3. Business, private equity and real estate: A failed business or asset is bad for both parties, as well as their children, which is why dividing complex assets introduces unique challenges:

• Valuation: Accurate appraisals are critical, particularly for businesses or investment properties. Keep in mind any capital calls or carry costs that may arise in the future. 
• Liquidity: Divorce-driven liquidity demands can force the sale of real estate or private equity stakes, leading to unanticipated tax consequences or diminished value. Forced liquidity can feel like a short-term win for a long-term loss.
• Operational impacts: Business partners, co-owners, family members and children may be affected by the division. CPAs, working with financial advisors, can help strategize around those nuances and preserve value, incomes and the integrity of the business while meeting settlement obligations.

4. Division of stock options and restricted stock units (RSUs)

• Vesting schedules: Unvested stock may require contingencies in the divorce agreement.
• Valuation: The value of options depends on vesting, the strike price and market conditions.
• Taxation: Stock options are taxed at exercise, and RSUs are taxed at vesting. Collaborating with a financial advisor ensures these assets are divided equitably while minimizing tax exposure.

6. Tax implications of asset transfers: Divorce settlements can trigger significant tax consequences:

• Capital gains: Selling assets to meet settlement obligations can result in capital gains taxes.
• Retirement accounts: Proper use of qualified domestic relations orders (QDROs) can enable tax-deferred transfers of retirement funds.
• Asset basis: Low-basis assets may carry substantial hidden tax liabilities, making their division less favorable. Understanding the tax basis of family assets helps clients decide whether to sell now or retain assets for potential step-up in basis benefits.

7. Protecting assets for the next generation: Without proper estate planning, divorce can disrupt inheritance goals. For instance, remarriages may inadvertently disinherit children from the original marriage. CPAs can collaborate with financial advisors to: 

• Revise wills, trusts, life insurance and beneficiary designations.
• Establish irrevocable trusts to protect assets from future spouses or creditors.
• Discuss pre- or post-nuptial agreements for future marriages.

When a client is going through divorce, their accountant is often the most consistent advisor in the room. With so many Americans stuffing their employer-sponsored retirement plans to the gilt, one of the most critical issues in divorce is the proper handling of retirement assets — particularly those subject to qualified domestic relations orders (QDROs).

In New Jersey, where equitable distribution rules meet complex federal tax law, accountants are uniquely positioned to protect clients from costly missteps. It’s important to understand the key tax considerations, pitfalls and state-specific issues surrounding QDROs so that you can bring clarity where others bring confusion.

Understanding the QDRO Framework

A QDRO is a domestic relations order that creates or recognizes an alternate payee’s right to receive all or part of a participant’s retirement benefits under a qualified plan. These are plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), importantly this does not include IRAs.

Under IRC §414(p), a QDRO must (1) relate to child support, alimony or marital property rights; (2) be made pursuant to a state domestic relations law; and (3) be accepted by the plan administrator. A divorce decree alone is not enough. Failure to secure plan administrator approval can nullify tax protection.

Tax Treatment: Timing Is Everything

When structured correctly, a QDRO allows for early distributions from a retirement plan to an alternate payee without triggering the 10% penalty under IRC §72(t)(2)(C). However, those funds are still taxable as ordinary income to the recipient unless rolled over to another qualified plan or IRA.

In one example, the court in Darby v. Commissioner, 97 T.C. 51, held that a taxpayer who withdrew retirement funds for his ex-wife before a QDRO was in place remained liable for the tax and early withdrawal penalty, even though the funds were ultimately meant for his former spouse. Thus, clients navigating a divorce should never move funds before the QDRO is approved by the plan; and when funds are moved, make sure the receiving spouse rolls it over into an IRA or other qualified plan.

New Jersey-Specific Issues

New Jersey follows equitable — not equal — distribution. Retirement accounts accrued during the marriage are generally marital property under N.J.S.A. 2A:34-23.1, but how they are divided can vary. CPAs should pay close attention to:

• Valuation dates: The date of the complaint versus date of distribution can create significant tax timing issues — particularly in volatile markets.
• Immediate offsets: Trading a retirement account for another asset (e.g., home equity) ignores the deferred tax burden of the retirement asset, leading to unequal post-tax outcomes.
• Survivor benefits: In defined benefit plans, the QDRO must address survivor annuity rights under IRC §417. Failure to do so can eliminate the alternate payee’s benefit if the participant dies.

Common Mistakes to Avoid

• Assuming IRAs require QDROs: They don’t. Transfers incident to divorce from an IRA are governed by IRC §408(d)(6) and must be executed via trustee-to-trustee transfer. Mistakes here result in taxable events.
• Ignoring plan-specific procedures: Every ERISA plan has its own QDRO approval process. Accountants should ask for the plan’s QDRO guidelines early, particularly in defined benefit plans where distribution options are limited.
• Improper rollovers and withholding: If the alternate payee takes a lump sum distribution, a mandatory 20% withholding may apply. A direct rollover avoids this. Educate clients on the difference between a rollover and a taxable distribution.

Practical Tips When a Client is Going Through a Divorce

• Engage early: Don’t wait until after the decree. Your insight can shape negotiations, especially regarding pre-tax versus after-tax asset values.
• Coordinate with counsel: You don’t need to draft the QDRO, but your review can catch financial errors that attorneys may miss.
• Model after-tax outcomes: Use post-tax value comparisons when helping clients consider trades like, “you keep the house, I’ll keep the 401(k).”
• Document everything: If you advise on the tax consequences of a proposed division or draft QDRO language, retain your notes and written recommendations.

Be the Advisor Who Sees Around Corners

The intersection of divorce, retirement assets and tax law is a minefield — but one that CPAs are uniquely equipped to navigate. In New Jersey, where equitable distribution and federal tax law often clash, QDROs are not just legal documents — they’re critical financial tools.

CPAs who understand the real-world impact of Darby, IRC §§72(t), 408(d)(6) and 414(p), and who proactively coordinate with counsel, don’t just save clients from tax headaches — they earn a reputation as indispensable advisors.

Holding the Sails in Place

The accounting and finance landscape is once again experiencing dramatic shifts. A steady stream of executive orders, economic volatility and geopolitical tensions are creating ripple effects across the country — and right here in New Jersey. It’s more important than ever that this uncertainty does not deter from our mission and sway us off course. As always, CPAs are called to lead with clarity, confidence and compassion. 

We’ve been here before. During the COVID-19 pandemic, CPAs didn’t hesitate — you worked around the clock to guide clients, organizations and your communities through uncharted territory. And the NJCPA was right there with you — delivering timely resources, offering real-time updates and providing a sense of community to professionals who have each other’s backs. 

• Creating a new CPA licensure pathway — legislation soon to be introduced in New Jersey, similar to Ohio, Utah, Virginia and others, to make the profession more accessible while maintaining its rigor
• Supporting accounting as STEM — helping reframe and elevate the profession while unlocking new funding and visibility for students 

I graduated from Ramapo College of New Jersey in December 2024. Many of my peers were declining what seemed to be excellent employment offers. When I asked them why they would turn down opportunities like the ones presented, they said they thought they could do better. They were unwilling to settle for anything less than their dream job. Why would a graduating college student who is looking for full-time employment turn down what appeared to be great opportunities? In reality, even though those offers may have seemed great on the surface, after further discussion there were underlying issues with each of them. Many of the offers did not include the benefits that Generation Z (those born between 1997 and 2012) values the most.

Hybrid Schedules and Work-Life Balance

The new generation of graduating students is continuously looking to improve their work-life balance. Communicating to new accountants how hard the last busy season was can be misleading, because the rest of the year is very manageable. A hybrid schedule with the flexibility to work outside of the standard nine to five is becoming ever more popular with recent graduates. The adaptability provided with a hybrid schedule — some days remote, others in the office — allows employees to prioritize personal goals outside of work.

Gen Z continues to demonstrate their ability to incorporate health awareness and empathy into their workplace. Implementing more work flexibility allows the younger generations to feel understood and accepted, allowing for a more manageable work-life balance. The ability to take off a day of work without using their PTO provides opportunities for them to recharge and reset their minds to produce higher-quality work and reduce burnout rate.

Emphasis on Culture

Gen Z has high ideals and standards for what they desire from employers regarding company culture. Having a fun and comfortable work environment, promoting outings with colleagues, taking breaks during the workday, all coupled with productive and cooperative work relationships, signals to younger employees they are appreciated. Using antiquated platforms and software as well as sharing “war stories” about busy season is discouraging for new employees. As an employer, providing the newer generation with a spark of excitement and enthusiasm throughout the day builds lasting trust and excites talented employees.

Guidance and Encouragement

Building and maintaining trust through proper guidance is vital for new employees. I distinctly remember what my manager told me when he offered me my position. “We want to invest in you as much as you want to invest in us.” That sentence spoke volumes to me. I had someone who was investing in me; I was where I belonged. Those few words committed me to Traphagen CPAs & Wealth Advisors, my second home. The subtle reassurance coupled with their culture was what attracted me. Traphagen provided me with the confidence I needed to succeed and embrace the change I was making in my life.

Aspiring to be a young professional and pursuing my CPA, I have often surrounded myself with those who I know would be strong mentors to me. My mentors motivate me to achieve my next set of goals. Many in my generation need the same support system and guidance. I am fortunate enough to be a part of a team where I can grow personally as well as professionally. This position has allowed me to learn, make mistakes and shape who I want to be. I was offered this opportunity as a sophomore in college. Traphagen invested in me, with no experience.

Closing Advice

New grads: Be selective and choose wisely; I work with a firm and individuals who are recognized for their excellence in the accounting profession. As you are mentored, mentor others.

Employers: Take chances on the newer generation that is entering the workforce in an ever-changing landscape. Be an advocate for your younger employees and provide them with trusted support systems. Invest in them as you would expect them to invest in you.

Many company leaders focus too much on operations and not enough on people. True leadership starts with making employees and clients/customers feel genuinely valued.

Successful leaders stay connected to daily challenges. A company cannot thrive if leadership is disengaged. Those who actively support their teams and clients/customers foster a culture of empathy and strengthen trust — the foundation of lasting professional relationships.

Empowering Employees for Success

Overbearing oversight stifles innovation and morale. Employees who feel constantly monitored focus more on avoiding mistakes than on creative problem solving. Leaders must empower their teams with autonomy and decision-making authority to drive peak performance. While mistakes are inevitable, punishing employees discourages risk-taking and growth.

When employees feel trusted, they take ownership and often exceed expectations. Providing space for independent decision making, balanced with accountability, creates an environment where individuals are motivated to contribute meaningfully to the company’s success.

Active Listening Builds Trust

Active listening is a key, yet often overlooked, way to build trust. When people feel heard, they engage more openly, fostering respect and collaboration.

Engage by asking follow-up questions like, “Can you elaborate on that?” and summarizing key points to show understanding. Acknowledging emotions with statements like, “This project seems important to you.” or “It sounds like this has been challenging,” helps individuals feel valued.

Organizations that prioritize active listening strengthen relationships, enhance communication and create a culture of respect.

Strengthening Personal Connections

People appreciate being recognized as individuals. Remembering names, acknowledging challenges and showing personal interest create strong connections. While maintaining this level of engagement can be challenging in larger organizations, it should remain an important goal.

Small gestures, such as inquiring about an employee’s weekend or expressing appreciation for their work, contribute to a culture of respect. When employees feel valued, they are likelier to extend the same courtesy to coworkers and clients/customers, fostering stronger relationships and better service.

Customer Experience: A Critical Metric

In an era where online reviews can shape reputations, a single negative client or customer experience can be costly. Employees who feel respected and supported are naturally more inclined to provide excellent service. The result? Higher customer retention, increased referrals and, ultimately, greater profitability.

Kindness and empathy should not be seen as optional but as essential business strategies. Organizations that deliberately cultivate a respectful culture create a cycle of success that benefits everyone.

Respect and Kindness: The Cornerstones of a Thriving Organization

Respect and kindness are essential for a positive work environment. Respect fosters fairness and trust, while kindness adds warmth and appreciation, making employees feel valued and engaged.

Kindness is not a weakness, and respect is not something to be rigidly earned. Instead, kindness builds trust, and respect strengthens collaboration. Together, they create a workplace where people feel heard, supported and motivated to succeed.

Practical Ways to Encourage Respect and Kindness

• Lead with integrity. Model the behaviors of kindness and respect, setting the tone for the entire firm.
• Ensure fair recognition. Acknowledge and value all colleagues equally, regardless of their role or level of experience.
• Encourage meaningful conversations. Cultivate an environment where employees and clients feel heard through open, thoughtful discussions.
• Encourage team collaboration. Involve employees at all levels in discussions and decision making.
• Honor work-life balance. Encourage employees to set boundaries and respect their time outside work.

Respect and kindness are more than ethical values; they drive business success. Employers that cultivate respect outperform competitors, retain engaged employees and build stronger customer relationships.

Prioritizing these principles is not just the right thing to do but a strategic advantage. A culture of respect and kindness strengthens teams, fosters loyalty and fuels sustainable growth.

The Internal Revenue Code and state tax regulations are filled with complexities that can significantly impact your clients’ financial outcomes. While some provisions are straightforward, others create unexpected challenges that require careful planning and expertise.

The Progressive Tax System vs. Tax Cliffs

Most taxpayers understand the basic concept of tax brackets, though many mistakenly believe that earning more money means all their income will be taxed at a higher rate. As a tax professional, you know this isn’t true. The progressive tax system ensures that only additional income is taxed at higher rates, while previous earnings remain taxed at lower brackets.

However, there are notable exceptions to this progressive approach. In certain scenarios, earning just one additional dollar can trigger increased taxes or costs on previously earned income. These situations, known as “tax cliffs,” require special attention during tax planning to prevent costly surprises for clients.

Medicare IRMAA: A Federal Tax Cliff Example

One significant federal tax cliff appears in Medicare’s Income-Related Monthly Adjustment Amount (IRMAA). While this surcharge doesn’t appear directly on tax returns, it creates substantial additional costs for higher-income individuals. For the 2024 tax year (affecting Medicare costs in 2026), the threshold amounts for the lowest tier are:

• Married Filing Jointly: $212,000
• Single Filer: $106,000 

Exceeding these limits by even one dollar triggers an additional $1,052 per person in Medicare premiums. For married couples, this translates to $2,104 in increased annual costs — effectively creating a 210,400% tax rate on that single additional dollar.

New Jersey’s Pension Exclusion: A State-Level Tax Cliff 

New Jersey’s pension exclusion provides another compelling example of tax cliff effects. This provision offers tax relief to retirees by excluding certain pension income and IRA distributions from taxation. However, the system includes three critical breakpoints for married couples:

• First threshold: $100,000
• Second threshold: $125,000
• Final threshold: $150,000

Social Security benefits don’t count toward these thresholds, making the exclusion accessible to many retirees here in New Jersey. The most dramatic cliff occurs at the $150,000 threshold. A taxpayer with exactly $150,000 in income qualifies for a portion of the pension exclusion. However, earning just one additional dollar ($150,001) eliminates the entire exclusion, increasing state income taxes from $3,164 to $5,236 — a 207,200% effective tax rate on that single dollar.

Planning Implications for Tax Professionals

These examples illustrate why careful income planning is crucial for clients approaching these thresholds. When advising clients about Roth conversions, IRA distributions or other income-generating decisions, consider:

• The timing of income recognition
• Alternative income sources
• Multi-year planning strategies
• Coordination with other tax benefits and phase-outs

Remember, these examples represent just two of several potential tax cliffs in the current tax system. Maintaining awareness of these thresholds helps protect clients from “falling off the cliff” and suffering unexpected tax consequences. Offering this kind of analysis and guidance further showcases the value and impact of your professional tax planning services.

Mentors can change the course of one’s career. I have been fortunate to have had great mentors who have been exceptional guidance figures in my professional growth, providing me with advice and/or support. They believed in me and invested in my long-term development. Whether a teacher, a family member, a boss or a friend, we all can name at least one person who has had a significant impact on our lives. Whether professional or personal, these individuals inspire and guide us.

According to the Oxford Dictionary, ​mentoring is “the practice of helping and advising a less experienced person over a period of time.” I believe mentoring goes above and beyond that. Mentoring is a nurturing relationship where a more-experienced individual, the mentor, shares knowledge and gives advice to a less experienced individual, the mentee, fostering the mentee’s overall growth and development. A mentor’s role is diverse and often extends beyond simple advice-giving. A mentor can be a connector or even a challenger to help their mentees reach their full potential. They provide priceless guidance and insights drawn from their own professional and life experiences. Mentoring involves a deeper level of relationship, building trust and ongoing support. It is truly caring for the mentee’s wellbeing and development.

Coaching versus Mentoring

Mentoring and coaching are both very helpful in promoting professional and personal growth; however, they function very differently from one another. Coaching is a structured process where a professional coach assists individuals in achieving their goals. Coaching is often focused on specific goals or tasks. It involves providing guidance, feedback and support usually tailored to a specific need. For example, in the workplace, an immediate benefit of coaching is seen in the form of better performance, boosting self-esteem and increasing clarity in one’s goals. In contrast, mentoring fosters meaningful and long-lasting growth that goes beyond improving skills and frequently provides inspiration.  

Understanding the difference between coaching and mentoring is important for organizations seeking to maximize the potential of their people in fostering a culture of continuous learning and development.

Benefits of Mentoring

Mentoring someone effectively has an impact on employee retention and can facilitate cultural shifts. I have been greatly influenced by our managing partner; he leads by example and shares his experience and technical knowledge. His guidance has allowed me to navigate career challenges while inspiring me to excel as a professional.

Mentoring is invaluable in developing future leaders in an organization. Forbes reported that “nearly 70% of businesses reported an increase in productivity due to mentoring and more than 50% say these programs had a positive impact on profits.” Therefore, focusing on implementing mentoring programs can be beneficial to an organization as it can create a more positive company culture.

Core Skills of Mentoring

Recognizing the value of mentoring and building a solid foundation to enable mentoring relationships are significant for organizations committed to excellence. Below are a few core skills that can be helpful when mentoring someone:

• Listening actively: This is the most basic mentoring skill. When you listen, you demonstrate interest and, as a result, your mentee feels accepted and trust starts to build.
• Building trust: Trust is developed over time, and it depends on the mentor’s and mentee’s behavior. You must practice honest and open communication and follow through on your commitments.
• Encouraging: This is a significant mentoring skill. It is important to provide sincere, positive feedback and recognition. It can’t be too much or too little and it must be at the right time.
• Inspiring: The ability to inspire others is an attribute that separates superb mentors from very good mentors.
  

The opportunity to mentor someone is an honor. I have been mentored throughout my career, and I am now mentoring others. It is rewarding and creates a personal sense of fulfillment to nurture others and see them achieve their goals. In the process of guiding someone, you will revisit your own leadership skills. Great mentors are committed to constant learning.

“HAL, do an R&D study.”

Do you remember HAL 9000? He was the fictional artificial intelligence (AI) character in the iconic 1968 film, 2001: A Space Odyssey though most people today would assume he was just an early version of Siri. Who would have thought such fiction would become reality in our lifetimes?

With the rising popularity of AI and its potential for business transformation, there's a significant push for CPAs to leverage these features to save time and boost profitability. Though it's certainly feasible to use AI for enhancing operational efficiency and automating routine tasks, assuming it can handle complex accounting and tax work, such as preparing a detailed study, remains doubtful. Yet, I see numerous “pop-up” shops emerging, claiming AI can handle 80% or more of a research and development (R&D) credit study.

Ah, yes, remember those “pop-up” tax providers from the COVID years? They promised thousands in Employee Retention Credit (ERC) refunds but lacked the technical and legal proficiency needed to keep clients away from trouble with the IRS, penalties and repayments with interest.

Now, a new generation of pop-ups have emerged, deploying similarly slick marketing and sweeping promises. Your clients may be tempted, but this time, wise words of caution from their CPAs may allow for a more educated decision.

Why Caution is Crucial

My team and I recently wrote an article with practical steps for CPAs as they identify and consider AI opportunities. After interviewing 200 top CPA firms nationwide, we identified common, routine, non-technical tasks that AI could help with in their practices.

However, R&D is anything but common, routine and non-technical. When it comes to complex tax matters such as R&D and ERC, AI lacks the necessary human judgement. For example, in determining whether a taxpayer qualifies for the R&D credit, AI cannot interview employees, perform on-site visits or conduct the necessary complex legal analysis to determine whether the four-part, test-the-heart-of-the-research credit analysis is met.

Don’t just take our word for it. Even the IRS’ National Taxpayer Advocate came out with a sober warning to taxpayers (or tax advisors) who rely on AI. Their statement from June 2024 declares in no uncertain terms:

“Despite efforts to ensure accuracy, these AI assistants may encounter difficulties interpreting complex tax laws correctly or considering unique circumstances that could impact a taxpayer’s return. As a result, taxpayers should not solely rely on AI generated tax advice.”

This statement cited a review by the Washington Post: “Don’t let AI help you do your taxes,” highlighting that “two of the leading tax preparation companies’ chatbots provide inaccurate or irrelevant responses up to 50% of the time when initially asked 16 complex tax questions.” Yikes, HAL!

CPAs’ Role and Responsibility

There is no denying AI will irrevocably impact our work in the coming years. Even the IRS has begun using AI to automate internal processes. Yet, no one from the agency claims it can prepare a complex tax study.

However, before my gloomy predictions turn true, the first voice of reason needs to come from us: CPAs and tax advisors. We must be aware of the limits of AI, given that our clients trust us more than anyone else — and it is us who will ultimately be responsible for signing the tax return.

Remember how things ended with HAL? He killed off the ship’s crew as a result of his faulty algorithm and warped logic. While “pop-up” AI tax shops may not carry quite the same level of danger, you and your client could end up similarly betrayed if you choose to solely entrust your R&D study to a faceless AI robot. 

Internal controls are a cornerstone of financial systems, yet they are often misunderstood, undervalued or viewed as unnecessary burdens. Many organizations treat internal controls as mere suggestions, adding unnecessary paperwork or headaches for employees. This attitude, however, overlooks their critical role in safeguarding an organization’s financial health, especially during those pivotal moments when things can and do go wrong.

In my 15-plus years as an auditor traveling across the United States, I have seen internal control systems that flourish and others that falter. What distinguishes successful systems is not just their design but the attitude of the people behind them. Organizations that embrace internal controls and view recommendations as opportunities to improve tend to have stronger systems that mitigate risks effectively. Conversely, organizations where internal controls are dismissed as an unnecessary burden often experience breakdowns, some of which lead to fraud or significant financial errors.

Why Internal Controls Matter

At their core, internal controls are designed to ensure the integrity of financial reporting, safeguard assets and improve operational efficiency. They serve as the backbone of any accounting environment, ensuring that accounting systems function properly over time.

Breakdowns in internal controls can have dire consequences, including:

• Fraud: Without proper controls, organizations are more vulnerable to fraudulent activities.
• Errors: Mistakes in financial reporting can lead to regulatory penalties, reputational damage and financial losses.
• Inefficiency: A lack of controls often results in duplicated efforts, wasted resources and operational delays.

Despite their importance, many accountants and CPAs lack a strong understanding of internal controls, especially those who do not specialize in audits. This gap in knowledge is a significant issue in our industry, as internal controls are essential not just for auditors but for all financial professionals.

Educating Teams on Internal Controls

One of the most overlooked aspects of internal controls is the need to educate people within the organization on why they matter. Without this understanding, teams often fail to prioritize controls, leading to a weak or ineffective system.

Internal control implementation starts with the tone at the top. Management must promote a culture of accountability, integrity and transparency. When leadership fails to emphasize the importance of controls, the entire system becomes vulnerable. However, setting the tone is not enough. Management must also:

• Design controls thoughtfully. Controls should address specific risks and be practical for the organization’s size and complexity.
• Monitor and evaluate controls periodically. As systems and processes evolve, controls must be reviewed and updated to ensure continued effectiveness.
• Enforce segregation of duties. This prevents any one individual from having too much control over critical functions. If segregation is not feasible, compensating controls should be implemented.

Bridging the Knowledge Gap

Accountants and CPAs have a responsibility to understand internal controls deeply, regardless of their specialization. This knowledge allows them to identify weaknesses, recommend improvements and educate clients on the importance of controls for long-term financial success.

To achieve this, professionals must go beyond viewing internal controls as a checklist or compliance exercise. Instead, they should understand how controls:

• Prevent and detect fraud and errors.
• Promote operational efficiency.
• Foster confidence in financial reporting.

Furthermore, organizations must ensure that employees at all levels understand their role in maintaining controls. A well-designed system is only as strong as the people executing it.

The Buy-In Process

Perhaps the most critical yet neglected step in implementing internal controls is gaining buy-in from the team. Without buy-in, even the best-designed systems will fail. Teams must understand:

• The “Why:” Explain why controls are necessary and how they protect the organization.
• The “How:” Describe how controls work and what their specific roles entail.

Organizations should invest time in educating employees and fostering a culture that values strong controls. This process may seem basic, but it is foundational for building a system that can withstand the test of time.

Internal controls are not just technical tools — they are essential safeguards that protect organizations from financial risks. Yet, their importance is often overlooked due to a lack of understanding or buy-in. As accountants and CPAs, we must advocate for internal controls not only as a best practice but as a critical component of financial systems.

By prioritizing education, fostering a culture of accountability and continuously monitoring controls, organizations can build systems that are resilient, efficient and effective. Internal controls may sometimes feel like overkill, but in those critical moments when they are needed, they make all the difference.

Imagine a firefighter and a schoolteacher in their late twenties. They get married, purchase a modest two-family home, live in one unit and rent out the other. On his days off, the firefighter makes improvements, while the teacher manages finances and paperwork. They’ve stretched themselves to the limit financially, but they feel good about owning their own home and building a foundation for future wealth through the rental.

When they file taxes for the first time, they’re excited to get a big refund due to the massive rental expenses they incurred. Instead, they discover they can’t deduct a single dollar of rental losses in the current year. Their CPA explains why: their income is too high. A firefighter and a teacher’s salaries are considered too high to qualify for basic tax relief under the passive activity loss (PAL) threshold.

The 1986 PAL Threshold: A Quick Refresher

When the PAL threshold was introduced in 1986, its purpose was straightforward: prevent the ultrawealthy from using passive real estate losses to sidestep taxes. Back then, a $150,000 income was roughly six times the median household income of $24,900, so it effectively targeted those at the very top.

Yet while other parts of the tax code — such as income brackets, the standard deduction and the Social Security wage base — are updated routinely, the PAL threshold has stayed frozen in time, actively punishing hardworking Americans. This is reminiscent of the alternative minimum tax (AMT) problem: Created to snare high earners, the AMT gradually caught many middle-income taxpayers as the cutoff failed to keep pace with inflation.

Thanks to inflation, rising real estate prices and higher costs of living, many two-income families now exceed $150,000 without being anywhere near what could be considered “wealthy.” A household bringing in $150,000 might be juggling a mortgage, childcare expenses and a host of other financial commitments.

The CPA Perspective

Every CPA who handles real estate clients is familiar with the $150,000 PAL limitation. Part of our role is to warn clients just how quickly a teacher-and-firefighter household, or two average professionals, can lose these crucial tax benefits.

More importantly, CPAs are in a unique position to witness how this outdated threshold mislabels middle-income families as high earners. Like the AMT scenario where CPAs across the country pushed for reform, and that collective voice led to change, more needs to be done on PAL. We need a similar push to bring the PAL threshold in line with modern reality.

Call to Action

Every year this threshold remains unchanged, thousands more middle-class families lose their chance at building financial security. This isn’t complex tax reform — it’s a simple threshold adjustment that Congress could implement tomorrow. As CPAs, we have a unique perspective and a responsibility to act:

• Lobby for legislation: Urge your professional networks and organizations (like the AICPA and NJCPA) to put this on lawmakers’ radars.
• Educate clients and the community: Use real-life examples — like our teacher-and-firefighter couple — to illustrate how the outdated threshold hurts ordinary families.
• Reference the AMT success: We’ve already solved this exact problem with the AMT fix, proving that thresholds can be updated when enough informed voices unite.

Remember our firefighter and teacher: they aren’t looking to game the system. They’re an everyday household, committed to their community, hoping to create a small nest egg through a modest real estate investment. Yet the tax code treats them as if they’re ultrawealthy, exposing a glaring disconnect between 1986’s notion of “high income” and today’s economic realities.

The solution is straightforward. Index the PAL threshold to inflation or at least bring it up to a level consistent with modern income distributions. Doing so would align the rule with its original intent — preventing true tax abuses — while finally giving a fair shake to the middle-class families who were never meant to be targeted in the first place. Let’s lead the charge and ensure this outdated law gets the overhaul it desperately needs.

It’s easy to put your firm’s core values on a plaque in your lobby. But you won’t find out who has really bought into those values until the you-know-what hits the fan. Like elite sports teams and military units, high-performing accounting firms hold their composure during times of duress — a big client loss, a key employee quitting, a technology meltdown or simply busy season — whereas lesser firms throw in the towel, point fingers and watch staff head for the exits. 

As a leadership coach, I’ve found that firms with a strong culture and governance model are particularly well equipped to handle “battlefield” conditions. They tend to use the following five key tactics:

1. Aligning Amid Chaos

Sun Tsu, the legendary Chinese general and philosopher of ancient times, said, “Every battle is won before it’s ever fought.” In the heat of battle, one must think like a medical triage unit in combat. Casualties are all around you and you’ve got to treat the most serious, life-threatening injuries first.

Mid-February is when the kids get sick, your spouse is working late, the holiday bills come due, and then that hot prospect you pursued all last year suddenly wants a proposal ASAP — and it conflicts with three pressing client deadlines. High-performing firms follow a playbook, so every team member knows what to do on every play. They react instinctively to the task at hand rather than calling or emailing others in a panic about what to do next.

2. Focusing on the Front Windshield, Not the Rearview Mirror

The rearview mirror in your car is smaller than the front windshield for a reason — you should be focusing on what’s in front of you, not behind you. But, when firm leaders are putting out fires all day long, they’re simply leading from behind. They’re not managing their time well, and they’re not utilizing the leveraging model in which they can assign the highest billable rate jobs to the lowest-paid team members capable of doing those jobs. At firms where partners lead from behind, teams are often confused about the firm’s vision and have no clarity about what management is hoping to accomplish. High-performing firms, by contrast, have established a governance process and have a leveraging model in place. They set SMART goals and they align their strategy with their tactics.

3. Having a Strategic Not Just Tactical Mindset

As Sun Tzu said, “Tactics without strategy is the noise before defeat.” I couldn’t agree more. As a firm leader, you must be willing to step away from day-to-day client responsibilities and focus on the big picture no matter how badly your technical skills are needed for complex client engagements. You must devote time to envisioning the future — anticipating the skills, resources and talent the firm will need months and years down the road. This type of complex strategic thinking requires large periods of uninterrupted reflection and concentration. If you keep allowing yourself to get pulled back into firefighter mode, the firm will just keep doing things “the ways we’ve always done them” and will never evolve.

4. Overcoming the Tyranny of the Urgent

No matter how stressful things get, high-performing firms have learned to distinguish between actual deadlines (i.e., IRS mandated), client-imposed deadlines and self-imposed deadlines. A governance model, which is then manifested in a unique trimester outlook methodology, emphasizes clarity around roles and responsibilities, policies and procedures, and metrics and  goals. This clarity leads to the opportunity to perform most efficiently and at your paygrade. Distinguishing tasks between “important” and/or “urgent” by using the Eisenhower Matrix (right) is the first step in prioritizing tasks in the heat of battle.

5.  Sharpening the Saw

To paraphrase Steven Covey: If you don’t sharpen the saw periodically, the blade gets dull, causing you to spend more time and effort to cut the same amount of wood. As a firm, if you don’t devote some time to working ON the business rather than solely IN the business, you’ll keep making the same busy season mistakes: you’ll continue burning out good staff and your leadership team will never build a sustainable and transferable firm. Effectively led firms envision the future and commit to providing the resources to build the skills and infrastructure that will be needed for years to come — not just to get through busy season.

Is your firm minimizing chaos and leading from the front? Or are you leading from behind? I'd love to hear about it.

Modernizing New Jersey’s Accountancy Act

On Jan. 8, 2025, Ohio Governor Mike DeWine signed into law a bill that provides more flexibility for obtaining a CPA license in the Buckeye State. Like Ohio, the NJCPA has been working on ways to ease the path to becoming a CPA without lowering the bar for licensure or compromising mobility. 

The shortage of accountants and CPAs is becoming everyone’s responsibility. The problem will continue to grow unless critical changes are made. It has already had a negative impact on all sectors of society that rely on the advice and services provided by accountants: the business community (small businesses in particular), individual taxpayers, governmental entities and the people who rely on CPAs for financial advice. 

What’s the situation in New Jersey? There has been a dramatic drop in the number of New Jerseyans graduating college with a degree in accounting, with a 25% decrease in the past five years. Although this has not received as much media attention as the shortage in other professions (e.g., teachers, nurses), it is just as alarming.

Currently, candidates must earn at least 150 credits (a bachelor’s degree plus 30 extra credits, or a master’s degree), gain one year of experience and pass the CPA Exam. While this option would remain, our proposal would offer an additional pathway, where candidates could replace the extra 30 credits by gaining two years of general work experience instead of one. This was the requirement until 2001 when New Jersey, and eventually all the other states, changed to the 150-hour rule, a well-intentioned but ultimately unnecessary barrier to entering the CPA profession. This is why, to date, 23 state CPA societies have stated their intention to pursue changes to their states’ licensing laws to allow the two-years-of-experience alternative pathway. More are expected to do so over the coming year. 

This change will encourage more accounting and business students to become CPAs by reducing the time and cost associated with obtaining initial licensure, all without compromising standards. Additionally, it could promote greater diversity within the profession. A study by MIT Sloan found that the 150-hour requirement for licensure led to a 14% decline in the number of new CPAs, including a 26% reduction in the number of minority candidates. 

The law affects existing interstate mobility laws by evaluating candidates on their individual professional status rather than what state they are licensed in. It’s important to note that the New Jersey State Board of Accountancy has endorsed the alternative pathway outlined above and has asked the Division of Consumer Affairs for their approval to move it forward. Other states’ accounting boards have done the same.

We are engaging with lawmakers who can help us pass legislation as soon as possible — before this crisis gets any worse.

The legislation will tackle real challenges head-on, paving the way for a stronger, more diverse CPA workforce while safeguarding the high standards that define New Jersey CPAs. 

As always, we’d like to hear from you at feedback@njcpa.org.

Accountants play a pivotal role in guiding businesses through their budgeting processes. A budget is not just a financial tool — it’s a roadmap for operational decision-making for the entire organization. With any size business, accountants can implement best practices that not only enhance accuracy and efficiency but also improve overall financial health.

Following are three key budgeting best practices that every accountant should consider and the risks involved: 

1. Understand the Business’s Goals and Strategy

Before diving into the numbers, it’s essential to understand the business’s objectives. A budget should be aligned with a company’s broader strategy. The best results come from collaboration between executive leadership, the finance team, operational managers and department heads. Each team brings unique insights into expected revenue, operational needs and potential risks. Including the right stakeholders ensures the budget is comprehensive, challenging yet realistic, and aligned with the organization’s activities.

• Risk: If a budget does not align with company strategy, it can result in a misallocation of resources and have a negative impact on both operational and financial performance.
• Best practice: Involve cross-functional teams early in the budgeting process and collaborate closely with key stakeholders throughout the process to ensure the budget supports strategic initiatives. Ensure everyone understands the financial goals and the role they play in achieving them, communication is clear and everyone has a voice in determining resource allocation. This inclusive approach will make it easier to execute the budget and align everyone with the company’s strategic and financial goals.

2. Focus on Cash Flow Management

While creating a detailed budget, it’s important to not only focus on profit and loss but also on cash flow management which requires an understanding of the balance sheet. Accountants are the key to this given their knowledge of how to bridge net income to net cash flow. Profitable companies often find themselves cash strained. Making sure to proactively budget cash flows is a way to get ahead of any potential issues or, in the case of a cash surplus, plan for new investment opportunities.

• Risk: Focusing on profit and loss will not identify whether investments can be funded through allocation of existing resources or will need additional financing.
• Best practice: Start by understanding how to bridge profit to cash flows. Focus on the key balance sheet components and how they may fluctuate based on factors such as customer payment habits, asset expenditures (e.g., building up inventory or investing in property, plant and equipment) or vendor disbursements. Clearly highlight key balance sheet assumptions in the model to help operations understand how different decisions could impact cash flow.

3. Ongoing Monitoring and Forecasting

A budget is not a one-time exercise — it’s a dynamic tool that requires regular review of actual results and updates to the budget known as forecasts. Actual versus budget results analysis is important to gain insights into variances. Forecasts are an effective way to reflect actual results and changes in circumstances that could impact full-year results and decision making.

• Risk: Not understanding variances or not being able to prepare a forecast as circumstances change could result in not mitigating future risks or missing opportunities for further growth.
• Best practice: When building the budget model, make sure it’s built at the same level of detail as actual results are recorded. If it’s not, either adjust processes on how actual results are captured or adjust the budget accordingly. Make sure to have the right resources to close the books timely and with a level of accuracy to make comparison of those results to the budget meaningful. Investigate all material variances whether positive or negative. It’s also important to make sure the budget is built in a way that it can easily be updated as results come in or assumptions need to be adjusted.

For accountants, helping businesses navigate budgeting effectively is not just about balancing numbers — it’s about enabling them to achieve their financial and operational goals and make informed decisions. By understanding the business’s objectives, focusing on cash flow and ongoing monitoring and forecasting, accountants can help business drive success.

Avoiding double taxation is a key item CPAs should be discussing with their clients. New Jersey residents earning income in other states may qualify for a credit on their New Jersey tax return to avoid double taxation. The credit offsets taxes paid to other jurisdictions and is limited to the lesser of the taxes paid to the other state or the New Jersey tax due on the same income.

New Jersey taxes all income its residents earn, regardless of the source. Residents earning income in states like New York or Pennsylvania often face complex multi-state filings. Proper planning, accurate documentation and understanding reciprocal agreements can help reduce tax liabilities and ensure compliance. Filing Schedule NJ-COJ with supporting documents, such as tax returns and proof of payments, is necessary to correctly calculate and claim the credit.

Credit Calculations

To calculate the credit for taxes paid to other jurisdictions, it’s essential to understand the key components of the calculation and how to determine them for each jurisdiction and tax type. Specifically, the following must be determined:

• Income actually taxed by the other jurisdiction
• Income properly taxed by another jurisdiction
• Income actually taxed by both New Jersey and the other jurisdiction
• Income taxed by New Jersey
• Actual tax paid to the other jurisdiction

A jurisdiction is any state in the U.S. other than New Jersey, a political subdivision (e.g., county or municipality) of any state other than New Jersey, or the District of Columbia. A taxpayer cannot claim a credit for taxes paid to the U.S. government, Canada, Puerto Rico or any foreign country or territory.

Income From New York

New Jersey residents who work in New York or earn other taxable income are often taxed on an amount less than their actual New York source income due to the deductions allowed by New York. Only the income actually taxed by New York should be used when calculating a credit for taxes paid to New York.

Taxpayers must file Schedule NJ-COJ and include their New York tax return (Form IT-203) and proof of withholding, such as W-2 forms. While this credit prevents double taxation, it may not eliminate all liabilities since New York’s tax rates are often higher than New Jersey’s.

Income From Pennsylvania

In contrast, income earned in Pennsylvania falls under a reciprocal tax agreement, meaning New Jersey residents working in Pennsylvania only pay New Jersey taxes on their wages. To benefit, residents should submit Form NJ-165 to their Pennsylvania employers and verify correct New Jersey withholding.

Non-wage income, such as rental or business income, remains taxable in Pennsylvania, requiring a non-resident Pennsylvania return and potential credits on the New Jersey return.

The reciprocal agreement does not cover the Philadelphia Wage Tax. New Jersey residents working in Philadelphia must pay this tax but can claim a credit on their New Jersey return by filing Schedule NJ-COJ with documentation, such as W-2 forms.

Proper Planning

Multi-state taxation can significantly affect a taxpayer’s finances, but proactive planning can help minimize its impact. Accurately filing Form NJ-COJ ensures that individuals receive the full credit for taxes paid to other jurisdictions, preventing double taxation. Understanding reciprocal agreements, such as those between New Jersey and Pennsylvania, can simplify filings and avoid unnecessary withholdings.

Individual retirement accounts (IRAs) are powerful tools for building retirement savings while enjoying valuable tax benefits. Whether used as a complement to an employer-sponsored plan, like a 401(k), or as a standalone savings vehicle, IRAs provide flexibility and potential growth to help secure individuals’ financial futures.

However, with several types of IRAs to choose from, deciding which account to fund can feel overwhelming. The two most common types of IRAs are Traditional and Roth, and each offers distinct features and advantages depending on one’s financial goals, tax situation and income level.

Traditional IRAs

A traditional IRA allows individuals to make pre-tax contributions, which may qualify as a tax deduction and reduce taxable income in the contribution year. For 2025, the annual contribution limit is $7,000, or $8,000 for those age 50 or older and eligible for catch-up contributions. These contributions grow tax-deferred, meaning taxes on earnings are postponed until the funds are withdrawn in retirement. Once an individual reaches age 73, they must begin taking required minimum distributions (RMDs), which are taxed as ordinary income. Traditional IRAs can be especially beneficial for individuals who expect to be in a lower tax bracket during retirement, as the deferred taxes could result in overall savings compared to paying taxes at higher rates during their working years.

Roth IRAs

Roth IRAs, on the other hand, are funded with after-tax dollars. While contributions do not reduce taxable income in the year they are made, the advantage lies in the tax-free growth of one’s investments. When funds are withdrawn in retirement, both the contributions and earnings are tax-free, provided that the account has been open for at least five years and the taxpayer is age 59½ or older.

For 2025, Roth IRA contribution limits are the same as those for traditional IRAs: $7,000 or $8,000 for individuals 50 or older. However, Roth IRAs have income limitations, with eligibility to contribute directly phasing out at $146,000 to $161,000 for single filers and $230,000 to $240,000 for married couples filing jointly. Unlike traditional IRAs, Roth IRAs do not require RMDs, making them a more flexible savings option for those who may not need to access their funds during retirement. This flexibility, combined with tax-free growth, also makes Roth IRAs advantageous for estate planning, as the account can continue to grow tax-free for heirs.

For high-income earners who are ineligible to contribute directly to a Roth IRA, the backdoor Roth IRA offers a valuable workaround. This strategy involves contributing to a traditional IRA and then converting the funds to a Roth IRA. To execute a backdoor Roth IRA, one must first make a non-deductible contribution to a traditional IRA using after-tax dollars and then convert the contribution to a Roth IRA, ideally within a few days, to minimize the chance of earning taxable investment gains in the traditional IRA before the conversion. When executed properly, the conversion incurs little to no tax liability. However, it is important to be aware of the pro-rata rule, which requires the IRS to treat all of a taxpayer’s traditional IRA accounts as one. For those who have pre-tax balances in other traditional IRAs, a portion of the conversion will be taxable. Timing also matters when executing a backdoor Roth IRA. While IRA contributions for a given tax year can be made until the tax filing deadline (typically April 15 of the following year), the conversion itself is taxed in the year it is completed. To simplify tax reporting, it is often best to complete the contribution and conversion in the same calendar year.

Weighing the Options

When deciding which IRA to fund, several factors should be considered, including one’s current and expected future tax brackets, income level and retirement goals. A traditional IRA may be the better option for those who expect to be in a lower tax bracket during retirement and want the immediate benefit of a tax deduction. Conversely, those who expect to be in the same or a higher tax bracket in retirement may see greater long-term advantages with a Roth IRA due to its tax-free growth. For high-income earners, the backdoor Roth IRA provides a way to enjoy the benefits of a Roth IRA despite income limitations.

There are some other important factors to consider. For example, Roth IRAs may be particularly appealing to younger individuals with a longer investment horizon, as they have more time to benefit from tax-free growth. Additionally, Roth IRAs are often preferred for estate planning purposes due to the absence of RMDs, which allows the account to grow tax-free for heirs. Market conditions can also play a role in timing Roth conversions, as executing the conversion during a market downturn may help reduce the taxes owed on the conversion amount.

IRA contributions for the 2024 tax year can be made until April 15, 2025. This deadline applies to both traditional and Roth IRAs, allowing individuals to maximize contributions even after the end of the calendar year.

IRAs are essential components of a well-rounded retirement plan, offering tax advantages and opportunities for long-term growth. The decision to choose a traditional IRA, Roth IRA or implement a backdoor Roth strategy depends on each person’s unique financial situation. With proper planning and execution, these accounts can help individuals achieve a comfortable and financially secure retirement.

The COVID-19 pandemic reshaped the nonprofit landscape, exposing vulnerabilities in financial planning while offering valuable lessons in adaptability and resilience. As CFO of Make-A-Wish New Jersey, I witnessed firsthand how strategic planning and financial agility can help navigate uncertainty. Here are five lessons learned from the pandemic that still work:

1. Flexibility in Budgeting is Essential

The pandemic demonstrated the need for dynamic budgeting that prepares nonprofits for uncertainty. Developing best-case, worst-case and most-likely scenarios provides organizations with a roadmap:

• Best-case: Plan to reinvest surplus funds into strategic initiatives like expanding programs or improving infrastructure.
• Worst-case: Identify cost-cutting measures, such as deferring non-essential expenses or reallocating resources.
• Most-likely: Use this as the foundation for routine operations, ensuring alignment with expected revenue and expenses.

This approach reduces reactive decision-making and ensures operational stability, even in a crisis. CPAs can support nonprofits by implementing rolling forecasts and scenario analyses that adapt to evolving conditions, fostering a culture of proactive planning.

2. Diversified Revenue Streams Provide Stability

The pandemic revealed the risks of reliance on a single revenue source. Diversifying income — through grants, individual donations, corporate sponsorships and digital fundraising — helps mitigate vulnerabilities.

CPAs play a crucial role in assessing revenue composition and identifying over-reliance on any single stream. By guiding nonprofits toward more balanced funding strategies, CPAs can ensure financial stability while aligning with organizational capacity and mission. Moreover, diversification strengthens donor engagement by appealing to various funding preferences.

3. Technology Is a Game-Changer

Understanding an organization’s technological capabilities is key to sustaining operations in uncertain times. During the pandemic, technology enabled nonprofits to shift to virtual events, implement online donor systems and deliver programs digitally — all while maintaining donor connections and continuity of services.

Investing in technology doesn’t just improve efficiency; it also positions nonprofits to remain competitive and relevant. CPAs can guide nonprofits in evaluating existing tools, securing funding for upgrades and assessing return on investment to ensure technology is used strategically to achieve mission objectives. A forward-looking technology plan is now essential for resilience in an increasingly digital world.

4. Reserves and Transparency Are Cornerstones of Resilience

Robust reserves and unrestricted investments proved invaluable during the pandemic. Endowments generate steady income to support essential programs, while unrestricted investments provide liquidity to address urgent needs. These financial buffers safeguard an organization’s mission and allow them to adapt to disruptions without compromising long-term goals.

Equally important is transparency with donors. Regular updates on financial health and program outcomes build trust and strengthen relationships. CPAs can assist nonprofits in crafting reserve policies, modeling financial scenarios and developing reporting frameworks that foster donor confidence.

5. CPAs Play a Role in Building Resilience

Nonprofits increasingly look to CPAs for strategic insights beyond compliance. CPAs bring a unique perspective that helps organizations optimize budgets, diversify revenue, leverage technology and strengthen reserves. By working closely with nonprofit leadership, CPAs can identify opportunities for growth and build financial strategies that ensure long-term sustainability.

In a rapidly changing environment, CPAs also play a pivotal role in helping nonprofits interpret financial data, evaluate risks and align resources with mission-critical priorities. Their expertise is instrumental in creating agile, resilient organizations prepared to weather uncertainty and seize opportunities.

The COVID-19 pandemic was a wake-up call for the nonprofit sector, emphasizing the need for flexibility, diversification, technology, reserves and transparency. These elements are not merely responses to past challenges but foundational strategies for building resilience and delivering long-term impact. As trusted advisors, CPAs are essential partners in this journey, helping nonprofits strengthen their financial health and navigate future uncertainties with confidence. By applying these lessons, organizations can ensure their ability to fulfill their missions and remain a vital force for good, no matter the challenges ahead.

In order to avoid paying federal (and often state) income tax on revenue generated by a nonprofit organization, the organization generally must affirmatively apply for tax-exempt status. The type of tax-exempt organization generally controls how much revenue can avoid tax under the federal tax rules. For example, an Internal Revenue Code (IRC) section 501(c)(3) organization may be exempt as a private foundation, which must pay income tax on net investment income, or as a public charity that avoids the net investment income tax. In total, there are 29 different tax-exempt organization types under IRC section 501(a), with 25 different categories found under section 501(c). Each organization type has different levels of tax-exempt status, but all may be subject to the unrelated business income tax (UBIT), which is a tax assessed on income that is generated by an unrelated trade or business.  

What Qualifies 

To fall under the unrelated business income rules, an activity must meet the following three requirements: 

1. Be considered a trade or business: There is no objective definition of what is considered a trade or business. Instead, the IRS looks at multiple factors to determine whether an activity rises to the level of a trade or business. An activity is generally found to be a trade or business if it is carried out in a business-like manner, and there is an expectation that the activity will generate a profit.
2. Be regularly carried on: To determine whether an activity is regularly carried on, the IRS will focus on the type of activity and the regularity required of that activity. For example, if an organization operates a store that is open every day with set hours, it would generally be found to be regularly carried on. In contrast, if an organization put on a one-time sale event at a local store to generate revenue, the “regularly carried on” factor would likely not be met.
3. Be substantially unrelated: When determining whether an activity is related to an organization’s exempt purpose, the organization must analyze the activity being performed — not what is ultimately done with the revenue generated by the activity. This analysis is very fact specific and may be challenging to determine. For example, an organization whose exempt purpose is the furtherance of the arts within a community may argue that putting on an arts festival annually is related to their exempt purpose. However, if an organization whose exempt purpose is to protect wildlife puts on an annual arts festival to raise funds, it becomes harder to link an art festival to the protection of wildlife.

Not all unrelated business activities will fall under the UBIT rules. For example, some income from investment activities — interest, dividends, capital gains and rental income — may be unrelated to the organization’s exempt purpose but are specifically excluded from the definition of unrelated business income for public charities and certain other organizations. In contrast, advertising revenue generated from a publication put out by an organization would generally fall under the UBIT rules due to its commercial nature. 

UBIT Reporting 

Once a charitable organization makes the determination that an activity falls within the unrelated business income rules, the organization must separately account for the revenue and expenses related to that activity. If the gross income from the activity exceeds $1,000, then the organization must file a Form 990-T to report the revenue and expenses and calculate any UBIT that may be owed. Each activity must be separately reported with its own tax calculation. If an organization invests in publicly traded partnerships or makes other investments that report unrelated business income, the income from these investing activities may qualify to be aggregated for reporting and tax calculation purposes. 

Form 990-T is due on the 15th day of the fifth month after the end of the organization’s tax year. An organization that has a year-end of Dec. 31 will need to file Form 990-T by May 15 of the following year. The organization may also apply for a six-month filing extension by submitting a request on Form 8868 on or before the original due date. Note that this extension is separate from an extension to file the organization’s Form 990, 990-EZ, 990-N or 990-PF. In addition, any taxes that may be owed must be paid by the original due date of the return. Payments are made electronically using the Electronic Federal Tax Payment System (EFTPS). Late payment and late filing penalties may apply if the organization misses these deadlines.  

Tax-exempt organizations should be cautious when engaging in activities that may not be substantially related to their exempt purpose. When an organization has a significant amount of revenue from unrelated business activities, the organization may owe a significant amount in tax or may even jeopardize its tax-exempt status.  

“If you want to stop losing money, stop performing.” This was my tongue-in-cheek advice to the artistic director of a nonprofit choral organization. Each concert cost them more than $10,000 over and above the ticket sales they took in.

The same is true for almost every nonprofit. So, stop doing what you exist for and your financial problems will be solved? Obviously, that’s not a great option.

As a CPA advising nonprofit clients, you’ll encounter this fundamental challenge: balancing mission fulfillment with financial sustainability. While “just stop” might technically solve their financial equation, it completely misses the point of why these organizations exist. Instead, here are some strategies to share with your clients for managing their cash flow while continuing to serve their mission.

1. Help Them Master Revenue Planning

Guide your clients to understand their revenue streams. Start by helping them identify their minimum guaranteed receipts — these are the funds they can count on with near certainty. This becomes their baseline for budgeting decisions.

Think of it as building a house: you wouldn’t construct the roof before ensuring the foundation can support it. Similarly, advise your clients not to commit to programming costs until they’ve secured their baseline funding.

2. Recommend Subscription-Based Donations

Show your clients how one-time donations are like catching raindrops in a bucket — unpredictable and inconsistent. Help them understand how subscription-based giving programs transform those sporadic raindrops into a steady stream. Research shows that donors typically give more through recurring donations, providing more-predictable revenue.

Help them develop different “membership” levels with appropriate perks, making it easy for supporters to see the ongoing value of their contribution.

3. Guide Them in Building Strategic Cash Reserves

Teach your clients that smart cash management isn’t about keeping all funds in a checking account. Instead, advise them to:

• Maintain only enough operating cash for one to two weeks of expenses.
• Move excess funds into reserve accounts that earn interest.
• During profitable periods, build an emergency fund.

Think of cash reserves like a squirrel storing nuts for winter — you need enough readily available for immediate needs, but the rest should be safely stored away for leaner times.

4. Implement a 52-Week Rolling Cash Flow Model

Your nonprofit clients often face dramatic seasonal swings in both income and expenses. Show them how a 52-week rolling cash flow model helps:

• Visualize their entire year’s financial patterns.
• Identify potential cash crunches before they occur.
• Plan strategies to smooth out the peaks and valleys.
• Make proactive rather than reactive financial decisions.

5. Optimize Workforce Strategy

Since staff costs often represent the largest expense for nonprofits, help your clients develop a tiered approach to staffing:

• Maintain minimal paid staff for critical roles.
• Build a robust volunteer program for support functions.
• Offer meaningful non-monetary rewards (e.g., exclusive access, recognition).
• Create clear paths for volunteer development.

Remember: volunteers aren’t free labor — they’re mission-driven supporters who deserve investment and appreciation.

6. Provide Additional Cash Flow Best Practices

Coach your clients on these fundamentals:

• Negotiate favorable payment terms with vendors.
• Accelerate receivables collection.
• Time major expenses to align with revenue peaks.
• Maintain strong banking relationships.
• Regularly review pricing structures.
• Explore grant opportunities strategically.

The Bottom Line

By implementing these strategies, you can help your nonprofit clients build financially sustainable organizations while fulfilling their missions. The key is to help your clients understand that financial sustainability isn’t about having the most money, it’s about having the right amount at the right time to do what matters most. With your guidance, your nonprofit clients can continue making a difference while maintaining fiscal health.

Remember: Their mission is why they exist, but strong financial management is what allows them to continue existing.

Here are the lessons I've learned in my first quarter century of working in public accounting — actually, it's been 27 years — but who's counting?

The day I started writing this was a Friday in the summertime. Fridays are much different than they used to be when I first started in this business. Fridays are now a day to catch up on emails, make phone calls, do some billing and do my timesheet. Then, when I am done with that, it's time to help my wife with some household projects, maybe get the dogs to the vet or work as a pool boy at the house. I was inspired to write this piece because of the negative press the accounting industry has recently received. 

The supply and demand dynamics in accounting have been a factor since I started in 1996, but they've worsened in recent years. I'm not sure if it's due to the 150 credit hours required to sit for the CPA Exam — or perhaps the misconception that a career in accounting means sacrificing your personal life. The latter is simply not true; with proper time management, you can achieve a great work-life balance in this field. Meanwhile, the evolution of industries like technology and alternative income streams has led to an inherent shortage of available candidates. Sometimes, I joke that if I were in my 20s today, I might just become a social media influencer. My family teases me because I tend to buy anything that's marketed well on Instagram.

The Early Years

The truth is, this business has afforded me an excellent life. My dad is a CPA, and I used to admire how quickly he could add numbers on an adding machine tape — his fingers seemed to fly! He inspired me to pursue a career as a CPA. I've dedicated a lot to this profession, which has given me so much in return. I started at a small firm making $22,000, then moved on to CohnReznick and EY before joining Wiss in 2002. Each step of my journey was influenced by connections I made along the way; for instance, I served coffee and bagels to the people who later hired me at CohnReznick while working at a deli during high school and college. That experience taught me the true meaning of customer service, and I still make a pretty mean egg sandwich! The deli owner once told me, "If a customer wants a fresh cup of coffee, brew a new pot."

Accounting Landscape

In recent years, that coffee example has been a good reminder about customer service. Firms have made significant investments to meet their clients' evolving needs. While many say that robots are coming, the reality is that this presents an opportunity for us to provide even greater value to our clients. Who has more data than we do? Clients will always need a trusted advisor, especially in today's fast-paced environment. As CPAs, we are their most trusted partners.

This is, has been — and always will be — a relationship business. Although it might feel more transactional today due to reduced time in the field and less face-to-face interaction through tools like Zoom and Teams, the essence of our work remains rooted in relationships. I encourage all of my teams to "walk the halls" of their clients. Even if you arrive with a light agenda, the conversation doesn't always have to focus on work. As we learned during the pandemic, human connection is vital in business. The more trust we build with our clients, the more they will choose to work with us; it's simply a fact. Ask yourself, do you want to be an order taker or a trusted advisor?

As I reflect on my time in this business, there are five pillars of success that come to mind:

1. Build Relationships

• Internal/External Client Service. Internal client service — working effectively with your teams — is even more crucial than external client service. Clients can't receive outstanding service from the firm without a well-oiled, cohesive team. It truly takes a village to serve a client in today's environment. The more team members you introduce to your client, the better their experience will be, leading to a more profitable relationship.
• Networking. Building relationships with your peers at the firm is incredibly powerful and should begin when you first join an organization. To this day, I'm still connected with those in my entry-level class. It doesn't solely involve networking with people outside one’s firm like bankers or lawyers.
• Leadership. It's never too early to start thinking about leadership and management. As a young associate, you may focus on executing tasks, but when you get promoted to manager, you will need to know how to handle relationships. Reading books and listening to podcasts on leadership and management, even at a young age, is a wise investment in your future.

2. Enhance Communication and Business Writing

• Becoming an accountant doesn't mean you can neglect writing and communication skills — quite the opposite. Effective communication and business writing are among the most critical skills for a successful public accounting career.
• Anticipate client needs. Like a skilled quarterback, you must be able to throw to the open receiver. Anticipating where the receiver will be at the end of the route is essential for building strong client relationships.
• Listen more than you talk. Listening is just as important as conveying your message.
• Have a long-term perspective. This business is a marathon, not a sprint. It's not a get-rich-quick scheme; it takes years of cultivating both internal and external relationships to achieve your professional and personal goals.

3. Create a Support System

• Don't bring work problems home. It's crucial to maintain boundaries between work and home life.
• Support your family. I've worked extremely hard during my 27 years in this field, but never missed any of my kids' games, school events or important milestones. With today's technology, it's possible to be flexible, nimble and responsive.
• Embrace flexibility. To be honest, I was practicing a flexible work arrangement long before it became a formal option.
• Seek out a mentor. I was fortunate to have a wonderful mentor at the firm. He was the best listener I've ever met. As I navigated my career, he allowed me to make mistakes while guiding me toward my long-term goals.
• Faith, family and firm. This motto guides my life. Regardless of your faith, having a spiritual presence has been one of the most profound influences on my success.

4. Develop Your GRIT

• Hard work beats talent. Hard work always triumphs when talent doesn't put in the effort.
• Ask for more when you're slow. When you have the capacity, don't hesitate to seek additional responsibilities.
• "Go into the tent." I coach my daughters' sprint track team for ages 13 to 15. At league championships, the tent is where the girls line up before their races. This is the moment when anxiety is at its peak; they all want to perform their best, but the anticipation can be overwhelming. Sound familiar? Once the race is over, they feel proud of their efforts, win or lose, knowing they ran their best. I encourage everyone to "go into the tent" in your own life — make that phone call, send that email or schedule that meeting. You won't regret it.
• Stay consistent. Regular physical fitness is crucial for both physical and mental well-being. Consistency is key to success.
• Prioritize mental health. I see a mental health professional every other week to maintain my mental well-being.

5. Obtain Lifelong Learning and Purpose

• At the beginning of my career, I thought I would do my two years in public accounting and then move on to a controller or CFO role. However, over the past 27 years, I've learned something new every single day. Early on in public accounting, I had the opportunity to interact with business owners and high-level executives, which was invaluable.
• In my 20s, I worked for a large international construction company in Queens, NY. The CFO made it clear that he would only answer questions at 7 a.m. I lived at my wife's mother's house, so I had to be up by 5 a.m. She was a school bus driver and would wake up early to buy me a bagel and coffee before I headed into Queens. It wasn't fun then, but looking back, I realize how that experience sparked something in me. I learned the importance of being on time and delivering results on budget, which instilled a sense of ownership and pride.
• I was an assurance specialist for the first 15 years of my career. Twelve years ago, the firm asked me to take over the real estate practice, which required a solid understanding of tax. At that time, I knew very little about tax, so I quickly sought help and asked many questions of my tax-expert colleagues. Today, public accounting offers numerous opportunities to pivot within the firm, whether in advisory, tax, assurance, or family office services.
• For the last few years, my daughter and I have raised money for a unique charity each year by running a 5K on Thanksgiving morning. Knowing that I am helping others, even if it's just a small contribution to a greater cause, gives me a sense of purpose.

It's especially important for those of us who have found success in this business to share our stories. A career in public accounting has provided me with so much; I've been able to support my family financially and never miss a moment. My son is an accounting major at the University of South Carolina, and I hope this inspires him as well.

I want to give a shout-out to my family, especially my wife of 22 years, Patti Narcise. Thank you for your unwavering love and support throughout this journey. I have three children: Alex (20), Abbey (18) and Avery (12). They are the most important people in my life.

There is still a long way to go in this business, but I am very excited about the future of the CPA profession and all its possibilities.

There is no shortage of articles, podcasts or webinars discussing the current state of accounting education, as well as what aspects should be changed to attract and retain students throughout the high school and college pipeline. In addition to these changes, the profession is in the midst of a dramatic technological shift, with tools such as blockchain, tokenized transactions and artificial intelligence (AI) driving change through every aspect of the accounting world. Educators and institutions of higher education find themselves tasked with not only trying to attract and retain students in the face of accounting pipeline challenges, but also trying to integrate these emerging topics and technologies into the classroom. And this is all while seeking to prepare students for a revamped CPA Exam that is both more personalized and more technologically oriented.

While sounding like being between the proverbial rock and hard place, this is actually an opportunity for something many educators have long clamored for: flexibility to experiment and the ability to not just teach from the text or to a certain exam. Let’s take a look at a few strategies that educators can implement today to better integrate technology topics with zero or almost zero cost to students.

AI-Driven Accounting Problems

One approach is to begin by explaining how AI is transforming the accounting field, particularly in areas like automating repetitive tasks, fraud detection and data analysis. Lectures can highlight the growing importance of AI in financial decision-making and how understanding these tools is becoming essential for modern accountants.

Professors can then introduce AI-powered accounting software, demonstrating the features in a classroom setting. Assignments can be designed for students use these tools to automate tasks such as data entry or tax calculation or to analyze large datasets to identify trends and anomalies. This hands-on approach gives students practical experience with the technology they will likely encounter in the workplace.

Some of the software options that provide free trials and/or educator versions for hands-on experience with AI include, but are not limited to, the following:

• QuickBooks provides a free trial with AI features for automating bookkeeping tasks.
• Microsoft Power BI’s educator licenses allow free access to AI-driven data analytics tools.
• MindBridge AI Auditor offers limited free trials, allowing students to explore AI in auditing.

Crypto Integration into Accounting Courses

Instructors can also incorporate case studies that demonstrate how companies are incorporating cryptocurrency in their operations and the specific accounting challenges posed, such as valuing crypto assets, recognizing revenue from crypto transactions and understanding tax obligations in different jurisdictions. The real-world adoption of crypto payments, including by firms with household names like PayPal, provides a wide range of information from which to construct problems, discussions and assignments.

Hands-on projects can involve students in using blockchain-based accounting systems or wallets, allowing them to record transactions using cryptocurrency. Simulated accounting exercises involving crypto transactions help students understand how to report and audit cryptocurrency holdings.

Students could also explore the regulatory environment surrounding cryptocurrency, examining frameworks like the Financial Accounting Standards Board (FASB) guidance on digital assets and the IRS rules for crypto taxation. Since all of these publications are publicly and freely available, these are also excellent resources from which both instructors and students can learn.

Additionally, several crypto wallet and service providers provide free demos or access that can be utilized, including the following:

• Coinbase provides free tools and a sandbox environment for trading and managing cryptocurrencies, including opportunities to take free course and earn crypto as a result.
• Cryptoverse offers free educational modules on cryptocurrency and blockchain for students.
• BitPay has educator resources on accepting and managing crypto payments for financial reporting.
• IBM SkillsBuild offers free access to courses, whitepapers and other learning resources.

Accountants and accounting educators are no strangers to integrating new technologies and tactics into work products; the newest batch of emerging technologies are critical to know and even more important to teach.