areas, according to Christopher DeMayo, CPA, MBA, leader of ETIG and partner at WithumSmith+Brown, in which accountants will have to adjust or risk being left behind. The use of technology in accounting will continue to expand rapidly within
our profession and look very different from what it is today, adds DeMayo “In the future it is possible that we will not talk about distributed ledger technology as a concept; it will be the foundation of the new technology that we build onto it,” says DeMayo. Auditing processes will also continue to change. “Our audit teams will need to be dynamic and will likely have to include a data scientist. Audit teams are not going away; there will be a lot of opportunities for firms to help clients in this new environment. However, the type of skill sets we will need within our employee base will change,” he adds. The economic, accounting and tax implications of Initial Coin Offerings (ICOs), for example, will also present a variety of complexities for clients that accountants should embrace and look to provide consultative solutions for, says
DeMayo. “These new models have grown in popularity over the last 24 months and do not appear to be slowing down.” “The ETIG is a great sounding board for what the next generation of accountants will face on their jobs every day,” notes Theresa Hinton, director of member engagement at NJCPA. “We encourage more members to join and be part of the discussion.” While the ETIG will target all members’ challenges when it comes to technology, they will also take a specific look at how sole practitioners use technology and where there may be limitations. Since sole practitioners have not overwhelmingly adjusted to using the cloud, for example, the group plans to address those issues and items unique to small practices. More information on the group or how to join can be found at njcpa.org/groups.
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NJCPA NEWS
NJCPA Publishes Audit Report The combined financial statements for the NJCPA and affiliates (NJCPA Education Foundation and NJCPA Scholarship Fund) for the year ended May 31, 2018, have been published. Unrestricted revenues increased more than 5 percent when compared to the previous fiscal year, mainly due to elevated revenues from educational programs, while royalty and advertising revenues also rose above prior-year levels. Investment returns, although still positive, were lower than the prior year, as higher interest rates and the prospect of tariff/trade wars pulled the markets back from highs seen early in 2018. Membership dues for 2018 remained flat at $3.6 million, or 1.5 percent below budget, despite a small increase in rates (1.5 percent to 2.2 percent for most categories), as there were more retirees during the year than anticipated as well as a slight shortfall in the generation of new members. Overall membership rose to 15,000 total members at the end of fiscal 2018 compared to 14,900 total members at the end of fiscal 2017, as more student members continue to be added, the result of free student membership that began being offered in the prior fiscal year. Retention of Fellow members increased slightly
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from 93.6 percent in 2017 to 93.8 percent in 2018, while overall member retention remained flat at 90.6 percent. Investments returned 7.5 percent for the year, and royalties and commissions revenue was 40 percent higher than budget, as the revenue-share amounts from partners were higher than expected. As a result of the increased revenues and cost reductions in printing and meetings expenses, NJCPA’s net assets increased approximately $248,000 (including unrealized gains of $137,000) compared to a budgeted decrease of $288,000, and an increase of $206,000 in the prior year. The NJCPA Education Foundation completed the year (which included the close of the triennial reporting cycle) with a positive change in net assets of $319,000 compared to a budgeted negative change in net assets of $24,000 and a negative change in net assets of $85,000 in the prior year. The end of the triennial helped drive attendance at educational programming, as did the addition of programs that addressed changes resulting from the Tax Cuts and Jobs Act, resulting in a $494,000 increase in program revenue versus the prior year. Margins on programming increased, and educational
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
programming served over 23,000 registrants and delivered just under 115,000 credit hours of CPE, 11 percent more credit hours than the prior year. Investments returned just under 7 percent in the fiscal year. Contributions to the NJCPA Scholarship Fund for the fiscal year ended May 31, 2018, were approximately 1 percent below budget, primarily due to timing, as awards and related contributions from one chapter were not finalized until after fiscal year-end. The Fund saw a small decrease in the number of members contributing as well as a slight drop in the average contribution. While managing these small decreases, the Fund awarded approximately $417,000 in state and local scholarships to 70 applicants and made payments on prior-year awards for another 78 students. The Fund’s investment portfolio returned 7.4 percent for the year, beating its benchmark and providing total investment income, net of fees, of $177,700, which was $124,000 over budget. These portfolio returns were primarily the driver in net assets increasing approximately $38,000 versus a budgeted decrease of $87,000. Download the combined financial statements at njcpa.org/about.
CLASSIFIEDS
MERGERS/ACQUISITIONS
An established Central NJ CPA firm is acquiring some suitable accounting/ tax customers for its business expansion. Please contact Jane at 908-342-7953 or email jane.cpa.2011@gmail.com. Bilingual. Bergen County CPA firm in search of succession. Quality staff, own building, long time clients and relationships, four million gross, very profitable. Owner will stay as needed. No brokers, please. Reply at njcpa.org/classifieds. Local Morris County firm is seeking to acquire practices ranging from $200K to $500K from retirement-minded practioners and/or seeking compatible merger of candidates who have a book of business exceeding $200K. We have partner, manager and staff offices available. Contact Carl Gutt at 973-451-0800 ext. 22 or cgutt@dglcpa.com. Essex County retirement-minded CPA seeks CPA to assume his partnership interest and continue with remaining partner at our office location. Retiring partner will remain during transition period. Interested candidates should reply with resume to essexcpa@gmail.com. Local northern Bergen County accounting firm is looking to acquire a small accounting practice from a retiring CPA in our area with a book of business of $100-$150K with predominately business accounts. We have a solid Bergen County reputation and partner/ staffing available. Contact sstraubinger@ ramsey-cpa.com.
Seize a merger/acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas.com; email me, Phillip Goldstein, CPA, Managing Partner, philg@ glcpas.com; or call me at 800-839-5767 to have a confidential conversation. Philadelphia metro area CPA seeking Partner to enable continued growth of the firm. Currently grossing 500k with space for additional staff and unlimited expansion. Requires recent experience in small/midsize firm. Reply at njcpa.org/classifieds. New Jersey practices for sale: gross revenue shown: Mercer County CPA $380K; far southern Bergen County CPA $550K; eastern Hudson County CPA $445K; Warren County CPA $245K; north Essex County CPA $320K; virtual office CPA partnership $950K. For more information, call 800-397-0249 or visit www.aps.net.
PROFESSIONAL SERVICES
Peer Reviewer — do you need pre and post-issuance reviews, internal monitoring, QC Director? Reviewer seeking peer reviews for firms with nonprofits or compilations. Contact Brian Bertscha, CPA at 973-747-9526.
REAL ESTATE
Office space for lease. 142 Livingston Ave, New Brunswick, NJ. Rent includes all utilities, gated parking, security cameras, alarm system and common conference room and kitchen. Ideal for accounting. Please contact Beata at beatagall@hotmail.com or 908-581-3322.
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To see additional classified listings or to place an ad, visit njcpa.org/classifieds.
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NEW JERSEY CPA | NOVEMBER/DECEMBER 2018
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MEMBER STORY
Busy Season Takes on a Whole New Meaning on the Farm BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR
As a tax and audit professional, Timothy J. Shore, CPA, CGMA, co-managing member of Levine, Jacobs & Company LLC, is used to busy days. In fact, he thrives on it. But even the most weathered accounting professional would have to admit that Tim puts in some of the longest hours — both at his day job in Livingston and at his night job on his farm in Great Meadows. And just like in accounting, life on the farm is never typical, particularly when taking care of 12 Nigerian Dwarf goats, 12 chickens and ducks, two pigs, eight Great Pyrenees guard dogs and many foster cats and kittens. Animals also have their own “busy seasons.” Making sure they are up-to-date on their shots and that their coat, skin color and eyes look good is all part of maintaining the livestock. Even though the ducks are Tim’s least-favorite animal, they still demand a lot of upkeep. Speaking highly of his guard dogs, however, he says “they bark a lot, but if something did come onto the fields, they would attack it.” That’s a very important feature since the Shores live next to a bear preservation.
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Thanks to his wife, Barbara, a Pennsylvania native who worked for years in animal shelters and shares his love of animals and living in wide-open spaces, he manages the demands of accounting with the necessities of running a farm. His children, Nick, age 15, and Nina, age 12, also help in the daily routine of running the farm. His son is so good with the goats that he is affectionately called the “goat whisperer” by his family. Both children have benefited from growing up the last four years on the farm, with one of their favorite memories being the time they held newborn bear cubs. So how does Tim fit in a CPA firm, a farm and a family? Good time management. His typical routine starts at 4:30 a.m. when he opens the stable doors, gives food and water to the animals, gets ready for work and drives an hour to practice audit, accounting and tax as well as be his firm’s go-to contact for construction, funeral, medical and other client niches. When he comes home in the evening, Tim does the reverse procedure, gathering the animals back into their stables and stalls and preparing them for the night. He
NOVEMBER/DECEMBER 2018 | NEW JERSEY CPA
remembers to pay close attention to the goats, which often knock over their water. Calling Tim’s dedication to the farm a “labor of love” would be an understatement. “We are both very animal friendly,” says Tim of why he and his wife chose this kind of lifestyle. To Tim, tending to the animals is a perfect end to his day. “There are two sides of my life. Just taking care of the animals is relaxing in and of itself. While it’s work, it’s pleasurable work.” His days could get even busier. The Shores plan on adding more animals — a cow, a horse and perhaps even a donkey are on their wish list. “Everybody loves coming to see the animals,” says Tim, who has hosted many family birthday parties and gatherings on the farm. GIVING MORE When they are not working on the farm, the Shores, who take in cats about to give birth, work with Eleventh Hour Rescue in Randolph, a volunteer-based animal rescue organization. “It’s a full-time job taking care of these cats,” said Tim discussing his wife’s commitment to the animals and working with the shelter. Barbara works tirelessly to prepare the cats for adoption by transporting the animals to veterinary checks and monitoring their feeding. Since they started working with Eleventh Hour two years ago, Tim and his wife have prepared more than 70 cats for adoption. WATCH MORE VIEW A VIDEO PROFILE OF TIM njcpa.org/videos
PROFESSIONAL ISSUES UPDATES IMPACTING CPAs AND FINANCIAL PROFESSIONALS WITH THE NJCPA CEO AND PRESIDENT Fri., Dec. 14, 9-10 a.m. / Wed., Dec. 19, 2-3 p.m. (Replay) Fri., Dec. 21, 12-1 p.m. (Replay) Register for this free event at njcpa.org/issueswatch
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Search financial niche job postings
y
Easy-to-use job posting and resume search
y
Elect to remain anonymous to employers
y
Only pay for resumes of interested candidates
y
No cost to post a resume
Learn more at njcpa.org/jobs.