Connect with us

Accounting

Managing expectations key to AI implementation for CAS

Published

on

AI implementation at a CAS practice is hard enough, but it becomes even more so when people don’t fully understand what AI can and cannot do. 

Speaking during the Information Technology Alliance’s spring collaborative in Memphis, Tennessee, Jessica Barnas, the partner leading the finance and accounting solutions advisory group for top 25 firm Wipfli, lamented that public discourse around AI has given people the impression it’s some sort of magic wand that can fix anything, which then leads to unrealistic expectations around its capabilities. 

“I talked to a lot of clients, I think they think that AI is like an elf that jumps out of the box and does things magically. They just say, ‘Can’t AI do that?’ I even had one of our partners [tell me this recently], we’re working on a five year revenue prediction—he said, ‘Well, can’t you just upload that to Copilot and have it spin up the business plan and everything?’ and I’m like, ‘Do you have any idea how generative AI works? It doesn’t do that.’ But I think that there’s just this misconception [that], oh, technology it is just this magic wand that’s going to make all of my accounting problems disappear,” Barnas said. 

Chris Gallo, director of outsourced business accounting services with Kansas-based firm Creative Planning and another one of the panelists, made a similar point, saying that it’s important to be realistic about what technology can do. While it can do a lot, he echoed Barnas in saying that some people seem to think it is magic. 

“If we believed everything that everybody told us you would be flying around in flying cars right now. I think we need to kind of take it with a grain of salt at some point. Because why wouldn’t we just say ‘ChatGPT build me a flying car,’ and then the bot people that you know Tesla’s building will just go do that. Right? It becomes a little bit ridiculous at some point too… There’s a lot of expectation, or unaligned expectations,” said Gallo. 

Misconceptions about AI capabilities also serve to drive fear on the part of accountants. Barnas said that a big part of the change management process when it comes to implementing AI is allaying fears from staff that they’re not going to fire everyone and replace them with bots. While there have been major improvements in AI over the years, she does not believe it is in the position to wholesale replace human accountants just yet. Instead, it has become a great way to augment those humans and make them more competitive against the humans who are not using AI. 

“They think ‘AI will eliminate my job!’ So we talk about our philosophy. We’re looking to adopt these tools to help you get bigger and better and embrace the advisory role, but the only way AI will replace you is if a person using AI will replace you. You need to give that level of comfort to your teams so that everyone knows we’re just trying to get better, we’re just picking up new tools, this is not a replacement for you,” Barnas said. 

There is a similar fear when it comes to billable hours, also explored in another panel (see other story), of what happens when a process that normally takes 8 hours now only takes 1. Barnas first described the billable hour as “the enemy of all of us here in the room” but also conceded it is a real anxiety for practices that have built their foundation on it. She suggested, in response to this concern, to take a page from Google and encourage people to develop pet projects using AI and rewarding them if it turns into something useful for the entire team; and if it really does lead to a reduction in billable hours, don’t punish people with less money when they’ve done what you wanted them do in the first place. Overall, a firm’s business model should not be one that punishes efficiency: a practice should value results, not burning hours. She conceded that, for certain firms set in their ways, this might need retraining. 

“Okay, I took this process down from seven hours to half hour every week. Now what? Teach me how to do advisory. Because being a CFO, doing modeling and projections, it is not something [you learn] from reading a book or sitting in on one webinar. We would all be doing that if that were the case. So how can we train our teams on what to do next? All of that is involved in change management: being a guide and providing the safety for each step,” she said. 

Gregg Landers, the last panelist and managing director of client accounting and advisory services and internal control services with Top 10 firm CBIZ, talked about how a lot of the misunderstandings and misconceptions regarding AI can be allayed from people just experimenting with it themselves, which not only lets them get a better impression of its current capabilities but will train them in using those capabilities to their fullest potential. 

“I’ve been encouraging some of my teams to use their personal generative AI a little Black Mirror-like, [where you] keep talking to it, and it talks back. You get accustomed to how to give a context, how to get better answers. Sometimes, if you’re nice to it, [you get] a tighter answer than if you’re not. So experiment around with it. 

He gave an example from his own life, where he needed to learn more about digital services taxes. Through an extended conversation with an LLM  he was able to understand what the DST is and how it works and how accountants manage it. He was able to get good outputs from the model, though, because previous experience taught him that he needs to provide more context and information for a decent answer, because these models can get tripped up by ambiguities. He compared it to a fortune cookie that could be interrupted in many ways, people should be clear and concise when prompting AIs. 

“We’ve become a society of fortune cookies. I may ask ‘how is that project going’ and you tell me ‘it’s going good’ but what I mean is ‘is it on time?’ and what you might mean is ‘I had this hiccup that put me two weeks behind but now it is resolved so it is good.’ We can’t have fortune cookies when interacting with generative AI. You need clear, concise, contextual communication,” he said.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Accounting

Republican hardliners threaten to block deal on Trump tax bill

Published

on

Conservative hardliners threatened to block Republicans’ massive tax and spending package, jeopardizing passage of President Donald Trump’s signature economic legislation.

Ultraconservatives lashed out shortly after House Speaker Mike Johnson announced he had an agreement with lawmakers from high-tax states to increase the limit on the deduction for state local taxes to $40,000.

Several hardline Republicans said House GOP leaders aren’t honoring concessions the White House promised them.

Ultraconservative Representative Andy Harris of Maryland said Wednesday morning the Trump administration promised them in a “midnight deal” deeper cuts in Medicaid and faster elimination of Biden-era clean energy tax breaks.

“I’m sorry, but that’s a pay grade above the speaker,” Harris said.

Harris said the bill doesn’t reflect that agreement and hardliners will block the package if it comes to a vote. Fellow hardliner Ralph Norman of South Carolina said the bill “doesn’t have the votes. It’s not even close.”

The White House didn’t immediately respond to a request for comment. 

Johnson said there is “a chance” the package could come to a vote Wednesday.

— With assistance from Skylar Woodhouse

Continue Reading

Accounting

Strategies to optimize real estate tax savings

Published

on

Tax deductions — including those derived from depreciation — are a critical part of most companies’ financial strategies. However, this year’s uncertainty in Washington is resulting in a particularly unclear tax landscape, especially as it pertains to deductions from real estate holdings and capital expenditures. Will Congress extend 100% bonus depreciation? Will capital gains rates and corporate tax rates change?

Waiting for legislative decisions to shape your capitalization strategy could prove costly. Delays in planning may lead to missed opportunities, potentially costing your business millions in tax savings.

The solution? Start preparing for the alternatives, including the possibility of no bonus depreciation, now. 

By exploring strategies to increase your tax deductions through your real estate holdings and capital expenditures, you can position your business for a predictable tax situation in 2025, no matter what happens in Congress.

Here’s how to get started:

Revisit the tangible property regulations and devise a long-term strategy for capital expenditures

The final tangible property regulations made waves when they were introduced in 2014, offering businesses a structured framework for distinguishing between capital expenditures and deductible repairs. But by 2018, many tax departments shifted their focus to 100% bonus depreciation, which seemed like a simpler alternative to the complexities of TPR.

This shift made sense at the time, especially since Qualified Improvement Property — a bonus-eligible asset classification for most interior building improvements — largely overlapped with expenditures that could otherwise be classified as repairs.

However, as bonus depreciation phases out, TPR is regaining relevance as a powerful tool for expensing long-lived expenditures. Through repairs studies, businesses can still achieve comparable (or even superior) deductions for QIP and other capital expenditures.

While a quality repairs study requires a detailed analysis by an experienced provider, the effort is worth the investment. Certain capital expenditures, including roofing work, exterior painting, HVAC overhauls and elevator work, can qualify as a repair despite their exclusion from QIP and bonus depreciation eligibility. Depreciation recapture is not an issue with repairs expensing, simplifying the accounting process.

And finally, don’t forget to revisit your De Minimis Safe Harbor Election when evaluating your portfolio. This can add up to big numbers depending on your types of capital spend.

Identify and quantify missed prior year opportunities

It’s not uncommon for historical tax fixed assets to be depreciated over unnecessarily long lives. Many of these assets could have been classified into shorter tax lives, allowing for accelerated deductions that went unclaimed. The good news? It’s not too late to take advantage of those missed opportunities and use them on your current year tax return. 

Lookback studies enable businesses to retroactively reclassify assets and capture deductions they missed in prior years. Cost segregation studies, repairs studies, tenant improvement allowance studies and direct reclassifications are all good candidates for potential lookback deductions. 

Implementing these retroactive changes is straightforward. By filing Form 3115, businesses can claim the full benefit of missed deductions in their current tax year without having to reopen prior-year tax returns. Accounting method changes related to these types of adjustments are typically “automatic,” making the process even simpler.

Lookback studies offer several key advantages. From a strategic standpoint, taxpayers can leverage favorable tax provisions from prior years, such as bonus depreciation, depending on when the analyzed expenditures were incurred. Correcting simple errors, such as reclassifying nonresidential real property to QIP, can yield meaningful value with minimal effort. Additionally, taking a one-time catch-up adjustment for missed prior year accumulated depreciation often results in millions of dollars in immediate tax savings.

Proactively identifying these opportunities and having an implementation plan in place can ensure that businesses don’t leave money on the table.

Don’t underestimate the value of a traditional cost segregation study

A cost segregation study remains one of the most effective tools for accelerating tax deductions, even as bonus depreciation phases out. By reclassifying newly constructed or acquired long-lived assets into shorter-lived property categories (such as five- or seven-year property), businesses can unlock substantial tax benefits.

Nearly every property type, from small-scale residential to major commercial venues and arenas, can yield valuable accelerated tax deductions through a cost segregation study.

And while investing in a cost segregation for tax purposes, make sure to align the final deliverable with your intended long-term goals. This could include segregating assets for financial reporting purposes, assigning physical locations, building system, and quantities to assets for future disposition purposes, and evaluating the expenditures for additional tax credit potential. Making that extra effort now means cleaner, more organized fixed asset records that simplify future accounting processes. And who doesn’t love clean fixed assets?

Be sure to talk about other peripheral impacts of a cost segregation study, including potential benefits to property tax bills.

Devise a custom strategy

Whether your goal is to maximize deductions this year, create a multi-year tax plan, or evaluate opportunities within your existing real estate portfolio, the time to act is now. You can develop a tailored strategy that aligns with your overall tax planning goals — regardless of what Congress decides.

The tax landscape may be uncertain, but businesses that plan can stay ahead. By revisiting tangible property regulations, exploring retroactive opportunities and leveraging cost segregation studies, you can optimize your tax position and unlock millions in savings.

Don’t wait for Congress to make a decision — start preparing today.

Continue Reading

Accounting

Tax bill set to bring forward Medicaid work requirements to 2026

Published

on

House Republican leaders are planning to accelerate new Medicaid work requirements to December 2026 in a deal with ultra-conservatives on the giant tax bill, according to a lawmaker familiar with the discussions.

The revised version of President Donald Trump’s economic package — slated to be released publicly Wednesday — calls to move up work requirements to December 2026 from 2029, the lawmaker said, who requested anonymity to discuss private talks.

Work requirements have been a sticking point in reaching agreement on Trump’s tax bill, as Speaker Mike Johnson attempts to navigate a narrow and fractious majority.

The December 2026 deadline could also become an issue in the midterm elections, just one month earlier with Democrats eager to criticize Republicans for restricting health benefits for low-income households.

The lawmaker said there will be a waiver process for states unable to quickly comply with the deadline. The person also said that changes to the federal match for Medicaid enrollees won’t be in the bill and talks continue on changes to Medicaid provider taxes.

The debate over Medicaid has pinned lawmakers from high-tax states against hardliners. But the new Medicaid work requirement date could alienate several moderates concerned about cuts to the health care program for low-income people and those with disabilities.

Johnson can only lose a handful of votes and still pass the bill, which is the centerpiece of Trump’s legislative agenda.

The new date is also likely to provoke a backlash in the Senate.

It will be very difficult for states to implement the work requirements in a year and a half, said Matt Salo, a consultant who advises health care companies and formerly worked for the National Association of Medicaid Directors.

Squeezing the process of creating work requirements in every state into a compressed time frame is “almost a guarantee it won’t work” and will result in people who qualify for health coverage getting kicked out of the program, Salo said.

“Trying to speed run this into a much tighter time frame to hit an arbitrary budget target is not a recipe for success,” Salo said.

Continue Reading

Trending