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Sage Copilot AI aims to pair power and simplicity for small and medium businesses

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Small and mid-size business platform Sage is already well experienced with AI, having woven it throughout their products for years, but its new generative AI Sage Copilot solution has been touted as a dramatic step forward in the company’s long term vision of simplifying accounting to make it more accessible to all. 

Aaron Harris, Sage’s chief technology officer, said that the company has long had classic AI deep learning models that perform functions users have relied on for years. These tasks often require the use of many different models working in concert, with Harris noting that invoice processing alone requires the use of 27 different models: 15 to 20 are required to read the data alone, and more are needed to perform the calculations. 

Sage Copilot coordinates between these models and acts as an interpreter between them and the human users who are requesting they perform a task. Effectively a “mouth” attached to a larger whole, the LLM works by translating the user request, usually inputted through a conversational interface, into machine language. This then goes to the various AI models on Sage’s servers, which then get to work on whatever the user asked them for, eventually sending instructions back to the LLM. The LLM reads back the machine language and implements the command or, in the case of an informational query, translates it back to human language. Harris stressed that it is not the LLM itself that does this work, referencing their well-known difficulties with math, but the other AI models that the LLM interacts with. 

“We don’t trust them to do math. There’s much better ways to do math… We’re not using the AI to do the math on the results, we’re using AI to write the [structured query language] exactly as you described,” said Harris during an interview. 

He added that, rather than being a feature of any one particular solution, Sage Copilot can be used across its products through the use of specialized “agents.” The company creates AI “agents” purpose built to do one thing really well, such as interacting with certain types of data, executing specific queries, or engaging with specific software products. Sage Copilot has access to multiple agents, each built to communicate with a different product, whether Sage Intaact, Sage HR or something else.

“The intention is that Copilot can work across the portfolio of Sage products,” he said. 

Having Copilot act as a coordinator for all the other models also means its automation capacities go far past what it had previously accomplished. Harris raised the example of processing an invoice. This act alone requires multiple steps, but many of them have already been automated in Sage, taking out much of the work. Copilot goes a step further by allowing wholesale workflow automation through coordinating among several models that each enable a different automated process. “We can now really accelerate our ability to automate with large language models, and we can use AI to do more of the orchestration. So, giving it the ability to not just process the invoice but to move it on to the approval stage, to understand after it’s approved [it needs to] move it through the payment process,” he said. 

He added that, in the future, “that invoice will have been created for you, automatically.” His team had recently conducted a hackathon where it was found Copilot can automatically generate invoices based on events happening around the user, like if it knew they were going on a job using geofencing, and act proactively. 

Harris said that certain companies today will attach their solution to a ChatGPT account and call that generative AI functionality. In contrast, developing Copilot was a meticulous process that required a lot of trial and error even before its UK release earlier this year. During this time, the development team encountered many challenges that needed to be overcome, such as teaching the model that there can be more than one kind of cash balance. 

“I got in and I asked Copilot ‘what is my cash balance?’ And Copilot said it’s at zero. And I dug around and what I learned was that Copilot inferred from my question ‘what’s my petty cash?’ It didn’t actually understand that what I was asking for was the balance of cash across my bank account,” he said. “Fast forward a month. We’ve done a lot of work to train the model the way we wanted to when you ask that question. … [Now] it’ll give you a table with your bank accounts and your balances in total. If that is what you’re asking, this is the answer.” 

Getting these kinds of interactions right was vital to ensuring Copilot was easy to use and reliable in its outputs without having to possess a lot of arcane technical knowledge. Interacting with Copilot in plain language allows people to access accounting information and perform business tasks on their own, a major component of the wider goal of making accounting more accessible to a wider base of people. 

“Generative AI and copilots, and their natural conversational interface, enables us to bring accounting outside the finance team to the rest of the business. One of the biggest blocks is getting [accountants] to approve things or to answer questions, finance teams are spending time supporting me instead of getting the books closed. With Copilot having a conversational interface, it now becomes much more natural and easy for me to approve a purchase order or to ask a question like ‘how am I trending on my travel expenses?'” Harris said. 

While Sage wants to make accounting more accessible to the layperson, he added that professionals can be excited too. The big promise, he said, is that it will free them from things they don’t want to do. He compared it to having an army of interns at one’s disposal who can take care of the numerous mundane demands that pop up throughout the day. The result, according to Harris, will be “faster and smarter decisions.” 

“Unpacking that, what we’re really saying is [this can be] how you, across the whole of the business, understand the patterns of activity in that business in real time to discover when there is a change in performance—when there’s something that can indicate an opportunity or risk—that the more strategic specialists can address in real time… We’re enabling more decisions to be made confidently,” he said. 

Harris said the name “Copilot” represents what he felt was a good bet that the term copilot would become generic, versus being permanently associated with Microsoft’s product. He said that the term has, over time, emerged as standard in a similar manner as “band-aid,” “Xerox” and “Google.” 

The large language model was released in the UK in February and is set for release in the US at the end of this year. 

Part of a larger strategy

Copilot is one component of the company’s larger product strategy to promote continuous accounting, real time assurance and continuous insights. But this, itself, is part of Sage’s overall strategy, particularly for the North American market; Mark Hickman, the managing director of North America, said Copilot is “critical to our success.” 

“As we move forward, [we want] to really be that leader, we want to be ahead of the competition when it comes to AI and how we bring that to market, into that ecosystem of 2 million customers globally and hundreds and hundreds of thousands in North America,” said Hickman. 

To this end, Sage has been busy making new alliances and deepening current ones with companies like Microsoft, Amazon and PwC. They have collaborated on technology solutions with the aim of eventually driving integration into products like Office and other platforms, as well as on distribution and implementation of said solutions. With Microsoft and Amazon in particular, Hickman said they have whole partnerships where they go to market together and close new customers. Given these companies’ focus on large enterprises, Sage’s focus on small and medium businesses has acted as a bridge to this larger community. 

“What we’ve discovered here is that [Microsoft and Amazon], they don’t really play in the small to medium businesses with the cloud. So 90% of their new customers are net new customers so they’re actually getting into new customers because they’re working with us and closing new deals to get into these accounts and … using their amazing, world class platforms and their brands to work together,” he said. 

This is especially germane as the UK-based Sage expands further into the North American market, which makes up more than 44% of the company’s global revenues already. The company is making heavy investments in this region, which include technology but also additional staff as well as new facilities. Hickman said they will be building a whole new campus in Atlanta to serve as their new base for North American operations (in addition to the office they already maintain in that city), as well as new offices in Portland and Vancouver. 

Hickman said Sage’s thinking on these new locations came as the company emerged from the pandemic lockdowns, eventually settling on what he called a “hub strategy.” Previously, the company had over 80 offices around the world, but he said many of them were small and remote. The company chose a very deliberate strategy where they would instead have large offices in each of the major markets they really invest in, with fewer small satellite offices. This has allowed them to really focus their efforts around these flagship country “hubs.” He noted that the new offices in Canada is also a reflection of this hub strategy of “really increasing the investment in the offices where we want to concentrate our growth.” 

“So the North American businesses, the US businesses, are the fastest growing [sector] with great growth, and we hope to really accelerate that growth as we move forward,” he added. 

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Senate unveils plan to fast-track tax cuts, debt limit hike

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Senate Republicans unveiled a budget blueprint designed to fast-track a renewal of President Donald Trump’s tax cuts and an increase to the nation’s borrowing limit, ahead of a planned vote on the resolution later this week. 

The Senate plan will allow for a $4 trillion extension of Trump’s tax cuts and an additional $1.5 trillion in further levy reductions. The House plan called for $4.5 trillion in total cuts.

Republicans say they are assuming that the cost of extending the expiring 2017 Trump tax cuts will cost zero dollars.

The draft is a sign that divisions within the Senate GOP over the size and scope of spending cuts to offset tax reductions are closer to being resolved. 

Lawmakers, however, have yet to face some of the most difficult decisions, including which spending to cut and which tax reductions to prioritize. That will be negotiated in the coming weeks after both chambers approve identical budget resolutions unlocking the process.

The Senate budget plan would also increase the debt ceiling by up to $5 trillion, compared with the $4 trillion hike in the House plan. Senate Republicans say they want to ensure that Congress does not need to vote on the debt ceiling again before the 2026 midterm elections. 

“This budget resolution unlocks the process to permanently extend proven, pro-growth tax policy,” Senate Finance Chairman Mike Crapo, an Idaho Republican, said. 

The blueprint is the latest in a multi-step legislative process for Republicans to pass a renewal of Trump’s tax cuts through Congress. The bill will renew the president’s 2017 reductions set to expire at the end of this year, which include lower rates for households and deductions for privately held businesses. 

Republicans are also hoping to include additional tax measures to the bill, including raising the state and local tax deduction cap and some of Trump’s campaign pledges to eliminate taxes on certain categories of income, including tips and overtime pay.

The plan would allow for the debt ceiling hike to be vote on separately from the rest of the tax and spending package. That gives lawmakers flexibility to move more quickly on the debt ceiling piece if a federal default looms before lawmakers can agree on the tax package.

Political realities

Senate Majority Leader John Thune told reporters on Wednesday, after meeting with Trump at the White House to discuss the tax blueprint, that he’s not sure yet if he has the votes to pass the measure.

Thune in a statement said the budget has been blessed by the top Senate ruleskeeper but Democrats said that it is still vulnerable to being challenged later.

The biggest differences in the Senate budget from the competing House plan are in the directives for spending cuts, a reflection of divisions among lawmakers over reductions to benefit programs, including Medicaid and food stamps. 

The Senate plan pares back a House measure that calls for at least $2 trillion in spending reductions over a decade, a massive reduction that would likely mean curbing popular entitlement programs.

The Senate GOP budget grants significantly more flexibility. It instructs key committees that oversee entitlement programs to come up with at least $4 billion in cuts. Republicans say they expect the final tax package to contain much larger curbs on spending.

The Senate budget would also allow $150 billion in new spending for the military and $175 billion for border and immigration enforcement.

If the minimum spending cuts are achieved along with the maximum tax cuts, the plan would add $5.8 trillion in new deficits over 10 years, according to the Committee for a Responsible Federal Budget.

The Senate is planning a vote on the plan in the coming days. Then it goes to the House for a vote as soon as next week. There, it could face opposition from spending hawks like South Carolina’s Ralph Norman, who are signaling they want more aggressive cuts. 

House Speaker Mike Johnson can likely afford just two or three defections on the budget vote given his slim majority and unified Democratic opposition.

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How asset location decides bond ladder taxes

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Financial advisors and clients worried about stock volatility and inflation can climb bond ladders to safety — but they won’t find any, if those steps lead to a place with higher taxes.

The choice of asset location for bond ladders in a client portfolio can prove so important that some wealthy customers holding them in a taxable brokerage account may wind up losing money in an inflationary period due to the payments to Uncle Sam, according to a new academic study. And those taxes, due to what the author described as the “dead loss” from the so-called original issue discount compared to the value, come with an extra sting if advisors and clients thought the bond ladder had prepared for the rise in inflation.

Bond ladders — whether they are based on Treasury inflation-protected securities like the strategy described in the study or another fixed-income security — provide small but steady returns tied to the regular cadence of maturities in the debt-based products. However, advisors and their clients need to consider where any interest payments, coupon income or principal accretion from the bond ladders could wind up as ordinary income, said Cal Spranger, a fixed income and wealth manager with Seattle-based Badgley + Phelps Wealth Managers.

“Thats going to be the No. 1 concern about, where is the optimal place to hold them,” Spranger said in an interview. “One of our primary objectives for a bond portfolio is to smooth out that volatility. … We’re trying to reduce risk with the bond portfolio, not increase risks.”

READ MORE: Why laddered bond portfolios cover all the bases

The ‘peculiarly bad location’ for a bond ladder

Risk-averse planners, then, could likely predict the conclusion of the working academic paper, which was posted in late February by Edward McQuarrie, a professor emeritus in the Leavey School of Business at Santa Clara University: Tax-deferred retirement accounts such as a 401(k) or a traditional individual retirement account are usually the best location for a Treasury inflation-protected securities ladder. The appreciation attributes available through an after-tax Roth IRA work better for equities than a bond ladder designed for decumulation, and the potential payments to Uncle Sam in brokerage accounts make them an even worse asset location.

“Few planners will be surprised to learn that locating a TIPS ladder in a taxable account leads to phantom income and excess payment of tax, with a consequent reduction in after-tax real spending power,” McQuarrie writes. “Some may be surprised to learn just how baleful that mistake in account location can be, up to and including negative payouts in the early years for high tax brackets and very high rates of inflation. In the worst cases, more is due in tax than the ladder payout provides. And many will be surprised to learn how rapidly the penalty for choosing the wrong asset location increases at higher rates of inflation — precisely the motivation for setting up a TIPS ladder in the first place. Perhaps the most surprising result of all was the discovery that excess tax payments in the early years are never made up. [Original issue discount] causes a dead loss.”

The Roth account may look like a healthy alternative, since the clients wouldn’t owe any further taxes on distributions from them in retirement. But the bond ladder would defeat the whole purpose of that vehicle, McQuarrie writes.

“Planners should recognize that a Roth account is a peculiarly bad location for a bond ladder, whether real or nominal,” he writes. “Ladders are decumulation tools designed to provide a stream of distributions, which the Roth account does not otherwise require. Locating a bond ladder in the Roth thus forfeits what some consider to be one of the most valuable features of the Roth account. If the bond ladder is the only asset in the Roth, then the Roth itself will have been liquidated as the ladder reaches its end.”

READ MORE: How to hedge risk with annuity ladders

RMD advantages

That means that the Treasury inflation-protected securities ladder will add the most value to portfolios in a tax-deferred account (TDA), which McQuarrie acknowledges is not a shocking recommendation to anyone familiar with them. On the other hand, some planners with clients who need to begin required minimum distributions from their traditional IRA may reap further benefits than expected from that location.

“More interesting is the demonstration that the after-tax real income received from a TIPS ladder located in a TDA does not vary with the rate of inflation, in contrast to what happens in a taxable account,” McQuarrie writes. “Also of note was the ability of most TIPS ladders to handle the RMDs due, and, at higher rates of inflation, to shelter other assets from the need to take RMDs.”

The present time of high yields from Treasury inflation-protected securities could represent an ample opportunity to tap into that scenario.

“If TIPS yields are attractive when the ladder is set up, distributions from the ladder will typically satisfy RMDs on the ladder balance throughout the 30 years,” McQuarrie writes. “The higher the inflation experienced, the greater the surplus coverage, allowing other assets in the account to be sheltered in part from RMDs by means of the TIPS ladder payout. However, if TIPS yields are borderline unattractive at ladder set up, and if the ladder proved unnecessary because inflation fell to historically low levels, then there may be a shortfall in RMD coverage in the middle years, requiring either that TIPS bonds be sold prematurely, or that other assets in the TDA be tapped to cover the RMD.”

READ MORE: A primer on the IRA ‘bridge’ to bigger Social Security benefits

The key takeaways on bond ladders

Other caveats to the strategies revolve around any possible state taxes on withdrawals or any number of client circumstances ruling out a universal recommendation. The main message of McQuarrie’s study serves as a warning against putting the ladder in a taxable brokerage account.

“Unsurprisingly, the higher the client’s tax rate, the worse the outcomes from locating a TIPS ladder in taxable when inflation rages,” he writes. “High-bracket taxpayers who accurately foresee a surge in future inflation, and take steps to defend against it, but who make the mistake of locating their TIPS ladder in taxable, can end up paying more in tax to the government than is received from the TIPS ladder during the first year or two.”

For municipal or other types of tax-exempt bonds, though, a taxable account is “the optimal place,” Spranger said. Convertible Treasury or corporate bonds show more similarity with the Treasury inflation-protected securities in that their ideal location is in a tax-deferred account, he noted.

Regardless, bonds act as a crucial core to a client’s portfolio, tamping down on the risk of volatility and sensitivity to interest rates. And the right ladder strategies yield more reliable future rates of returns for clients than a bond ETF or mutual fund, Spranger said.

“We’re strong proponents of using individual bonds, No. 1 so that we can create bond ladders, but, most importantly, for the certainty that individual bonds provide,” he said.

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Why IRS cuts may spare a unit that facilitates mortgages

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Loan applicants and mortgage companies often rely on an Internal Revenue Service that’s dramatically downsizing to help facilitate the lending process, but they may be in luck.

That’s because the division responsible for the main form used to allow consumers to authorize the release of income-tax information to lenders is tied to essential IRS operations.

The Income Verification Express Service could be insulated from what NMN affiliate Accounting Today has described of a series of fluctuating IRS cuts because it’s part of the submission processing unit within wage and investment, a division central to the tax bureau’s purpose.

“It’s unlikely that IVES will be impacted due to association within submission processing,” said Curtis Knuth, president and CEO of NCS, a consumer reporting agency. “Processing tax returns and collecting revenue is the core function and purpose of the IRS.”

Knuth is a member of the IVES participant working group, which is comprised of representatives from companies that facilitate processing of 4506-C forms used to request tax transcripts for mortgages. Those involved represent a range of company sizes and business models.

The IRS has planned to slash thousands of jobs and make billions of dollars of cuts that are still in process, some of which have been successfully challenged in court.

While the current cuts might not be a concern for processing the main form of tax transcript requests this time around, there have been past issues with it in other situations like 2019’s lengthy government shutdown.

President Trump recently signed a continuing funding resolution to avert a shutdown. But it will run out later this year, so the issue could re-emerge if there’s an impasse in Congress at that time. Republicans largely dominate Congress but their lead is thinner in the Senate.

The mortgage industry will likely have an additional option it didn’t have in 2019 if another extended deadlock on the budget emerges and impedes processing of the central tax transcript form.

“It absolutely affected closings, because you couldn’t get the transcripts. You couldn’t get anybody on the phone,” said Phil Crescenzo Jr., vice president of National One Mortgage Corp.’s Southeast division.

There is an automated, free way for consumers to release their transcripts that may still operate when there are issues with the 4506-C process, which has a $4 surcharge. However, the alternative to the 4506-C form is less straightforward and objective as it’s done outside of the mortgage process, requiring a separate logon and actions.

Some of the most recent IRS cuts have targeted technology jobs and could have an impact on systems, so it’s also worth noting that another option lenders have sometimes elected to use is to allow loans temporarily move forward when transcript access is interrupted and verified later. 

There is a risk to waiting for verification or not getting it directly from the IRS, however, as government-related agencies hold mortgage lenders responsible for the accuracy of borrower income information. That risk could increase if loan performance issues become more prevalent.

Currently, tax transcripts primarily come into play for government-related loans made to contract workers, said Crescenzo.

“That’s the only receipt that you have for a self-employed client’s income to know it’s valid,” he said.

The home affordability crunch and rise of gig work like Uber driving has increased interest in these types of mortgages, he said. 

Contract workers can alternatively seek financing from the private non-qualified mortgage market where bank statements could be used to verify self-employment income, but Crescenzo said that has disadvantages related to government-related loans.

“Non QM requires higher downpayments and interest rates than traditional financing,” he said.

In the next couple years, regional demand for loans based on self-employment income could rise given the federal job cuts planned broadly at public agencies, depending on the extent to which court challenges to them go through.

Those potential borrowers will find it difficult to get new mortgages until they can establish more of a track record with their new sources of income, in most cases two years from a tax filing perspective. 

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