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An innovation framework for competitive advantage in CPA firms

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Accounting firms are facing unprecedented challenges. With the rise of automation, changing client expectations, and staffing challenges, traditional differentiation strategies—competitive pricing, incremental service improvements, or modest technology adoption no longer create sustainable competitive advantages.

Continuous innovation is no longer something only tech and “forward-thinking” individuals should do to remain relevant. It’s an imperative to the longevity of every business in today’s quickly evolving market—including accounting firms.

The Innovation Imperative

Recent data from McKinsey shows that companies that prioritize innovation outperform their peers by 30% in revenue growth over a five-year period. Yet many accounting firms still approach innovation reactively, waiting until market pressures force their hand.

This reactive approach creates three common pitfalls:

  1. Rushed innovation often results in half-baked solutions that fail to address core client needs.
  2. Reactive innovation creates organizational whiplash, as teams struggle to adapt to rapid, unplanned changes.
  3. Lagging response time to market changes creates risk that competitors have already established themselves.

The accounting firms that will thrive in the coming decade aren’t necessarily the largest or most established—they’re the ones that develop the organizational muscle to innovate continuously as client needs evolve and market conditions change. This is where having an innovation framework is key.

How do you build an innovation framework? Consider these three components:

1. Customer-Centric Problem Discovery

True innovation begins with deeply understanding your clients’ needs—not just what they tell you, but what their behaviors and pain points reveal. Too many firms rely on superficial feedback instead of identifying fundamental problems worth solving.

2. Create a Rapid Experimentation Culture

Innovation thrives in environments where testing new ideas is encouraged and failure is viewed as a learning opportunity. Accounting firms often struggle here, with risk-averse cultures that prioritize precision over exploration.

To foster rapid experimentation:

  • Create dedicated “innovation sprints” where teams can prototype new ideas
  • Establish appropriate metrics for innovation initiatives that balance short-term performance with long-term potential
  • Develop a “minimum viable product” mindset that emphasizes quick market feedback

3. Cross-Functional Innovation Teams

Innovation rarely emerges from isolated departments. The most powerful ideas come from combining diverse perspectives and skill sets.

To break down silos:

  • Form cross-functional innovation teams that include representatives from technology, client services, and business development
  • Create clear accountability structures without imposing rigid processes that stifle creativity
  • Establish regular forums for sharing insights across the organization

Take a Phased Approach to Innovation Implementation

For accounting firms looking to enhance their innovation capabilities, a phased approach makes this shift more manageable:

Phase 1: Assessment

  • Evaluate your current innovation capabilities
  • Identify organizational barriers to experimentation
  • Set baseline metrics for innovation outcomes

Phase 2: Foundation Building

  • Develop structured innovation processes
  • Establish cross-functional teams
  • Allocate resources specifically for innovation initiatives

Phase 3: Execution

  • Launch pilot programs in targeted areas
  • Scale successful initiatives
  • Measure and communicate results to build organizational momentum

Common Pitfalls to Avoid

In our innovation journey, we’ve encountered several common pitfalls that accounting firms should be wary of:

  • Over-reliance on competitor analysis: While understanding the competitive landscape is important, innovation requires looking beyond what others are doing.
  • Analysis paralysis: Gathering data is valuable, but at some point, you need to act on incomplete information.
  • Insufficient resource allocation: Innovation requires dedicated time and funding—it can’t be an afterthought.
  • Fear of cannibalizing existing products: Sometimes, the best innovation requires disrupting your own successful offerings.

Measuring Innovation Success

Effective innovation measurement requires both leading and lagging indicators:

  • Leading indicators might include the number of experiments conducted, client feedback on service prototypes, or team feedback on new technologies.
  • Lagging indicators include revenue from new services, client retention improvements, or efficiency gains.

The key is balancing quantitative metrics with qualitative assessments of how innovation is changing your firm’s capabilities and market position.
Conclusion

In today’s accounting landscape, innovation isn’t optional—it’s a survival requirement. Firms that create systematic approaches to identifying client needs and testing new solutions, services and technologies will have a true advantage in an increasingly competitive market.

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Accounting

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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Accounting

Republicans eye $25K SALT cap as Trump’s tax cuts take shape

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Republicans are in the process of drafting a tax bill behind closed doors that includes an increase of the state and local tax deduction to as high as $25,000 for an individual, according to people familiar with the plan.

A sizable increase to the current $10,000 limit on SALT write-offs would represent a major political victory for a crucial group of swing-district House Republicans representing the New York City area and southern California, who have made their votes for a broader tax cut bill contingent upon securing a bigger deduction.

The plan, which is still in the process of being drafted and is not final, also includes a renewal of President Donald Trump’s 2017 tax reductions for individuals and closely held businesses as well as some of his campaign tax pledges, the people said, requesting anonymity to discuss private matters. 

Republicans are considering offsetting the increase to the SALT cap by reducing the deductions corporations can claim on the state and local taxes they pay, the people said.

The president has not yet been briefed on this proposal, but the draft represents progress on the top legislative agenda item for Republicans. The party is aiming to pass the legislation by August at the latest, as lawmakers rush to provide a counterweight to the potential economic damage and market downturn from the White House’s tariff policies.

Trump administration aides and Senate Finance Chairman Mike Crapo’s team are taking the lead on writing the plan, the people said. 

Crapo has cautioned that “until the bill is drafted, everything is on the table and nothing’s on the table.”

The White House and the Treasury Department did not immediately respond to requests for comment.

On the campaign trail, Trump promised to eliminate taxes on tipped income, overtime pay and Social Security benefits. The plan will aim to deliver on at least two of those pledges, according to the people familiar.

If Republicans end up including Trump’s Social Security idea, they’ll limit the tax breaks to only apply to incomes below a certain threshold, the people said. Senate rules also limit tax reductions related to payroll levies, so Republicans may need to develop a workaround for seniors that does not directly eliminate income taxes on benefit checks.

Trump’s no-taxes-on-tips idea is the most fleshed-out policy, the people said. 

The Senate is still in the process of negotiating a resolution that will dictate the overall size of the tax cuts and any spending reductions in the final bill. Both chambers of Congress will need to pass identical versions of that measure before official negotiations on the tax cuts can begin.

Crapo’s staff and administration aides are compiling a draft of the tax bill now so that Republicans will largely be on the same page after Congress approves the budget resolution. The Senate plans to vote on the budget, which will also include an increase to the debt ceiling, in the coming days, with the House following next week.

The proposal will also roll back parts of the Inflation Reduction Act, signed by President Joe Biden, as a means to offset some of the cuts.

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Accounting

Washington governor pans wealth-tax proposal amid legal doubt

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Washington Governor Bob Ferguson said he wouldn’t sign a budget that relies on the wealth tax proposed by his fellow Democrats in the state legislature. 

House and Senate budget proposals “both rely on a wealth tax which is novel, untested and difficult to implement,” Ferguson told reporters in Olympia Tuesday. “They need to immediately move budget discussions in a different direction.”

Ferguson said the state is facing a $16 billion budget deficit over the next four years, which will be exacerbated by cuts in federal funding by the Trump administration. Democrats in the Washington State Senate proposed a 1% tax on the stocks, bonds, exchange-traded funds and mutual funds held by people with more than $50 million of those assets. House Democrats are considering a similar measure. 

That would make Washington the first state in the U.S. to tax its residents’ wealth. The bill’s sponsors say that including only publicly traded assets would address some of the concerns that the state’s Department of Revenue raised in a November report regarding the difficulty of calculating and collecting such a tax. Washington doesn’t have an income tax. 

Ferguson did leave open the possibility of a small wealth tax that raises no more than $100 million, just to test the legality of the proposal. 

“We cannot rely on a revenue source with a real possibility of being overturned by the courts,” Ferguson said. 

Some wealthy people have already left Washington since the state passed a 7% tax on capital gains, which was first collected in 2023. Tax attorneys and wealth managers say that even the discussion of a new tax on financial holdings is already encouraging more people to leave the state. 

Speaking in a state Senate hearing on Monday, Rian Watt, executive director of Washington progressive advocacy group Economic Opportunity Institute, said the possibility of capital flight is “worthy of consideration, but in our view it is not worthy of concern.”

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