Category: News

Gourmet meals. Luxury villas. Dope music. Private jets. All on a secluded Bahamian island – sounds pretty epic, right?

Fyre Festival, the brainchild of tech entrepreneur Billy McFarland and hip hop artist Ja Rule, was expected to be an out-of-this-world, glamorous music festival. At least that’s how it was sold on social media – until festival-goers arrived on the island to find prepackaged sandwiches instead of celebrity chef-cooked meals, FEMA tents in place of the luxury villas…and no music. Needless to say, no one was happy after dropping up to $12,000 per ticket to be there.

The recent Hulu and Netflix documentaries (a drama in and of itself) shed light on the event and the people who ripped off ticket buyers. You might be asking yourself, “What does this #firstworldproblem have to do with personal finances?” Read on for three lessons you can learn from the failed Fyre Festival. 

Stop trying to “Keep up with the Joneses”

A survey the AICPA conducted found that one in four social media users feels envious of friends who boast on social media of lavish vacations and purchases and admitted that they post things solely because they seem fancy and expensive. It makes sense that some might have bought a ticket to emulate friends or influencers– even though it was beyond their spending means. Luckily, there are some ways to reel in this behavior, like limiting your time on social media or using apps that can help you control your spending.

Do your research

How do you know if something is a scam? Research, research, research. If something sounds unbelievable, it probably is. Before you drop a pretty penny on festival tickets, or invest in the “HOT TECH STOCK THAT WILL SHOCK YOU,” check out articles from trusted sources or, even better, consult a CPA. They can help you figure out how to make sound financial decisions that work for your life.  

Understand the power of influencers

In 2017, the worldwide Instagram influencer market value was estimated to be $1.07 billion dollars and is expected to more than double in 2019. So it’s no surprise that many companies turn to influencers to market their brand and products. In the case of the Fyre Festival, this turned out to be a dangerous game. Celebrities like socialite and model Kendall Jenner and model Bella Hadid, who have a combined Instagram following of 124 million, posted about the festival, promoting it as extremely glamorous. Unfortunately, many people didn’t know the two were being paid to post and wouldn’t actually be attending.

Even though a good chunk of influencers only promote what they’ve tried and liked, the same does not go for all of them. Before you click “add to cart,” check out their post and see if there’s an ad hashtag (#ad). They’re required by the Federal Trade Commission to disclose this information, but some influencers can be sneaky about it. Ultimately, make sure who you follow can be trusted — or else you’ll find yourself wasting money on impulsive, low quality purchases.

Moral of the story…even though Fyre was a failure, doesn’t mean your personal finances have to be.  

Samantha Delgado, Manager – Communications, PR & Corporate Responsibility, Association of International Certified Professional Accountants

     

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We live in a time when numbers are getting so large that they begin to lose meaning. Understanding just how large one million is, is hard enough; when it’s a billion? A trillion? How about 30 trillion?

We’re seeing the largest transfer of wealth in history, as $30 trillion passes to the next generations from the baby boomers over the next two decades. Those estates come in sizes big and small, but they all have one thing in common: taxes. 

In the Tax Cuts and Jobs Act (TCJA) that took effect last year, the individual exclusion from gift/estate and generation-skipping tax was temporarily doubled, and in 2019 now stands at $11.4 million. That means a married couple has an exclusion of $22.8 million to use during their lifetime or at death. Before you go thinking that means estate taxes won’t affect the vast majority of clients, think again: the state your clients live in might not conform to the federal exclusion. It’s important to understand the major tax considerations in estate planning.

The exclusion is doubled through 2025

This applies to the estate, gift and generation-skipping tax through December 31, 2025, and is adjusted annually based on a chained CPI calculation. Above the new exclusion, a flat 40% tax is imposed. There are rumblings about making the exclusion permanent, but for now the smart move is always to work with a plan under existing law.

Basis step-up

The ability to adjust the tax basis of an appreciated asset to current market value at the time of the benefactor’s death is still a valid strategy. This vital tax-saving move can reduce capital gains taxes significantly, or eliminate them entirely, depending on when the beneficiary liquidates the bequest and its final sale price.

State conformity

A major consideration is whether the client’s state conforms to federal law. Some states’ exclusions are considerably lower. Additionally, some states have inheritance or gift tax that could affect your client’s taxes, so being familiar with the law in the client’s state is imperative.

Annual exclusion

The annual exclusion doesn’t count against the individual exclusion, and so is a good strategy for drawing down value without incurring taxes. For 2019, an individual may gift up to $15,000 each to as many people as he or she wishes. That means a married couple can give each of their living children up to $30,000 annually, making this a good way to help reduce estate and inheritance taxes over a long period of time.

Portability

Using a deceased spouse’s unused exclusion can be very helpful for wealthy clients. It’s important to make the election on form 706 in the year of the spouse’s death in order to transfer the unused exclusion to the living spouse. Keep in mind that this cannot be applied to generation skipping transfers.

To hear more about estate planning and taxes for your wealthy clients, listen to my podcast.

There’s more to consider

Of course, most of your clients won’t reach their lifetime exclusion, and precious few will be wealthy enough to need both spouses’ lifetime exclusions. That doesn’t mean your concern about taxes in estate planning goes away.

From the moment of death, the clock starts ticking on your client’s assets. For a basis step-up to provide maximum benefit to their beneficiaries, you want them to have possession of the assets as close to your client’s date of death as possible. Not having a will could significantly delay the transfer of assets to the beneficiaries, potentially costing them in capital gains tax. So make sure you talk to your clients about having an up-to-date will.

Another consideration is the unlimited marital deduction. The entire estate, regardless of value, can pass tax-free from a deceased person to their spouse. The two most popular ways to do this:

• Outright transfer—simply give assets to spouse.
• Qualified terminal interest property (QTIP) trust—set up to allow the first decedent’s directive to control the ultimate beneficiary of an asset under control of the surviving spouse once the surviving spouse dies. In the meantime, the surviving spouse draws income (and potentially principal, depending on the trust).

Transferring assets in this way must also cede control of the assets to the surviving spouse (or Trustee of a QTIP trust).

No matter who your client is or how much their estate is worth, they are counting on you to minimize their tax exposure and maximize what they have to pass on to their loved ones. If you want to hone your estate planning skills and demonstrate your mastery to clients, check out the Estate Planning Certificate available now through the AICPA Store.

Lisa R. Featherngill, CPA/PFS is the head of Legacy and Wealth Planning at Abbot Downing. She leads a team of experienced and credentialed professionals who provide traditional planning in a unique way to align with family governance, history and education programs that reflect clients’ values, priorities and goals. Lisa has provided tax and financial planning services to affluent clients and families for almost 30 years.

     

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I’ll go ahead and say it – every entrepreneur should hire a CPA. And no, I’m not just saying this because I work for the AICPA. As host of The Small Biz Brunch podcast, I’ve had the pleasure of chatting with many successful business owners – and the majority say how they couldn’t have done it without their CPA. And if someone didn’t use one, they definitely wish they had. 

Read on for three good reasons why entrepreneurs should consider hiring a CPA: 

CPAs free up time for entrepreneurs to actually focus on their business. I could be wrong, but I’m sure most aspiring entrepreneurs would prefer having the time to bring their vision to life, instead of poring over finances at all hours of the night. Business owners are expected to wear many hats, but that doesn’t mean certain tasks should take the place of fueling a company’s success. Tapping into the expertise of a trusted adviser, like a CPA, can alleviate the pressure to know everything. 

Entrepreneurs wouldn’t have to read up on all the changing tax laws. Not sure about everyone else, but I’d rather leave reading line after line of tax code to the pros. The ever-changing laws make it difficult for anyone to keep up, let alone someone who is trying to create a business. Luckily, CPAs know their stuff.

They can talk to a human who cares. If I polled all entrepreneurs, I’m sure they’d say that talking to a human is way better than a generic software that lovingly knows them as EntrepreneursRule4Life@gmail.com. A CPA doesn’t just address people by their name, but they also have in-depth knowledge of different industries enabling them to provide trusted, sound advice. 

For more ways CPAs can contribute to entrepreneurs’ success, check out cpapowered.org. And don’t forget to tune in to The Small Biz Brunch, a weekly podcast powered by AICPA and #CPApowered.

Samantha Delgado, Manager – Communications, PR & Corporate Responsibility, Association of International Certified Professional Accountants

     

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Throughout 2018, you heard a lot about the changing accounting profession. The biggest driver behind all this change? Technology—what it can do for us (or to us), how to use it and the opportunities and challenges it presents.

We’re using emerging technologies to deliver our core services more effectively and efficiently, and we’re evolving the services we offer to better meet the public’s, our clients’ and our employers’ needs in a technology-driven marketplace.

And so, a couple of questions arise: Are the public, our clients and our employers better served if the CPA license and licensure process evolve to better reflect the changing marketplace? If yes, what does that look like? The National Association of State Boards of Accountancy (NASBA) and the AICPA have joined forces with state regulators, state societies, practitioners and other stakeholders to figure it out.

The new CPA Evolution initiative

Last year, NASBA and the AICPA launched the CPA Evolution initiative to explore ways to evolve CPA licensure to integrate technological and analytical expertise. Our goal: Continue to protect the public interest in an evolving marketplace that recognizes the importance and increasing use of technology and analytical skills in our core CPA services.

We began consulting with a variety of stakeholders asking questions about whether:

• Current college curricula adequately prepare CPA talent for required expectations within firms and businesses.
• The Uniform CPA Exam is testing the right competencies and skills.
• Current experience requirements are reflective of quality services.

After initial stakeholder discussion and feedback, NASBA and the AICPA formed a working group to consider the feedback received and advise on a path forward. The working group consisted of representatives from across the profession: state boards of accountancy, CPA firms of all sizes from states of all sizes, state CPA societies, academia, the business community and NASBA and AICPA volunteer committees, to name a few. We put this diverse group together because we know that, to get this right, we need to consider and include many different perspectives. We want everyone’s voice to be heard and everyone to be involved in creating the solution.

That includes you.

Your input will be invaluable as we explore how to address the issue and consider solutions. Stay tuned throughout the year.

Some points to consider as you think about our efforts

• Forbes Insights’ and KPMG’s “Audit 2025: The Future Is Now” report says that the top three skills finance executives are looking for in auditors are technology skills, communication skills and critical thinking skills.
• In the same Audit 2025 report, 78 percent of respondents said auditors should use more sophisticated technologies for data gathering and analysis.
• Deloitte’s “Audit of the Future” survey of financial statement preparers, audit committee members and financial statement users found that most respondents believed auditors should use advanced technologies more extensively. All respondent groups agreed that auditors should provide assurance on information beyond traditional financial statements.
• Simon Bittlestone, Metapraxis CEO, predicts that by 2020, the new model for finance professionals will increasingly focus on data analysis, financial modeling and communications expertise.
• Accenture envisions that robots could automate or eliminate up to 40 percent of basic accounting work by 2020.

If you have initial thoughts, I’d love to hear them. Please contact me at susan.coffey@aicpa-cima.com.

We have a huge opportunity to shape our future: who we are, how we work and the value we can provide to the public, clients and employers. I’m excited to see how we come together to keep the CPA profession strong.

Susan S. Coffey, CPA, CGMA, EVP – Public Practice, Association of International Certified Professional Accountants 

     

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The world is changing, but you already know that. As CPAs, we understand the quickening pace of technological, legislative and demographic changes because we see them influencing each step of our professional lives.

To be our best, we must out-maneuver and outsmart the changes that lie ahead before they ever happen. That means finding new ways to use technology to enhance what we do and how we do it.

The AICPA Tax Section recently released a Tax Technology Resource Center to help you do just that. Here are some of the highlights of how you can embrace technology trends and make the most of the exciting progression of our tax profession.

Propelling tax technology into the future

Robotics, artificial intelligence (AI) and business intelligence tools allow CPAs in corporate tax to do more strategic thinking and planning and less data processing while placing an emphasis on tax information and operations management, using systems and tools that automate processes and decrease risks and errors.

From a public accounting perspective, technologies such as tax software, practice management workflow tools, virtual meeting software and document management tools are all evolving to meet our needs. The good news is that we can use this technology to access more data and insights to serve our clients better.

The bad news is that competitors are using this technology with their clients, too. For example, H&R Block partnered with IBM Watson — a cognitive computing tool that quizzes clients about their taxes, looking for significant events that may trigger tax savings. As a CPA, I wouldn’t worry too much. We’re the hub for clients’ tax strategy and should continue to focus on what we do best, which is far more than asking robotic questions of our clients and filling out forms.

Attaining superior insights with big data

Accountants have been analyzing tax data to provide insight as long as tax has existed. The idea of “big data” and data analytics isn’t a new concept. What is new is the amount of data now available to us.

As the quantity of data grows and becomes more complex, we’re finding ourselves in information overload. If there’s too much unstructured data, stakeholders can’t make well-informed decisions. Tax professionals can fall into the trap of focusing most, if not all, of their time on getting the forms filed and tax payments made rather than focusing on long-term strategies. That’s where we need better tools to do our jobs.

Firms can use robotic process automation and AI to become more streamlined, accurate and efficient. Sophisticated business intelligence tools are used to connect multiple data points and display excellent real-time visuals to help decision makers across the profession. Aiding clients with their business intelligence could become a new service offering for your firm.

Embracing the value of the human being

Maya Angelou said: “People may not remember what you did or what you said, but they will remember how you made them feel.” No technology will be able to rival your human connection. Although technology tools are crucial to the long-term success of our profession, people are still an essential element of what we do.

Changes to communications technologies help CPAs and their clients keep the conversations going beyond in-office appointments. Virtual meetings can save on the travel costs for many businesses and allow CPAs to serve their clients all over the world, eliminating geographical boundaries. (This resource can help explain these changes.)

Many of us find ourselves getting lost in the spreadsheets and day-to-day compliance work. We must step back and think of the real value we can add to our clients and businesses. Then we can take a hard look at the technologies affecting how we do business and see what we can do to move our firms into the future. Don’t be scared of new technologies. Embrace them and see where they lead you.

Susan Allen, CPA/CITP, CGMA, Senior Manager – Tax Practice and Ethics, Association of International Certified Professional Accountants

     

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The 2019 score release dates are posted and a valuable resource for candidates planning their testing schedule for coming months. There are four score release dates for each testing window. For complete information regarding scoring, please visit the Exam Scoring and FAQ pages.

The National Association of State Boards of Accountancy will release scores to boards of accountancy based upon the target score release dates listed in the tables below. Some boards may require at least one day beyond the published target release date in the table to process and release scores.

Testing Window: January 1 – March 10 (Q1)

If you take your Exam on/before:	….and the AICPA receives your Exam data files from Prometric by 11:59 p.m. (EST) on:	Your target score release date is:
January 20	January 20	February 5
February 14	February 14	February 26
February 28	February 28	March 8
March 10	March 11	March 19

 

Testing Window: April 1 – June 10 (Q2)

If you take your Exam on/before:	….and the AICPA receives your Exam data files from Prometric by 11:59 p.m. (EST) on:	Your target score release date is:
April 20	April 20	May 7
May 15	May 15	May 23
May 31	May 31	June 11
June 10	June 11	June 19

 

Testing Window: July 1 -September 10 (Q3)

If you take your Exam on/before:	….and the AICPA receives your Exam data files from Prometric by 11:59 p.m. (EST) on:	Your target score release date is:
July 20	July 20	August 6
August 14	August 14	August 22
August 31	August 31	September 10
September 10	September 11	September 19

 

Testing Window: October 1 -December 10 (Q4)

If you take your Exam on/before:	….and the AICPA receives your Exam data files from Prometric by 11:59 p.m. (EST) on:	Your target score release date is:
October 20	October 20	November 5
November 14	November 14	November 22
November 30	November 30	December 10
December 10	December 11	December 19

 

• All dates and times are based on the Eastern Standard Time (EST) zone.
• For most candidates, Prometric sends Exam data files to the AICPA within 24 hours after you complete testing.
• Exam data files received after the AICPA cutoff dates will result in subsequent scheduled target score release dates.
• If you take the BEC section, you might receive your score approximately one week following the target release date due to additional analysis that may be required for the written communication tasks.

     

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I have a confession to make. Even though I get into just about anything techie, every time I see the word “blockchain,” my eyes and brain tend to glaze over. I suspect many others have the same reaction. 

Yet, we really can’t ignore it. According to Microsoft, blockchain will change the way people think about exchanging value and assets, enforcing contracts and sharing data. It’s expected to grow in importance and transform business operations – on the scale of email and websites. That means CPAs and their clients are going to feel its effects. Wanting to avoid being a “blockhead,” I dove in to see what blockchain is all about. Fortunately, Jim Barnes, a self-described blockchain evangelist, agreed to walk me through it.

Barnes is an enterprise architect for Primerica, a distributor of financial products. Just as an architect creates a blueprint for a building, an enterprise architect creates an IT approach that serves the needs of the whole company. Techopedia defines them as the people who “connect an organization’s business mission, methodology and processes to its IT strategy.”

Please join us for a quick dive.

Jennifer Gardner:  What is blockchain and what does it do exactly?

Jim Barnes:  It’s just a database everyone can have a copy of and that nobody can change. Unlike a

spreadsheet, however, blockchain lacks a central host. It’s essentially a ledger of transactions shared among a network of computers. Blockchain features smart contracts, which set into motion automatic enforcement of specified terms. 

[Note: Another good definition from Forbes describes smart contracts as ‘those that are embedded with if/then statements and can be executed without the involvement of an intermediary….smart contracts might be put to use in the regulation of intellectual property, controlling how many times a user can access, share, or copy something.”]

Blockchain started getting attention when bitcoin emerged; it is the technology used for verifying and recording transactions for virtual currency. Another way to think of it: You can have blockchain without bitcoin, but you can’t have bitcoin without blockchain.

1. How will blockchain affect the supply chain?
2. One of the big things we’ve seen in supply chain in the last several years is end-to-end vertical integration – this is going to be a technology that can support that integration. A good example is food safety – at some point, you may be able to look up on your phone to see if something is really organic; what [materials, chemicals? I think we need a word here] did the farmer use? It can also reduce food waste – right now, if something is contaminated, they may throw out the whole shipment. With blockchain, you could have more specific identification, so someone can scan the shipment and only those in that one lot or group get discarded.

JG:  What are the opportunities for accountants with blockchain and the supply chain?

JB:  There’s definitely going to be a big part around auditing, especially with smart contracts.  A lot of what accountants will be doing is making sure smart contracts do what they say they do. Are we logging touches on whatever is being represented by the contract?  Do we have everything we need, what’s the provenance where did it originate? Accountants can help go around the smart contracts and get a better handle on them.  It’s also easier to see where the money goes.

Another area where accountants can help is advising companies with financial decisions, whether or not it makes sense to use blockchain. A lot of people are saying, ‘we need to go to the blockchain,’ and you ask them why and they say, ‘because it’s the new hot thing.’ In that case, you’re just adding extra overhead, so you can say you’re on the blockchain. 

JG: How deeply do accountants need to understand what you do to be effective with blockchain?

JB: The biggest thing to understand is smart contracts and how they work. Basically, a smart contract is a piece of the blockchain, including whenever someone creates a new entry. So, whenever a new pallet of mangoes comes in, that pallet is of itself a smart contract. 

JG:  So, a smart contract is not necessarily a legal formal contract in the sense we’re used to. For example, I’m the supplier, I’m going to give you a pallet of bananas and that’s my contract to you.

JB:  Yes. When I did a project with Lenovo, it was a digital representation of their obligation to their suppliers that conveyed ‘this is what we’ve sold of your stuff and this is the revenue we owe you.’ 

From the accountant’s perspective, the big thing is knowing whether you want a public or private-permission block keychain because that will determine the security risks around the data you stored there and how people access it. Let’s say you have five mango producers and 200 stores you sell mangos to – even though other people can see the status of the shipment, they’ll just see their agreed upon data of what they’re paying to the distributor. You can lock visibility down to rows. 

JG: So, I imagine that would really protect against fraud. No one’s going to be able to steal from you if it’s on blockchain because we’re all going to know.

JB:  Yep. Blockchain has a lot of promise, but underneath the hype there’s a key issue still unresolved. If a company is buying stuff from China, who’s paying to install the infrastructure to be able to link to the distributor and buyer? That’s something no one has come up with yet. You’re not going to say to your small distributor or your shipper, “I need you to pay $1,000 extra a month to access our blockchain.”

JG: How do I get started? Where do I go find a blockchain?

JB: Ethereum is one of the easiest [platforms] if you want to play with one. People can get an Azure subscription for free for a month – you get $200 to play with and you can deploy a blockchain network in 15 minutes. You have to then write code on top of smart contracts. Microsoft has some basic contracts; it tells you how to install them if you want to play around. Also, to learn more about it, IBM has a free essentials course and you can find good webinars and YouTube videos as well.

JG: That is super cool. I’ll have to check it out. I like the idea of making a smart contract with my kids and they can never change it.

To learn more about blockchain visit www.aicpastore.com/disruption or www.cgmastore.com/products/disruption, and tune into the Go Beyond Disruption podcast to hear interviews with experts on blockchain and more.

Jennifer Gardner, Manager – Communications & Social Strategy ML&C, Association of International Certified Professional Accountants 

     

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We realize you’re busy, but that doesn’t mean you can keep hitting the snooze button on the Financial Accounting Standards Board’s (FASB) accounting standards that will soon come into effect for everyone. The accounting standard that needs your attention right now is the new revenue recognition model, issued as FASB ASU 2014-09 with subsequent amendments.

Public entities are well underway with adoption of the new revenue recognition standard, as the new guidance is effective for interim and annual periods in 2018. Private companies still have some time as the guidance is effective in 2019 for annual reporting periods, and in 2020 for interim periods. This is a wakeup call, and not an opportunity to hit the snooze button yet again.

It’s important to remember this guidance supersedes the revenue recognition requirements in FASB ASC 605, Revenue Recognition, and most industry-specific revenue recognition guidance. Additionally, it also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts.

To help you get started here are several key things to remember:

1. Make a plan: Identify who in your company will become experts and take the lead on understanding and implementing the new revenue recognition standard. Keep in mind there are implications for tax, internal audit, sales operations, IT, legal and human resources. Check out the AICPA’s updated learning and implementation plan and tax brief.

 

2. Focus on areas with increased judgment: The new revenue recognition standard has lots of new estimates and related disclosures. To evaluate the impact to your company, it’s important to focus on areas of the revenue recognition model with increased judgment and determine if these areas are applicable to your contracts. Some things to think about when reviewing your contracts:
   • What type of consideration is included, and is there any variable consideration?
   • Do you normally provide implicit price concessions or incentives?
   • Do you provide loyalty programs, including tier status?
   • Do the promises in the contract contain significant integration?
   • Does it contain termination for convenience clauses?
   • Are there generally multiple contract modifications?
   • Are there options for the customers to purchase additional products?
   • Is there a renewal option?
   • Does it contain a license?
   • Do you normally account for contracts as a group, as opposed to on an individual basis?
   • Does it contain a financing component?

If your contracts contain any of these types of activities, it’s important to dig deeper into the accounting guidance to make sure you fully understand any potential changes to your revenue recognition.

3. Disclosures: Even if your contracts don’t have any areas with increased judgment, you still need to review the required disclosures and determine what the new requirements are. You can then determine if you will need to make any changes in the level of tracking information due to lower aggregation. This could also require changes to your information technology that are always better to identify sooner rather than later.

For information on the standard and to access valuable tools, visit the AICPA’s revenue recognition webpage.

Once you dive into revenue recognition, why not also start getting up to speed on other new accounting standards coming down the pike by looking at these other AICPA webpages:

4. Accounting for Leases: FASB ASU 2016-02 – Leases (Topic 842).
   • The standard has the potential to affect every entity’s financial reporting. The core principle of the new leases standard is that lessees should recognize assets and liabilities arising from all leases, except for leases with a lease term of 12 months or less. This will significantly gross-up many entities balance sheets. Public entities are required to adopt the new leases standard for reporting periods beginning after December 15, 2018. Nonpublic entities have an extra year to adopt, and early adoption is permitted.

5. Accounting for Credit Losses: FASB ASU 2016-13: Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
   • The standard applies to financial assets at amortized cost, including loans, reinsurance and trade receivables, HTM debt securities, impairment model for available-for-sale debt securities, net investment in leases and certain off-balance sheet credit exposures, such as loan commitments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This allows for more forward-looking information to be considered when developing a best estimate.

So go ahead and dive into these standards now. Your future self will be glad you did.

Kim Kushmerick, Associate Director, Accounting Standards- Public Accounting, Association of International Certified Professional Accountants

     

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The 2019 tax filing season is right around the corner, and CPAs everywhere are watching and waiting to see how it will unfold. Pending tax reform guidance, state tax law changes and cybersecurity concerns complicate the picture enough, and now we’re faced with yet another government shutdown.

It may feel like a perfect storm is brewing, and to say there’s uncertainty in the CPA community is an understatement. You probably have a lot of questions about what the shutdown means for you and your clients.

We’re here to share a little insight on that.

The government shutdown and you

In December, the United States government shut down for the third time in one year. Since the shutdown, the Internal Revenue Service has been operating under a contingency plan which allows for only excepted/exempt employees to remain in service.

This means that since the shutdown began at midnight on December 22, only a small portion of the IRS staff has been at their desks. Of the approximately 80,000 IRS employees on the rolls, only 9,942 — that’s 12.5 percent for you number crunchers — are currently working. These workers are considered “excepted/exempt” employees and include those IRS staff members working to implement tax reform. (Read more about what the IRS considers an excepted/exempt employee activity.)

The pain point for CPAs and taxpayers comes from the non-excepted IRS functions that are suspended during a government shutdown. These include:

• Issuing refunds
• Processing non-disaster relief transcripts, income verification express service/return and income verification services
• Processing 1040X amended returns
• All audit functions, examination of returns, and processing of non-electronic tax returns that do not include remittances
• Non-automated collections
• Information systems functions (except as necessary to prevent loss of data in process and revenue collections)
• The closure of most headquarters and administrative functions not related to the safety of life and protection of property

If the government shutdown continues much longer, the IRS will have to figure out how to avoid potential delays in return processing, which may be a tall order.

An issue of timing

Once the government shutdown ends, tax practitioners may be dealing with IRS staff that haven’t received proper training. It’s also possible there will be eleventh hour tax extender legislation. In addition to these issues, many forms are still pending approval or remain in non-submittable format, so tax software will struggle to keep up.

The IRS indicated e-filing season should open on time (last year that meant January 29). However, there’s no official notification listed on the IRS website regarding the specific date. Legally, taxpayers are permitted to start filing paper returns on January 1, 2019, but that’s not going to help much; anticipated refunds from these won’t be processed any sooner than e-filed returns.

The key to getting through this shutdown and beyond

So now that you have received all this good news, the question becomes: “Where do I go from here?” 

The short answer is this: It’s business as usual for you and your clients. Regardless of the length of the government shutdown, your clients need to gather their tax information and get it over to you as soon as it’s available. Being able to review this information in a timely fashion is crucial to keeping the tax workflow moving and can help mitigate end-of-season bottlenecks.

Even if the government shutdown ends soon, it’s important to make sure your clients know about how this and other issues will affect their returns. Remember:

• Advise clients that preparation could take longer due to the shutdown and manage their expectations accordingly.
• Explain how the need for additional information for certain tax reform provisions could make tax season trickier.
• Help clients understand the potential benefits of tax extensions (where necessary) early in the season.

Communication and education are key to developing and maintaining your trusted adviser position with your clients. With everything going on, you have a lot on your plate. But by looking ahead and keeping the moving parts in check, you can make this your best busy season yet.

Visit the AICPA Tax Season Resources for CPAs for the most recent information on the government shutdown and other key issues affecting the 2019 season.

Cheri Freeh, CPA, is the owner of Hutchinson, Gillahan & Freeh, PC, in Quakertown, PA, and serves as a member of the AICPA Tax Practice and Procedures Committee. She’s a past President of The Pennsylvania Institute of CPAs, a former member of the AICPA governing council and a former member of the Internal Revenue Service Advisory Council. She was twice named as one of the 25 Most Powerful Women in Accounting in the United States by CPA Practice Advisor Magazine.

     

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Successful retirement planning is all about strategy. Analyzing sources of income, estimating expenses, choosing investments and managing assets are vital to safeguarding long-term financial comfort later in life. However, one aspect of retirement planning is sometimes overlooked — tax planning.

As a CPA, you’re already helping your tax clients with their retirement planning needs, but are you doing enough? Take a moment to review these tax considerations to make sure you’re exploring all the options with your retiring clients. Then listen to this AICPA podcast for a deeper dive into the topic.

Looking at tax as part of retirement planning

Tax issues are a big part of nearly every major life moment. Retirement is no different. Perhaps what stands out the most, though, is the number of moving parts that contribute to tax issues at this stage in life. These include:

• analyzing the best account types to use when saving for retirement
• determining how much money to save for retirement
• exploring when to start taking Social Security benefits
• staying mindful of taxable income
• reviewing pension plan options
• considering modified adjusted gross income limits for Medicare purposes
• managing a second home or rental property
• picking a time and order in which to draw from retirement accounts

Managing cash flow concerns

Cash flow is a top concern for retirees. Those worried about having sufficient income might choose to place much of their portfolio in higher-yielding bonds and higher-yielding or dividend-paying stock. This increases portfolio risk and reduces tax efficiency.

This increased risked means more of a retiree’s principal may be reduced at a moment when it’s needed most, such as during an emergency. In addition to the risk, a retirement income strategy that depends solely on interest or dividends is less tax efficient compared to a strategy dependent on capital gains.

Knowing your client’s tax situation can lead to stronger planning strategies. Completing a long-term cash flow and tax projection can help identify opportunities for tax maneuvering, and regular monitoring of changes to cash flow can help your retired client stay on track.

Liquidating investment accounts

Liquidating investment accounts can be tricky and requires careful calculations and review. When done correctly, this move can bring a lot of added value to your clients. Like other planning issues, how you proceed will depend on the types of accounts they have, client spending needs and the age of your retiring clients.

A classic approach includes reviewing which after-tax accounts should be liquidated first and then liquidating tax-deferred accounts like IRAs and 401(k) plans. Unfortunately, if a retiree waits to tap into their IRA, they may find themselves in a higher tax bracket when required minimum distributions kick in. This method can also wreak havoc if a retiree needs to access large amounts of money in an emergency.

If your client decides to spend taxable dollars first, consider simultaneously filling lower tax brackets with a Roth IRA conversion. A tax projection will help you identify the opportunities for a Roth IRA conversion and how much makes sense.

Examining taxes associated with investment choices

The tax picture gets more complicated when various investments and types of income come into the mix. Interest, dividends, capital gain distributions and other sources of income all have significant tax considerations. 

When choosing mutual funds, most investors don’t think twice about the tax consequences of these moves. Many funds pay out large capital gain distributions. If clients hold these in taxable accounts, the tax bite could be significant. Make sure your clients are placing the funds in the right places.

Tying it all together

Smart tax planning plays a vital role in a retiree’s long-term financial security. And being ready to address this issue and other planning topics with your clients can contribute to your firm’s continuing success.

Expand your knowledge and demonstrate your expertise through the AICPA Retirement Planning Certificate program, a series of courses covering the retirement planning life-cycle. Earning this certificate gets you one step closer to the Personal Financial Specialist (PFS) credential, setting you apart from other CPA and non-CPA planners. 

Oscar Vives Ortiz, CPA/PFS, is an assistant vice president and wealth strategist providing advice on complex estate and other wealth strategy issues. He shares a high level of technical experience in estate, tax and wealth strategy with his clients.  

     

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