• CEO Compass - Spring 2023

    by Ralph Albert Thomas, CPA (DC), CGMA | NJCPA CEO and Executive Director | Apr 21, 2023

    The NJCPA’s Future is Bright

    As many of you know, I’ll be retiring on June 30 after serving as CEO and executive director of the New Jersey Society of CPAs for the past 23 years. I can’t express how much I’ve loved leading this organization.

    When I set out on this journey in 1999, I was laser-focused on meeting and talking to members. That hasn’t changed. Through hundreds of conferences, town hall forums, networking events, firm visits and more, meeting and becoming friends with thousands of Society members over the years has been a highlight of my career. It’s also one of the things that I’ll miss the most!

    It’s been an honor to lead this organization as we live out our vision, “To equip and empower New Jersey’s accounting and finance professionals to thrive in their careers.” Each and every day, we advocate for the profession and provide CPAs with meaningful education, information and ways to connect.

    As an organization, we’ve never shied away from addressing the challenges impacting the profession — or helping members navigate the change these professional issues necessitated.  

    I’m proud of the fact that the Society has established itself as a national thought leader in driving the future of the profession. Every step of the way, we’ve focused on promoting the value of the CPA, knowing that being successful as CPAs in the future means being prepared to navigate a fast-changing and increasingly complex business environment today. I know the next CEO will be just as committed to the Society and the profession.

    My parting request is that NJCPA members continue to support the NJCPA Scholarship Fund and the NJ-CPA-PAC. Both entities drive our profession forward and contributing to the Fund and/or PAC is one of the most effective ways to have an impact.

    While I won’t miss getting up at 5 a.m. and battling traffic on the Parkway, I will miss talking, debating and laughing with so many of you. I wish the Society and all its members nothing but the best in the future — a future that I know is bright.

  • How to Use Innovation as an R&D Tax Credit Calculation

    by Bruce Kletsky, FI Group, Inc. | Apr 11, 2023

    The research and development (R&D) tax credit can be a valuable tool for companies that conduct R&D, including the invention of patented products and processes. One of the rationales for patents is that they stimulate economic and technological development and promote competition by creating a financial motivation for invention in return for the disclosure of the invention to the public. The potential of the patent system has been widely recognized in the context of dynamic innovation activities.

    One of the major functions of the patent system is the dissemination of technical information. Patent information is a valuable and comprehensive source of technical, commercial and legal information that can be used directly for scientific and experimental purposes and as a basis for stimulating the adaptation and improvement of the technology described in patent documents immediately after their publication. Recognizing the importance of the dissemination of technical information, a growing number of IP offices and organizations are using the internet to offer access to their patent documents' databases.

    Considerations to Know About the R&D Tax Credit

    • It provides a 14-percent credit on qualifying expenditures.
    • The costs and legal fees for IP/patents are considered an R&D expenditure. Note that the R&D costs required to develop the idea being patented cannot be included in the capitalized cost of a patent. These R&D costs are instead charged to expense as incurred.
    • R&D is inherently risky, without assurance of future benefits, so it should not be considered an asset.

    The FI-Group is an international tax consultancy that specializes in the implementation of state and federal tax incentives and research and development (R&D) tax credits for corporations. The FI team consists of CPAs, engineers, IT, legal and business operation specialists. With more than 13,500 clients in 19 countries, their clients’ benefits exceed more than $2 billion in tax savings annually.

  • How CPAs Can Help Criminal Attorneys Evaluate Evidence and Tax Losses

    by Robert Nordlander, CPA, CFE, Nordlander CPA, PLLC | Mar 31, 2023

    “Guilty!” is heard often in federal court, whether the defendant is pleading to the charge or a jury is finding it as a verdict. In cases involving financial crimes, the main witness will be a government employee who is a forensic accountant testifying to the total financial loss.

    During the 2022 fiscal year, IRS-Criminal Investigation had more than 1,500 defendants who were sentenced in white-collar crimes. In almost every sentencing hearing, the federal judge will sign a court order requiring the defendant to pay restitution, which becomes a 20-year judgement against the defendant. This judgement allows the United States Attorney’s Office to find and sell the defendant’s assets to pay for the judgement. If the IRS was a victim in the criminal tax investigation, the court order will be sent to the IRS to be classified as a tax assessment, meaning that adverse IRS civil collection actions can be taken as well.

    On average, a criminal tax investigation will take 18 months to complete, and that doesn’t include the judicial process of indictment, arrest, trial and sentencing, which can add additional year or two to the process. In many criminal tax investigations, the defendant will need an expert with financial skills to help the criminal tax attorney and defendant. That’s where the CPA is invaluable to the defense team, because the CPA can assist the attorney in evaluating the evidence and independently calculate the loss and possible restitution.

    There are a few key areas where the CPA can bring value to a criminal defense attorney and the defendant:

    • Burden of proof is different. Calculating the tax loss in a civil audit is different than in a criminal prosecution. The main reason is the burden of proof on a civil audit is on the taxpayer and not on the government. If a taxpayer does not have the proper documentation for a charitable contribution, the IRS can deny the deduction and assess additional tax. In a criminal trial, however, the burden of proof is always on the government to prove the crime beyond a reasonable doubt, whether the allegations are bank robbery, money laundering, illegal drug sales or a criminal tax violation. A deduction on a tax return is assumed to be true until the government proves otherwise. Knowing this burden of proof, the CPA can properly evaluate the loss amount and not rely wholly on the government’s loss calculations.
    • 6020(b) calculations. The IRS is in the business of assessing and collecting taxes. When taxpayers don’t file tax returns, the IRS is allowed in its civil authority to estimate the tax due under Title 26, United States Code, 6020(b). And as you can imagine, the IRS will estimate the liability in their favor. If there are unfiled payroll tax returns, the IRS will assume a 20-percent federal income tax withholding rate. This is more than twice the average withholding rate. The estimated amounts under 6020(b) become the basis to calculate the tax loss, and restitution in criminal court. If a CPA is tasked with reviewing tax calculations, one of the first questions to be asked is if the IRS calculations are from the 6020(b) statute.
    • U.S. Courts can estimate loss. The federal government is not required to be precise in calculating the loss and restitution. The U.S. Sentencing Commission issues a report every year that advises federal judges on the appropriate sentence for various federal crimes. In white-collar crimes, the financial loss that is attributed to the defendant is the driving factor in determining the length of imprisonment. If a defendant falsified deductions or had unreported income, the courts are allowed to estimate the tax loss using a flat rate (28 percent for individuals, 35 percent for businesses) if a more accurate calculation is not available. The good news is that a more accurate loss calculation can be used if shown to the court.

    These three areas are where a CPA can bring value in litigation support in criminal tax cases. If hired, the CPA should review the tax loss through the lens of the government’s burden of proof, question the IRS’s calculations and, if possible, calculate a more accurate amount so that a federal judge doesn’t have to estimate the tax loss.

  • 8 Ways to Value a Privately Owned Business

    by Edward Mendlowitz, CPA, ABV, PFS, Withum | Mar 15, 2023

    There are many ways to value a privately owned business; there is no one “right” way. An appropriate method should be determined based on the reason for, and the use of, the valuation.

    Here are eight of the most frequent reasons for a valuation:

    1. Determining Fair Market Value

    Many people refer to a business’ value as its “fair market value” (FMV), but this is generally a misused term. Its derivation is from IRS Revenue Rulings which specifically address valuations for gift and estate tax purposes and do not necessarily provide a reasonable valuation for other uses.

    FMV is defined as the price at which property would change hands between willing and able buyers and sellers with neither being under any compulsion to buy or sell, with both parties having reasonable knowledge of relevant facts and both seeking their maximum economic self-interests. Implicit is that there are “hypothetical,” well-informed buyers and sellers that are able to complete a cash transaction and that the business would have been on the market for a reasonable period to allow market forces to establish a value.

    Further, if less than 100 percent of the business is being valued, consideration needs to be given to adjustments to the value for non-controlling and/or swing vote shares and any special difficulty in marketing those shares.

    There are limitations to this method when not all of the FMV requirements are met.

    2. Reviewing Standards in a Divorce

    There are varying methods for matrimonial issues that extend from what a business might be worth in an immediate sale, to what it would cost to recreate it, to what it is worth to the present owner, which are concepts not used in the FMV method. Matrimonial valuations arise in state courts with each state setting their own rules and judges many times deciding on the value in part by using their experience, knowledge and judgment.

    3. Selling the Business

    Valuing a business an owner wants to sell can be done, but few buyers will base their purchase price on a valuation prepared by the seller. The primary purpose of a valuation here is for the seller to get a sense of the value and guidance on how to address the negotiation process, help determine an opening price and a price for which they should try to settle for, or not sell.

    4. Buying the Business as an Investment

    This refers to the value of the business’ cash flow and future profits considering the buyer’s expectation of risk, return, potential and type of involvement by them. On some basis, most businesses are acquired with this in mind, but not all.

    5. Considering Job Value to the Buyer

    This method values the business in terms of the expected salary and benefits from working full-time in the business with return on investment a secondary concern.

    6. Analyzing for Strategic Value

    Included in this value are synergies and special features of the business that will add incrementally to a buyer’s current business and for which the buyer is willing to pay substantially in excess of the value based on traditional valuations. Here the price will be based on what’s in it for the buyer and not necessarily what the value would be to an investor or someone who will work in the business.

    7. Looking at Partners’, Members’ or Shareholders’ Agreements

    Different considerations go into valuing a business for a buy-sell agreement. And the agreement could have different valuations depending upon the reason a partner is leaving. Voluntary or forced withdrawal, retirement, disability, death, personal bankruptcy or losing a professional license can call for different methods of valuation. In these situations, either party could be the buyer or seller, and how the payments would be made could significantly factor in the valuation amount.

    8. Doing Financial Planning

    Many business owners want a value of their business when doing financial planning for their future, retirement or asset allocation. The valuation for estate or gift tax purposes would be at the FMV, but that might have no semblance of reality of what the seller could expect to receive as annual cash flow from the net after-tax proceeds of a sale.

    Valuing a business is an art — not a science — even though careful calculations are made to arrive at an appraisal of the business. The above indicates just some of the uses of a valuation and the considerations involved in the process.

  • 4 Ways to Avoid Peer Review Problems

    by Christopher R. Cicalese, CPA, MSTFP, Alloy Silverstein Accountants and Advisors | Mar 07, 2023

    The accounting profession is always evolving and updating the professional standards that practitioners follow when completing their work. Although there is no formula for perfection, as each engagement stands alone, below are four things that should be standardized in a firm to maintain quality work product:

    1. Have Proper Sign Offs

    Although a basic concept, having the proper sign offs is vital to maintain quality work and pass peer review. In the real world, an engagement may not necessarily follow the standard timeframe and could easily be derailed by a slight conflict. While things happen, it is important to remember that some procedures follow a specific timeframe especially during an audit. For example, planning does not happen after the workpapers are complete nor would final procedures be completed first. The proper order typically starts with engagement acceptance as well as planning and preliminary analytical procedures if applicable. This portion of documentation should be signed off first. The main procedures would be signed off next and then concluding with the final procedures such as final analytical if applicable. In the event that a practitioner does not sign off on their work in the proper order, it could give the peer reviewer the interpretation that they may not have designed their procedures based on the actual client.

    2. Obtain Documentation

    During an engagement, there is an expectation that the CPA will obtain the proper documentation to substantiate their findings. If the primary documentation is not available, the CPA should adjust their procedures accordingly. While going through standard procedures and completing programs and checklists, it is vital that the materials being used are up to date so that the proper steps are taken and suggested documentation is obtained. Often, the programs are intuitive enough to help guide firms to better complete the work to an acceptable professional standard as well as provide a knowledge base to ensure that a new standard is not overlooked by the practitioner. If a firm is not well versed in certain aspects of an engagement, some standardized programs provide detailed descriptions of the procedures to be taken in order to complete the section of work.

    3. Properly Identify Risks

    In relation to the first and second points, not following the proper order can often lead to improper testing and procedures. When incorrect or outdated standards are being followed, it is possible for a practitioner to assess risk as low but still perform the procedures similar to a high-risk assessment. Inversely, some practitioners could not perform enough procedures and have a risk assessment that’s too high. As this can be common in the industry, many standard templates included in software subscriptions provide some guidance on helping identify risks and figuring out what procedures to perform based on assessments.

    4. Leverage Continuing Education

    Lastly, all staff working on the engagements should maintain their proper continuing education requirements. If team members do not attend the proper accounting and auditing update courses each year, they are more likely to miss updates to prior standards. Different engagements and licensing may also require specific topics such as government accounting standards (GAS) or employee benefit plans (EBP). If someone doesn’t have the proper knowledge for an engagement and the practitioner is not able to get the proper staff to complete it, then it would not be appropriate to complete that engagement.

    While these mistakes may seem trivial, unfortunately many in our profession may inadvertently come across these issues at their firm. Not only is it important for leadership to be aware of these common issues, but each level of the team should be educated on what to do to make sure an engagement would pass peer review. Clients and users of financial statements have an expectation that the practitioner performed high-quality work when preparing financials, so it’s important for practitioners to not only avoid these issues during peer review year but maintain the same quality control from year to year.   

  • Demands for Flexibility, Remote Work and Compensation are High on Employee Wish Lists

    by Kathleen Hoffelder, NJCPA Senior Editor | Feb 28, 2023

    Worker demands for perks on the job are being met head-on by employers these days. Organizations that are eager to keep talented staff and lure potential new candidates to their offices are developing procedures and creating benefit packages that appeal to the masses, according to Frank Karlinski, a senior vice president at Robert Half on an NJCPA webinar earlier this month.

    Currently, he said, there are 11 million open jobs nationally, which is 2 million higher than during 2021. This, according to Karlinski, is “a huge jump.” In addition, the quit level, which is the number of people who are voluntarily leaving their job on a monthly basis, is at about 2.7 percent (4.1 million), which is high but down from the record highs over the summer at 3 percent, he added.

    With a national backdrop of a strong hiring market, low unemployment rate of 3.4 percent nationally and unemployment related to accounting and finance of a little over 2 percent, it’s no wonder that retaining people is a top priority, he said. Some of the lowest levels of unemployment are in financial planning and analysis (FP&A), corporate accounting, public tax accounting and audit, and some specific roles within accounting and finance, which are almost at zero unemployment.

    According to Robert Half research, national employers are attracting skilled workers by the following breakdown:

    • Higher starting salaries (46 percent)
    • Signing bonuses (34 percent)
    • Flexible work options (33 percent)
    • Hiring of remote candidates (31 percent)

    Compensation Trends

    A common hiring trend currently is employers having to offer higher salaries, he said. “Companies need to be proactive in addressing employee needs regarding compensation. If you are not doing this, you will lose people,” he said. “Signing bonuses is something where we’ve seen a pretty big uptick.”

    However, accounting and finance organizations, in particular, are faced with internal equity challenges such as people being hired at higher salaries than what the existing people at a similar level are making. “It’s absolutely a problem and absolutely something that companies need to be proactive in addressing,” he admits. “Sixty percent said existing employees have raised concerns about this. Eighty-two percent have given raises to those who raised concerns. If you are not doing this, from my experience in my day-to-day job, you will lose people.”

    So, how does an organization keep people? “It is challenging to retain people because the best people are sought after.” But, compensation helps, he admits, as does incorporating remote and hybrid work options. See table 1.  

    Table 1
    Hiring Chart RH

    Hybrid/Remote/Flexible Opportunities

    Allowing workers to use hybrid/remote work is a necessity in today’s market. “This is a differentiating factor that employers can offer, and should offer, but there’s a benefit to the employers too.” This applies specifically to remote options, but hybrid options as well, he said. “Flexible work is really no longer seen as a benefit that a company offers it; it’s more or less an expectation at this point.”

    And when that kind of work option is presented as too much of a bonus or benefit and not the norm, often employees come to consider it as one of the sole reasons they are working there at all. “Sixty percent of employees are working fully remote or on a hybrid basis at this point. I would argue in New Jersey that number is higher in accounting and finance,” he said, noting that within public accounting he has seen a huge increase in firms letting employees work in this manner. “It’s been a very useful tool in attraction and retention to employees, specifically in public accounting.”

    Flexible work schedules and altering times of the workday, such as time blocking and work blocking, are also popular. These have become so much in demand that, according to Robert Half data, more than 40 percent of the current workforce on a national scale is planning to find a new job looking for these attributes, he said. Similarly, more than 50 percent prefer a fully remote position, while 55 percent are open to hybrid schedules. These perks lead to an increase in morale by almost 60 percent, and greater productivity by more than 30 percent, he said.

    “There is a big difference being open to a hybrid environment versus a fully remote environment, especially when you are looking at specialized skillsets,” he said, noting that a hybrid employee limits the candidate pool to those who can commute. A fully remote employee gives employers the option to look nationally to fill that role.

    “Generally speaking, public accounting has lagged behind private industry in their willingness to have people work completely remote. I am seeing a lot more of it this season, but, as a trend, they are definitely lagging behind industry at this point,” he explained. 
  • Surprising Ways to Attract and Retain Talent

    by John W. Citti, CPA, CTP, Impacting Nonprofits LLC | Feb 27, 2023

    The January 2023 jobs report showed U.S. unemployment dropped to 3.4 percent, a 53.5-year low, and yet employers are struggling to retain and attract top talent. Compensation and advancement are always important incentives, but today’s workers, especially millennials, want more. They want employers with socially and environmentally responsible business practices and values. Here are several ways CPA firms and organizations can gain a recruiting edge, at little or no additional cost:

    Employer Actions

    • Bank and invest at a Community Development Financial Institution (CDFI). While low-income communities are underserved by traditional banks, CDFIs are driven to serve these areas through home mortgages, business loans and banking services. However, their small size limits the capital available to meet loan demand. By banking and investing at CDFIs, CPA firms and their clients provide new funds for CDFIs to lend which creates jobs, reduces the racial wealth gap and raises standards of living. Account deposits are FDIC insured up to $250,000.
    • Leverage long term investments for ESG. Endowments and other long-term portfolios can be invested in environmental, social and governance (ESG) funds which favor socially responsible investments. Investments made directly in stock (rather than mutual funds) give the investor the right to vote on proposals that seek to protect the environment and advance social issues. An employer’s votes show staff and the public where it stands on important issues.
    • Use sustainable finance. As Bloomberg reports, green bonds are a financing source used exclusively for environmentally friendly projects, such as energy efficiency, pollution prevention, green buildings and more. Sustainability-linked loans reduce the interest rate as the borrower achieves certain environmental or social goals. CPAs can advise clients that funding growth with these vehicles reduces expenses, while demonstrating their commitment to a sustainable and socially responsible business.

    Employee Financial Support

    Employers can empower staff to support causes important to them by use of the following:

    • Retirement plans. In Schroders’ 2022 Retirement Survey, 87 percent of respondents said they want investments aligned with their values, and 74 percent would increase their retirement plan contributions if ESG funds were offered. However, only 2.9 percent of retirement plans actually offer ESG funds, according to a 2020 New York Times article. Employers can help staff take action by adding ESG funds to their company plans and offering ESG funds in a broad range of asset classes, styles and company sizes, so employees can build a fully diversified ESG retirement portfolio.
    • Payroll withholdings. Companies can enable staff to make charitable contributions directly through payroll deductions. Chron.com shows you how.
    • Publicizing a matching gift program. According to Double the Donation, 78 percent of donors working for companies that match employee charitable gifts are unaware their employer provides this benefit. Only 7 percent of employees actually submit the matching gift request. Employers can increase goodwill by reminding employees their charitable gifts will be matched.

    Employee Social Action

    A Deloitte survey showed that 69 percent of employees want more opportunities to volunteer, but 62 percent cannot dedicate time during their workday. Providing paid time off to volunteer is a simple way for employers to show they share and support employee values.  

    Company volunteer programs could include:

    • Company volunteering day. Some companies send teams of volunteers to work at a nonprofit for the day. Employers can build enthusiasm for the program by allowing staff to select the nonprofit to support.

    • Individual volunteering. If a company volunteer day does not fit everyone’s schedule, employers can provide time to volunteer when it is convenient for the employee. M&T Bank allows 40 hours per year for volunteering.

    • Nonprofit boards. Many nonprofits lack board members with the finance, business development, communications, human resources or other skills that corporate employees possess. Encouraging staff to serve on boards enables them to create positive change.

    The benefits of volunteering are numerous. Studies show that volunteering lowers stress, improves mood and nurtures relationships which can reduce heart disease, stroke and depression. A Deloitte study also showed that volunteering improves morale.

    Employers benefit as volunteers develop skills in time management, leadership, communications and interpersonal relations that improve job performance and collaboration. Forbes reports that consumers want to patronize companies that are ethical, socially responsible and environmentally friendly. Thus, companies that are socially responsible can improve the world while gaining a competitive edge.

  • Why It’s Important to Motivate and Retain Staff Now

    by Kristin Nolan, Marcum | Feb 14, 2023

    According to a CNBC article, 4.2 million Americans voluntarily left their jobs last November. Given that the price of eggs rose about 60 percent in 2022, and the annual inflation rate was about 6.5 percent for the 12 months that ended December 31, 2022 (current US inflation rates: 2000-2023, USinflationcalculator.com), this job statistic surprised me a bit. As the cost-of-living surges past the verge of ridiculous, one would think that more and more people would be inclined to sit still in their cozy positions. But, as the article explains, 61 percent of U.S. workers are also considering leaving their jobs in 2023. Even the fears of a recession aren’t stopping individuals from seeking out other opportunities.

    Employee retention, therefore, is one of the biggest challenges that many organizations — including those in the accounting profession — are facing today. It's never been a secret that in the public accounting industry, there's a high turnover in staff, especially among the Big 4. Recently, even smaller firms are starting to see the trend of more and more people leaving for other opportunities. Today, more workers feel less loyal to their employers, and there is no real sense of commitment anymore. People want higher compensation, an improved work-life balance, flexible schedules, and more opportunities for career growth. Companies are starting to see employees that have been there for years quit because higher compensation opportunities or more flexible schedules are being offered. “Quiet quitting” is also becoming the new trend for many companies as well because of a lack of motivation to go above and beyond in job responsibilities.

    I decided to informally survey a group of 20 employees that work in public accounting, ranging from experienced staff to new managers, to try to find out what people value on their jobs. The results of the survey showed:

    • 90 percent were motivated by money, work-life balance and company culture.
    • 70 percent were motivated more by job satisfaction than they were by money.
    • 85 percent said that work-life balance was very important to them.
    • 70 percent said that they value compensation over recognition.
    • 100 percent said that growth opportunities are important to them.

    So, how can companies motivate and retain staff? It starts with an organization’s tone at the top and leaders getting to know their people. Here are important issues to consider:

    • Business leaders need to be asking their staff what motivates them, and what they are looking to get out of their careers. They should be investing in them and showing them that they are important. It’s essential to show your employees that you care about their success and their well-being. When employees feel appreciated and feel like they are valuable members of the team and that their work matters, they are motivated to work harder, and they perform better as a result.
    • While compensation doesn't seem to be a main driver for employees, it is still a pretty important factor. Better compensation can be a valuable tool for leaders to use to leverage high performers from going elsewhere.
    • Creating an open culture where employees feel like they are part of the solution helps drive success. People leave jobs for many reasons, but good leadership, and some basic concepts like investing in your people and showing them that you see their efforts can be the reason why people decide to stay.
  • 3 Crypto Issues CPAs Should Keep Top of Mind

    by Dr. Sean Stein Smith, CPA, DBA, CMA, CGMA, CFE, City University of New York-Lehman | Feb 09, 2023

    Accounting professionals have been attempting to provide quality information and services ever since cryptoassets became a mainstream financial instrument and asset class, but this has been an ongoing struggle. Due to the lack of authoritative accounting and audit standards directly connected to blockchain and cryptoassets, accountants have been seeking to provide solutions such as proof-of-reserves, proof-of-solvency practices and other services attempting to bring some much-needed transparency and reportability to the crypto space.

    With crypto still a new financial instrument, accounting practitioners need to be aware of delivery and expansion issues, such as the following:   

    Information Discovery

    The ease with which clients — individual and institutional alike — can now enter the crypto space can lead to extremely complicated tax and accounting requirements. There is also the very real possibility that 1) the client, 2) family members of the client or 3) individuals acting on behalf of the client have gotten exposure to crypto without any overt announcement or strategic shift. Drilling down, practitioners should be sure to ask the following questions:

    • Who has access to funds or trading accounts at the client?
    • What applications or accounts are connected to these accounts?
    • Are records and/or documentation from trading or investing activity available for review?

    Expanding the Potential Client Base

    It's no secret that as younger generations enter the workplace, move into leadership positions and obtain economic clout, technological and other factors accompany them. Millennials and Gen-Z, representing the largest age cohorts since the Baby Boomers, 1) are rapidly integrating in the workforce, 2) are going to be the recipients of the largest wealth transfer in history and 3) are almost universally positive toward virtual payments and currency options. For accounting firms and virtually any other business, appealing to these potential future customers while improving convenience and options for current customers makes perfect sense. Some specific factors and questions that advisors should bring up include the following:

    • What is the current payment mix for customers, and what is the cost profile of maintaining this payment structure?
    • Can conversations around the possibility of payments be raised with the current customer mix?
    • Would cost savings driven by crypto integration justify the expense of implementation?

    Crypto Vendor Management

    Crypto has had no shortage of issues, failures and bad actors, and all of these factors came to the front burner in a major way during 2022. From exchanges failing and fraudulent coin offerings to criminal activity leveraging cryptoassets, clients of all kinds are likely to ask significant questions. CPAs are well positioned to provide objective and reasonable advice in this area. Since practitioners are well versed in vetting and reviewing vendors in other areas, there are factors and considerations that can be leveraged into the crypto space as well.

    • What is the track of record of the vendor in question, and is there a public listing of existing clients?
    • Who is on the management team of the vendor in question, and is there public information regarding their past ventures?
    • Is there a way to test how crypto vendors, for payments or otherwise, will interoperate with existing technology tools?

    Cryptoassets are here to stay; that much is widely agreed upon by developers, investors and policymakers alike. Firms and practitioners must be up to date on changes in accounting and regulatory treatment to best advise both current and future clients.

  • 4 Tips for Offering New Services Without Being Salesy

    by Eileen Monesson, CPC, MBA, PRCounts, LLC | Jan 31, 2023

    Consultative selling is the best method that accounting firms can use to avoid coming off as being too salesy with existing clients. As a tool, it requires accountants to ask clients good questions, actively listen to the response, be empathetic and focus on solutions.  

    It is important to follow the 80/20 rule. Listen for 80 percent of the time and provide thoughtful solutions for the remaining 20 percent. The client will tell you everything that you need to know to make a sale if you take the time to listen. 

    Here are four recommendations for having successful consultative sales conversations:

    1. Discuss problems, needs, and wants. Ask open-ended questions to discover hot buttons, issues, challenges, needs and wants by:
      • Letting your client talk. The longer they talk, the more insight they will provide.
      • Asking open-ended questions to obtain a longer response to questions.
      • Listening intently and repeating back information to acknowledge that you understand and, if appropriate, agree with the client.
      • Talking about the client’s problem — not how wonderful you are.
      • Being prepared. Analyze the client’s key performance indicators (KPIs), historical data, industry trends and other relevant issues before the meeting.
    2. Present your solution. Once you have a solid understanding of what your client is looking for or what issue they want to resolve, present your solution(s) by:
      • Explaining how you and your organization can solve their problem or meet their needs.
      • Illustrating your points with anecdotes by telling stories about the solution you provided to a client with similar issues.
      • Focusing on the benefits they will realize by expanding the scope of the engagement. Paint a picture in the client’s mind of how it will be once the solution is in place.
      • Watching your client’s behavior as you speak. Then, ask qualifying questions in response to their body language and comments.
      • Allowing the client to ask you questions or provide feedback.
      • Asking closed-ended questions to gain agreement.
    3. Overcome objections. Expect objections and be ready to address them by:
      • Repeating the objection back to the client to ensure you understand them correctly.
      • Empathizing with what they’ve said and giving a thoughtful response.
      • Offering proof that you have the solution by presenting statistics to support your claim, telling a client success story, providing a report, earning designations and awards, etc.
      • Confirming that your answer has overcome their objection by asking the client if they agree.    
    4. Close the sale. The client will only buy or expand the scope of the engagement once you have presented a solution to their problem, educated them on the value they will realize and addressed all their objections. Ask yourself:
      • Does the client agree that there is value in your service?
      • Does the client understand the benefits of working with you in this area?
      • Are there objections that still need to be addressed?
      • Have you minimized the risk?
      • Are there other factors that could influence the decision to expand the scope of the engagement?

      You may have to provide several forms of proof that your solution is the best to convince the client to buy the service from you. For example, offer testimonials or references, articles from vetted sources, results of research studies and statistics on other clients' return on investment (ROI).

      If you’re not sure if the client is ready to close, ask the following questions: Would you like me to help you implement (solution)? Should we get started? Can I send you a new engagement letter?

      Selling is about helping a prospect find a solution to a problem. All you need to do is educate your client that you are the best solution provider. Approach the process as a consultant — someone genuinely interested in helping — and you will not come off as salesy. Instead, you will be considered a trusted advisor, or if you are exceptional, the client’s most valuable advisor.

  • Offshoring and Outsourcing Concerns

    by John F. Raspante, CPA, MST, CDFA, McGowanPRO | Jan 26, 2023

    The accounting profession has been plagued with staffing shortages caused by a multitude of retiring professionals, a gradual decline of new entries into the profession, the pandemic and other factors. Many firms are scrambling for qualified staff to fill vacancies and are turning to outsourcing and offshoring.

    U.S. Outsourcing

    Firms should be mindful of their respective state board rules, IRS rules and other standard-sending bodies’ rules regarding confidentiality if they outsource within the United States.

    In most cases, a disclosure of the use of third parties providing tax and accounting services will be required. The following clause can be considered in the firm’s engagement letter:

    We may, from time to time and depending on the circumstances, use certain third-party service providers and transmit information to them in serving your account. Such transmissions can include, but are not limited to, tax software providers for electronic filing, technical assistance, automated processing of tax forms, online backup services and file sharing services. We may share confidential information about you with these service providers, but we remain committed to maintaining the confidentiality and security of your information.


    Off-shore outsourcing requires strict adherence to IRS Code Section 7216. Tax preparers bound by 7216 should become familiar with the civil penalties outlined in code section 6713(a) and the criminal penalties outlined in code section 7216(a). The disclosure must:

    • Outline the purpose of the disclosure
    • Indicate the duration of the disclosure
    • Be signed
    • Be a separate written document

    Civil penalties from non-compliance are $250 per disclosure and cannot exceed $10,000 in any one year. Criminal penalties are one year of imprisonment and/or $1,000.

    Disclosure Guidance

    There is often confusion in the profession regarding when the disclosure is required, whether it has to be a standalone document and whether it can be inserted in the engagement letter. IRS  Revenue Procedure 2008-35 provides these answers and guidance with respect to other areas of concern.

    Essentially, the 7216 disclosure is required for individual tax filings. The disclosure must be in a standalone document. While the disclosure can be attached to the firm’s engagement letter, it must be a standalone document. See the Section 7216 Information Center on the IRS website for additional guidance to ensure adherence to the rules governing off-shore tax preparation.

  • How to Find the Secret Sauce in Your Firm’s Recruiting Process

    by Kevin Kurtz, Wiss | Jan 24, 2023

    Talent is the foundation and lifeblood of an organization. It is the most essential component for current and future sustainable success and growth. Firms that are successful at attracting talent have figured out the “secret sauce” in their recruiting process. But how do you differentiate yourself during the recruiting process?

    Candidate Experience

    It begins and ends with the candidate experience. This is all-encompassing and offers the candidate visibility into what he/she should expect if they were to join. This should consist of timely communication and engagement throughout the process, along with the opportunity to meet multiple employees at different levels (both tenured and newer employees) who are willing to share their experiences and offer their insights into your culture and organizational structure. Additionally, a streamlined interview process that minimizes gaps between interviews, is accommodating and yields a timely decision-making process is also key. You have one opportunity to get the candidate experience right. A favorable first impression is often the difference between the candidate selecting your firm or your competitor.    

    Understanding what candidates desire in a firm is equally important. Most candidates are motivated by several factors; how they prioritize them may differ. Candidates tend to concentrate on the following:

    • Inclusive culture
    • Compensation/benefits
    • Clear path for ongoing career advancement
    • Flexibility
    • Work-life balance
    • Sense of belonging
    • Feeling valued
    • Challenging work in a preferred discipline
    • Working in a growing, yet stable organization

    Organizations must understand what the candidate truly values in a job. The interview process presents an opportunity for both the candidate and the firm to perform due diligence on each other. It is a fact-finding mission that should be an open dialogue, not a Q&A.  Transparency by both parties significantly increases the likelihood of a successful hire.


    The candidate decides to join your firm, so the hard work is done, right? No. The real challenge lies in retaining your talent. How do the best firms retain employees? They deliver on what they advertised and promised during the interview process and more. If they fail to deliver on their promises, employees WILL LEAVE as trust is broken and it fractures any loyalty to the organization.

    Accounting firms with the lowest turnover demonstrate all or most of the following characteristics:

    • They are focused on successful employee integration. Performing check-ins within the first few months of the employee starting will help to ensure the experience has been favorable.
    • Leadership is invested in employees’ success and ongoing development (continued education/training and career mentorship).
    • Leadership shares a consistent and clear communication strategy around the firm’s vision.
    • Rewards and recognition are a key ingredient for retention.
    • There is a correlation between compensation, promotion opportunities and value derived. No employee wants to feel that the firm is squeezing the last bead of sweat out of them to improve margins.
    • They provide flexibility and a reasonable work-life balance, which lends itself to positive mental health. Employees value their life outside the office.
    • They maintain the optimal number of resources to ensure they are not over-burdening employees.
    • They hire the RIGHT talent (high integrity and empathetic people) who align with the firm’s culture; diversity, equity and inclusion (DEI) strategy; and overall core values. Employees notice the firm’s commitment to hiring talent.
    • They offer a pleasant environment. Employees want to work with people they like, and it helps with retention.

    Recruiting and retention are woven together in a tapestry, and the most successful firms excel at both.    

  • CEO Compass - Winter 2023

    by Ralph Albert Thomas, CPA (DC), CGMA | NJCPA CEO and Executive Director | Jan 04, 2023

    An NJCPA New Year’s Resolution

    Happy New Year from the NJCPA!

    This is the time of year that throngs of people — maybe even you — choose a list of resolutions for the next year. While adopting a resolution shows a wonderful sense of positive intent, a more practical alternative could be to simply set new goals for the future. Goals give you a direction to aspire to. And, with the baby steps you may be taking toward your goal, you can still feel like you’re on the right track, which will, in turn, keep you focused.

    With that in mind, I invite you to include the NJCPA in one of your goals. In the next few months, find one way to get engaged with us:

    Not sure where to begin? Start your engagement journey by filling out your Volunteer Interest Profile. Whether you choose to get involved to gain personal exposure, build your competencies, gain leadership experience or give back, you’ll find a meaningful way to participate in the NJCPA community.

    As with any professional association, we’re only as strong as our membership.

    Every voice counts, every recommendation moves the profession forward and every CPA benefits from our combined efforts. More than 12,000 accounting and finance professionals have chosen to join. These professionals understand our value as an association. They know they’re contributing to something greater than themselves and yet also receiving something in return.

    This is where I need your help and support. When you’re in a gathering of your peers, just ask, “Are you a member of the NJCPA?” If someone isn’t a member yet, see if they would be willing to have a conversation with me or one of our team members. Share positive stories with them. Tell a young professional why you joined. Explain how membership has impacted you.

    As always, thank you for your membership and continued support of the NJCPA. I look forward to seeing many of you at an upcoming meeting or event.

  • How to Alter Your Communication Style to Match Client Types

    by Rachel Anevski, MAOB, PHR, SHRM-CP, Matters of Management, LLC | Dec 29, 2022

    It is said that accounting firms have commoditized their services. Every firm can do “similar” compliance-type reports — tax returns and bank-required audits, reviews and compilations. But the difference, the unique competitive advantage, is YOU. You are selling yourself — and for you to be granted the ability to provide that commodity or service package to this new prospect depends entirely upon your ability to read and connect with them. And communication is the key to doing just that.

    Do you know your style? There are many types of communication tools like Myers-Briggs, Strengths Finder, ELI or DISC, which stands for Dominant, Intuitive, Steady and Conscientious. DISC is one of the leading programs to teach us about our styles of communication and how to recognize the styles of others. When you can recognize how others interpret communication, you can monitor your own behaviors, flex your tones, deliver your words more appropriately and come to decision-making with a better understanding.

    Here is an abridged version of how to use DISC with your clients:

    • Dominant type.“I before why?” This type is all about how something suits the individual. Dominants are driven by ego. They talk and walk fast and look good doing it. They are big-idea and bottom-line driven. They need to hear answers fast and delivered with confidence. They do not appreciate small talk; they prefer to get down to business. They are loud and proud, to the point, and can be abrupt and direct. They are leader oriented and typically in the roles of CEO or operations. You would recognize this type by how their office looks; a dominant prefers an “ego wall” (filled with accolades, accomplishments and “selfies”). Their biggest fear is being taken advantage of. The best way to sell to this type is to let them explain what they want first. Next, ask them to talk about how they envision the solution. Finally, quickly provide them with what they ask for and congratulate them on the win.
    • The Intuitive or team leader. “We before me.” This type wants to know how your solution can help the more significant “us.” They might take a while to stop talking before they are interested in what you are pushing. They generally enjoy getting to know you, and they like to talk about their team a lot. Often dubbed the “chatty Cathy” in the office, you will know them right away by their pictures of family and the way they show their love for people. Their biggest fear is not being heard or included.When you are ready to present to this type, be sure to become part of their team. Aim to be seen as collaborative, not unilateral. Provide them with details on how your solution makes the whole group more efficient. And don’t forget to get to know them first. The biggest sales tip when working with this type is to connect personally with them first. They rarely do business with someone they wouldn’t go to dinner with or bring home to their family.
    • The Steady Ready Eddies. These quiet and intelligent types are hard to read. They are most afraid of the loss of security. They want to hear words like guarantee, warranty, timeline, assurance and commitment. They do not like change at all but will change with consistent, constant reliability. They are your true supporter on a team and are notably dependable. You can identify them prominently by their clothes — mainly the firm logo — and their repetitive, systematic approach to completing tasks. Accountants are saturated with steadies; it’s a great profession to align with. It’s important to share the details of your proposal step by step, and then give them time to review and think about your proposition. If they haven’t responded to you, don’t take it personally. They aren’t ignoring you; they are thinking.Give the steady time to ask questions and respond, so schedule a follow-up meeting before leaving the initial discussion. Once they agree to your services, you can bet you’ve got a client for life.
    • The Conscientious. Just the facts, Jack! Unless you come with charts, references, guides, etc., you don’t stand a chance of winning this type over. They may not even give you a chance unless they’ve been referred to you by an old friend or a family member. This consummate introvert has difficulty balancing the heart and the brain; therefore, decision-making is tricky since they never want to be wrong. Often dubbed the perfectionist, they are slow to complete tasks, especially if it’s new, because they want to be sure it’s accurate. Fear of being wrong has this type gripped. This buyer, if engaged, already knows about you, your product and your company, so prepare for a quiet meeting of the minds. To be most effective with them, be respectful of their attention to detail and facts. Don’t share your emotions; stick to research and proof, and make sure you have back up. Signing a deal with this type may take several rounds, but if you can earn their trust, they will make you feel like the smartest salesperson alive.

    In a perfect world, the you you’re selling is your authentic self. But to be great at selling your services, you have to be better than just yourself — you have to change your behavior and adjust to the needs of your prospect. Half the battle is being heard. 

  • CPAs Beware: Proposed Legislation Would Impact Enforceability of Non-Compete and Non-Solicit Agreements

    by Jack Losinger, J.D., Saiber LLC | Dec 21, 2022

    For CPAs, restrictive covenants — in the form of non-competition and non-solicitation agreements — are part of life. Most firms, and most CPAs, understand that these restrictive covenants are enforceable to varying degrees. Currently, under New Jersey law, courts will enforce restrictive covenants as long as they are “reasonable” in duration, territory and scope.  Generally, the court will weigh the employer’s legitimate business interest against the hardship on the employee. In recent years, courts have generally trended toward not enforcing restrictive covenants, and in New Jersey, courts have utilized the “blue pencil rule” to narrow overly broad agreements to make them more reasonable. Thus, all CPAs and accounting firms should be aware of pending legislation that would statutorily limit the enforceability of non-competition and non-solicitation agreements. The pending legislation (A3715) would, among other things, make the following changes:

    • Limitations as to the scope of non-competition agreements. The legislation would statutorily limit the temporal scope of a non-competition agreement to one year and would limit the geographic scope to the state of New Jersey. This is significant to employees and businesses that provide services in New Jersey and neighboring states.Under the proposed legislation, if the employee works in Bergen County and provides services to clients in New York, a non-compete could only preclude him or her from competing in New Jersey. Additionally, non-competition agreements would not be enforceable against any employee who has been employed by the firm for less than one year.
    • Garden leave requirement. Under the proposed legislation, in order to enforce a non-competition agreement, the firm would be required to pay the employee 100 percent of his or her pay and benefits for the duration of the period of non-competition.
    • Creation of statutory cause of action against employers. Agreements that violate the proposed legislation would be declared void and unenforceable. Courts would no longer have the ability to “blue pencil” an overly broad non-compete in order to make it reasonable and enforceable. Additionally, employees would have a newly created statutory right to sue an employer imposing a “prohibited agreement.” The employee would be entitled to up to $10,000 in liquidated damages, lost compensation, damages, reasonable attorney’s fees and costs.
    • Non-solicitation. While the bulk of the proposed legislation is aimed at limiting non-competition agreements, it would also impact the enforceability of non-solicitation agreements. Specifically, non-solicitation agreements — agreements that restrict a former employee from soliciting business from the firm’s clients — would be unenforceable “if the employee does not initiate or solicit the customer or client.” This provision is extraordinarily vague and, if enacted, will likely lead to disputes as to whether former employees “initiated” the contact when they began providing service to their former employers’ clients.

    If the legislation is enacted it will not apply retroactively to existing agreements, but firms should be cognizant of the impact that it could have on the standard restrictive covenants that are often executed at the outset of a CPA’s employment.

    Note: The NJCPA is part of a statewide coalition that opposes this bill. While we support banning restrictive covenants used in an abusive manner, like unreasonable restrictive covenants placed on low-wage fast food workers, this bill is so broadly written that it would effectively ban them from all employer contracts.
  • What College Students Think About CPA Evolution and the CPA Exam

    by Sarah L. O'Rourke, CPA, Rutgers Business School | Dec 02, 2022

    CPA Evolution encompasses a new model for licensure and the CPA Exam that will subsequently necessitate some significant changes to our accounting programs. As accounting educators, we’ve been considering CPA Evolution for some time. The CPA Exam is due for an overhaul, and we are enthusiastic about the changes, but many questions remain about how best to incorporate these new topics into our programs. Curriculum changes aren’t always easy to achieve. And while we recognize the importance of the new material, we also grapple with the challenge of where to include the new material in a curriculum that is already jam-packed. 

    Accounting educators have been considering CPA Evolution for some time, but what about accounting students? Are they thinking about the new licensure model at all? Do they welcome the changes? Are they worried? To find the answers, I polled a few accounting majors at Rutgers Business School. Most of the students who responded to my inquiry were juniors and seniors — all of whom are likely to be affected by the new CPA Exam. 

    Here’s what I found out:

    • Students were aware of the new Exam but not focused on it yet — their familiarity with the new Exam was anywhere from “somewhat familiar” to “not so familiar.” They are likely waiting on more guidance from instructors or their chosen review course provider.
    • Students had a positive opinion about CPA Evolution and agreed the changes were necessary. Students appreciated that the new Exam will be more modern and adapted to the ever-changing profession. They liked the inclusion of more data- and technology-related topics. They also liked that they could specialize and become more skilled in an area that interests them.
    • At the same time, they also worried about the data and technology topics on the Exam. Despite students overwhelmingly listing technology as well as analytical and problem-solving skills as topics they welcomed, they were concerned their current accounting classes would not adequately prepare them for these new topics. This is a valid concern and perhaps a wakeup call for accounting educators. We also wonder what data and technology topics are most important since firms and companies vary in practice with what they use. In addition, some accounting faculty don’t feel comfortable teaching the data and technology subjects because their background is in accounting.
    • The students were concerned about the requirement to choose a specialty in the new licensure model. While they did appreciate the opportunity to become more skilled in a specific area of interest, students worried about picking the wrong section. What if their chosen specialty eventually was not a good fit for them? Deciding upon an area of specialty is difficult when you’ve not yet had the chance to gain much work experience. Students also wondered if firms might favor one section over another — would they favor a job candidate over another due to their selected specialty? They also wondered about choosing between a section that might be considered easier versus choosing a section that has more practical application.
    • Students showed concern about the availability of practice material for the new Exam. After all, who wants to be the first group to try out a new exam?

    In general, students did seem very optimistic about the new licensure model as well as the accounting profession as a whole. They viewed accounting as a rewarding career with security and opportunities for growth.

    The new CPA Exam will test candidates on knowledge required for a profession that has changed and will continue to evolve for years to come. A revised curriculum at the college level, based on the CPA Evolution initiative, will equip students with the skills expected by today’s accounting profession. While we aren’t 100-percent sure yet what that revised curriculum will look like, we know we are ready to meet the challenge — both accounting educators and students alike.

  • Artificial Intelligence: The Death Knell of Accountants?

    by Anthony Mongeluzo, PCS | Nov 28, 2022

    When discussing artificial intelligence (AI), many accountants have asked the fundamental question: Will AI replace me and threaten my practice or the firm I work for?

    A variant of this question has existed since the beginning of the personal computer. For example, before AI, questions arose about whether computers would eliminate accountants.

    Here’s the simple answer: AI will not eliminate you, but your role will change.

    Think about the impact of Intuit and Microsoft Excel on accounting. Even then, some doomsayers predicted the end of accountants. But you’re still here. Moreover, after overcoming any initial skepticism and learning curve, many fearful accountants could be heard muttering, “How did we do this before we had the software?”

    There are several changes that AI will bring about, but the most significant is the reduction of repetitive tasks. By automating many drudgery-filled duties like data entry, tax returns and banking, accountants will be able to become more strategic in their analysis. Becoming a strategic partner should increase your value to the CPA-client relationship.

    An AI Primer

    Think of AI as programs under the umbrella of computer science that can analyze a staggering amount of information at “lightning” speed using predesigned rules, algorithms and patterns. AI is “systems or machines that mimic human intelligence to perform tasks and can iteratively improve themselves based on the information they collect,” according to Oracle. Simply put, AI via computers or robots can replicate the work of humans.

    AI and Accounting

    The Bureau of Labor Statistics predicts 7-percent growth for accountants and auditors between 2020 to 2030. That suggests more work (and clients) for accountants.

    By automating tasks, AI can drastically reduce the time needed to finish everyday tasks that we have mentioned. For example, if you (or an assistant) only spend one hour per day committed to mundane work, instead of the usual three to four hours, you have freed up time for other projects. 

    The AI thrust is toward creative and strategic thinking. Less time spent doing or directing these tasks could create a window for an accountant to spend more critical (and billable) time on the tax code. AI could even help analyze summaries provided by the IRS or the American Institute of CPAs (AICPA) and the updates that your software will presumably incorporate.

    There are two other significant AI benefits. First, it will probably allow you to accept more clients without automatically adding to human staff. This is a substantial financial incentive. Second, the possibility of billing for your time and robotic time is even more exciting. (Yes, I know an accountant who boasts about this.)

    Accountants can also anticipate with a reasonable degree of certainty that AI could result in a positive unintended consequence: You might find yourself a little less stressed out during tax season.

    A View to the Future

    Some of my accountant clients ask me: “Anthony, what’s your take on AI?” Here’s my answer:

    • Remain current. Every profession urges practitioners to remain current. However, when applied to AI, it’s more than a platitude. You must be ready for changes, and accountants must stay current with technologies, including cloud computing, blockchain technology, big data and the Intelligence of Things (IoT). The intelligence of things (not the Internet of things) refers to integrating interconnected machines and devices with the software used.
    • Embrace learning. We’ve always paid a certain amount of lip service to being the perpetual student. Now, you might drown if you ignore this axiom. You don’t have to overwhelm yourself with emerging trends, but several reliable sources are necessary.
    • Look for the opportunity. Ask yourself this fundamental question: Is there an area of my practice I can now service because of AI that I refrained from in the past?

    Maintaining and Protecting Your IT System

    Supporting your IT operation will become more critical than ever before. This is not a self-serving analysis. IT is the umbrella under which your entire business operates. You must ensure its smooth operation remains current with changes and constantly protect your business from bad actors who might invade your network. Time has always been money, but now that truism has even more validity as reliance on IT and IA continues to increase.

  • NJ BAIT is Great, BUT What Are the Actual Savings for Your Clients?

    by Ralph Loggia, CPA, MST, Goldstein & Loggia CPA's, LLC | Nov 22, 2022

    Let’s say that a New Jersey taxpayer is self-employed, with a net taxable income reported on Schedule C of Form 1040 of $225,000. This person was referred to you because you are a CPA who provides value-added tax planning opportunities, and the current accountant only provides compliance work. Eager to impress and provide tax savings, you suggest that the taxpayer makes a New Jersey Business Alternative Income Tax (BAIT) election.

    This seems like a no brainer at first, because the BAIT was put in place by New Jersey to help those taxpayers impacted by the federal $10,000 state and local tax (SALT) deduction limitation. However, before adopting BAIT, an analysis should be provided so the taxpayer can make an informed decision.

    By the Numbers

    In this example, by reviewing the 2021 tax return, the federal tax rate was 27 percent and the income is expected to be same as last year — or “SALY” for the accounting nerds. Their $225,000 income multiplied by the New Jersey tax rate of 5.68 percent and by the federal tax rate of 27 percent provides a tax savings of $3,450.

    The taxpayer is happy, but is that really the savings to the client?

    As a CPA, include the following additional costs for year one of this tax strategy:

    • Applying for a federal Employer Identification Number (EIN) and forming a taxpayer and spouse LLC in New Jersey: $750
    • NJ LLC initial filing fee: $125
    • Fee for making the BAIT election: $250
    • Preparation fee for the LLC and BAIT tax returns: $1,000

    If the taxpayers chose to engage an attorney to draft an operating agreement, this would represent an additional fee. In this case, since the members are married, they decided to pass on an agreement.

    This leads to estimated tax savings after additional costs in year one of $1,325.

    In year two and going forward, estimated tax savings would be $2,450.

    Presenting this sort of breakdown to a client provides a more accurate description of the potential net savings when considering the BAIT election. Based on the facts and circumstances, it could make sense to elect S corporation status and then include the fee for adding the taxpayer to payroll. This includes the filing of federal and state quarterly payroll reports, year-end reports and obtaining workers’ compensation insurance, all of which needs to be factored into the net savings to the taxpayer. If the decision to elect S corporation status is made after the due date (75 days from the beginning of the year), there is relief available at both the federal and New Jersey levels. Then, subtract $100 from the savings analysis for the retroactive, late New Jersey S-election.

    Taxpayers who already have an existing partnership or S corporation do not need this analysis since most of these costs either do not apply to them or have been already accounted for.

    BAIT Rules Recap

    A single-member LLC and a sole proprietorship may not elect to pay the BAIT, as only a pass-through entity, such as an S corporation or a multi-member partnership, are permitted to do so.

    As a workaround to the $10,000 SALT deduction cap for individuals that included in the Tax Cuts and Jobs Act (TCJA), many states, including New Jersey, enacted pass-through entity (PTE) taxes as an elective tax. The IRS issued Notice 2020-75, which clarified that partnerships and S corporations may deduct their SALT payments at the federal entity level when computing taxable income or loss.

    There are some other considerations to keep in mind: 

    • New Jersey requires the BAIT election to be made annually. If the election is made, but later determined that the election should be revoked, file the revocation and claim for refund form, and the entity will receive any estimated tax payments made.
    • Quarterly estimated tax payments are needed. Otherwise, underpayment penalties can be assessed.
    • BAIT payments reduce the Sec. 199A qualified business income deduction as well as the amount that can be contributed to a SEP-IRA and other retirement plan options. Consider a solo 401(k) over the SEP-IRA since New Jersey permits a deduction for the 401(k) but not the SEP-IRA.

    Ultimately, the tax savings are the most important factor when deciding whether electing BAIT makes sense, but they are not the only factor, as there are other costs. The higher the taxable income, the easier this decision becomes. What is the income amount needed? As with determining the reasonable compensation for an S corporation owner, it depends. The CPA plays a vital role in answering those questions.

  • How Finding Your Voice Helps to Articulate Your Message

    by Eileen Monesson, CPC, MBA, PRCounts, LLC | Nov 03, 2022

    Finding your voice is essential for professional success. Whether in a meeting or giving a presentation, you will earn the respect of your organization’s leadership and your peers if you can clearly articulate your points. To find your voice, try listening to others with strong voices and see how they communicate. You may notice that they have similar communication styles and techniques. Here are some tips to find your voice:  

    • Develop a strong tone. When delivering a presentation, a clear voice is essential to communicate your message. The tone of your voice reflects your attitude, so it's vital to learn how to control it to sound confident. Practicing this skill is key and can help you overcome common communication barriers. When you’re nervous or excited, the vocal cords tend to shorten and tighten, making it challenging to produce an engaging, energetic and interesting speech.
    • Use volume to emphasize points. Using volume to emphasize the most important parts of your speech is necessary to ensure your audience can hear you. Avoid a monotone voice and try to vary the volume of your words. Speaking at a constant volume is tedious and can put your audience to sleep.
    • Avoid pitching your voice "up" at the end of sentences. Doing so makes your sentences sound as if you are asking a question. This can be distracting and disorienting. It makes you appear uncertain and like you seek approval, which undermines your credibility. Instead, it is best to keep your pitch even and your sentences interesting.
    • Avoid shouting. Raising your voice is rude and may backfire. You should instead speak clearly and distinctly. Try to face and look directly at the person you are talking to. Another good tip is to use appropriate gestures to make your point.
    • Be aware of body language. Confident people often have a relaxed and expansive physical presence. This is especially important when presenting or giving a speech because it helps people respect you and pay attention to what you are saying. Developing good body language is a great way to boost your self-esteem. Remember, your posture is important when you want to project authority. Letting your shoulders slump or slouch will give the impression of fatigue or low self-esteem.
    • Avoid Using Filler Words. People use filler words (“um,” “like” or “you know”) when they are nervous. Try to avoid saying these words. Instead, take a silent pause to collect your thoughts. Filler words are distractive and diminish your credibility.

    One of the most impressive people I have worked with mastered communications skills early in her career. She could captivate the room and clearly articulate her point of view. Although she was in her early 20s and had no experience, leadership listened to what she had to say because she was confident. She did her homework, knew what she was talking about and believed what she was saying. Even though she had just graduated from college at the time, the managing partner gave her opportunities that the others in her cohort could only dream about. Many of you know this woman. She is Sarah Krom, CPA, MST, managing partner at SKC & Co. CPAs, L.L.C., and a past NJCPA president. Sarah is a shining example of someone who found her voice which helped her achieve much professional success.

  • Why Bank Deposit Rates are So Low and Where to Find Better Rates

    by John W. Citti, CPA, CTP, Impacting Nonprofits LLC | Nov 02, 2022

    The Federal Reserve has increased the federal funds rate at a rapid pace this year to contain inflation, but banks have not responded with higher interest rates on certificates of deposit (CDs) or money market accounts. Clients may be asking their CPA to explain the disconnect and, more importantly, where they can earn better returns on cash holdings.

    As of this writing, CDs maturing in one month pay as little as .01 percent to .05 percent. According to my research, the highest money market account pays .60 percent, but nothing comes close to the current federal funds rate of 3.75 percent. Why aren’t bank deposit rates higher?

    The reason is supply and demand. Banks are flush with cash now and are unlikely to increase their deposit rates significantly until they need cash. Banks are holding large cash balances because of the pandemic-induced recession two years ago. Home-bound consumers reduced purchases and many received stimulus checks that they deposited into their bank account. Many small businesses closed, reducing demand for business loans, and the Federal Reserve added money to the banking system to restore growth in the economy. The economy has recovered, but banks are still holding large sums of cash.


    Do your clients have alternatives to near-zero interest rates on bank CDs and money market accounts? Fortunately, the answer is YES! Attractive rates from ultra-safe investments are available. But first, there are a few important considerations to make when choosing where to invest short-term funds. These include:

    • Safety. When I was a fixed income portfolio manager for a large software services company many years ago, my treasurer was fond of saying, “Return OF investment is far more important than return ON investment!” He meant don’t let high interest rates fool you into making risky investments. If the issuer can’t repay the principal, you lose money regardless of the promised interest rate. The question becomes, how do you determine if an investment is safe? CPAs should remind clients to thoroughly research investment opportunities. Start with the free bond ratings available from Moody’s, Standard & Poor’s and other bond rating agencies. The top long-term ratings are Aaa for Moody’s and AAA for Standard & Poor’s, and the best short-term ratings are P-1 and A-1, respectively. The full range of ratings with explanations is available on each of these websites.
    • Liquidity. A study conducted in March 2022 by the Association for Financial Professionals found that treasurers managing corporate cash investments consider liquidity as the second most important factor behind safety when making short-term cash investment decisions. Finance managers need access to cash if revenues unexpectedly fall short. For this reason, short-term CDs, money market funds and Treasury Bills are popular among money managers because they provide access to cash in maturities ranging from one day to 12 months.
    • Yield. Where can your clients find all three features — safety, liquidity and yield? Typically, debt securities of the U.S. government pay lower interest rates than commercial banks and corporate debt because they are considered “risk free.” However, in today’s environment, Treasury Bills (U.S. federal short-term debt with maturities up to 52 weeks) pay significantly more than most commercial bank deposits. Recent Treasury Bill rates start at 3.6 percent for four-week maturities and increase to 4.5 percent for 52-week maturities. Purchases are simple. Individuals and companies can buy Treasury issues on TreasuryDirect.gov without a broker. The principal is withdrawn directly from the client’s bank account on settlement date and returned with interest on the maturity date.

    CPAs can make their clients aware that today’s economic conditions have created an unusual opportunity to earn attractive yields from ultra-low risk, short-term U.S. Treasury Bills that pay higher rates than many alternative higher risk investments.