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Practice Profile: Dreaming up a better tax season

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Accounting firm ASE Group does not do taxes on April 15, and its employees don’t work Fridays.

That’s the vision founder Al-Nesha Jones conjured up when she asked herself: “What would tax season look like if we had our way?”

Flexibility was a foundational principle for Jones in establishing her New Jersey-based practice in 2016, after she felt rushed back to work at her corporate job following maternity leave.

(From left to right) ASE Group founder Al-Nesha Jones, comptroller Ugo Williams, and chief of staff Amanda Hansley
(From left to right) ASE Group founder Al-Nesha Jones, comptroller Ugo Williams, and chief of staff Amanda Hansley

tamara fleming photography

By the time the pandemic hit four years later, Jones and her fully remote team of four had already mastered the new working models that COVID would normalize, but that period also inspired her to expand the practice from pure tax preparation to full-service accounting.

“We were catering to client needs — whatever brought the money in,” Jones recalled. “We didn’t get serious about [expanding] until the pandemic, when we realized people wanted more. Providing tax prep work was not enough. In a short period, people became day traders, moved out of state … We needed to pivot in the way we operated. We now offer a full-service solution to clients — accounting, tax prep, advisory. It entirely changed how we feel about the profession, how busy season feels. All good changes came out of it.”

However, Jones acknowledged, there was one bad change: having to cut the clients that did not align with the pivot.

“We like to think of it as finding a place that’s a better fit for them,” she explained.

The firm currently serves about 150 clients — specifically individual small-business owners who live or work in New Jersey, New York or Pennsylvania and are sole proprietors or single-member LLCs — though ASE is “slowly working [its] way down to 100.”

Jones exercises empathy in letting these clients go, explaining that the firm has outgrown their more simple service requirements. “We give them plenty of time to evaluate their options,” she said. “When we are parting ways, we don’t say, ‘You can’t stay anymore,’ we give a one-on-one explanation that, ‘You’d be a one-off to us, and that’d be a disservice to you.”

Jones also gives departing clients references to other accountants that specialize in their industry, with the caveat that ASE gets no commission, and they should do their own due diligence.

“We felt better not just sending them out in the wild,” she said, adding that these conversations often happen right after tax season, “so they have six-plus months to seek another accountant. We also provide one hour of transitional services at no additional charge. We gather documents; we are happy to do that at no additional fee. The intent is to not make it any more difficult than it needs to be. I’m training

my own brain: This is better for everyone. We do what’s best for them, and better for us also. Better for both parties. We get the capacity back to serve the clients we’re best equipped to serve.”

What Jones has also found to be universally beneficial is her team’s four-day work week. While her staff is all women, Jones said that it just “sort of worked out that way” after the interviewing process yielded women (and mothers) as the best candidates.

“What I love about working with moms is they tend to get it done, with an any-means-necessary attitude,” Jones shared. “I don’t condone an environment where you burn yourselves out. Moms are creative in their solutions and pivot well. This team adjusts quickly to change.”

No-email Fridays

It was Jones’ own adjustment period, launching her firm with a newborn in tow after she “didn’t want to be rushed back to work sooner than ready” in her prior job, that inspired her team’s flexibility.

In April 2016, she started renting an office with a security deposit and a promise to the landlord that, although she didn’t currently have the first month’s rent, she soon would.

That June and July, she started paying for the office space in the building where ASE Group still resides, though she is the only one of her virtual team who comes in.

“In the first 20 months of running the business, I was bringing my daughter to work two to three times a week,” Jones shared. “I was on meetings with her, Zoom calls; I nursed during meetings. In hindsight it sounds crazy.”

Jones’ philosophy of balancing work and personal life persists in the way her firm supports colleagues who “all prioritize family,” whether that’s a sick child or caring for a parent, as long as staff is accountable and takes care of their work. Productivity is also expected in ASE’s shorter work weeks, which were born out of COVID.

“With so much going on, as a mom of three children, with remote learning, a husband working from home — it was a challenging time to take a small breather… I felt so unbalanced working five to six days a week,” she explained.

“I explored four-day work weeks during the summer to see how clients would adjust,” she continued. “They were the easiest. Then to see how we adjust. What efficiencies of a normal work day can get done in four days instead of five days. I absolutely work some Fridays because of travel and school schedules. But we schedule no meetings or calls on Fridays, with no exceptions.”

While employees can of course still get work done as necessary, instituting the no-email and no-calls rule is so staff “don’t create unnecessary expectations,” Jones explained. “Friday is all of our days off — no one sends messages to anybody. You get to enjoy your Friday off.”

Both this policy and ASE’s mandate to get clients’ tax preparation work done well before the Internal Revenue Service deadline requires planning and adjusting client messaging.

“We revamped the process and changed the way we communicate with clients,” Jones said. “We had to start from scratch and reverse-engineer how it would work. It started with what we wanted it to look like, not the systems or software, but blue-sky thinking, what tax season would look like if we had our way. What it would look like was: no surprises, talking to clients during the year. We talk to clients at least four times a year. We call 30 days before the estimated tax deadline.”

ASE Group works under internal deadlines. “We don’t care about the April 15 deadline for tax,” Jones said. “We only operate under our own deadlines, which tend to be at least two weeks before external deadlines. If, God forbid, we can’t meet internal deadlines, we can breathe easy with a buffer in place.”

ASE staff meet these self-imposed deadlines with more frequent client communication and weekly team calls internally.

Jones said it’s OK if two or three clients end up falling closer to the April or October deadlines, but “if half of clients go on extension or wait until October, there’s panic. It doesn’t have to be that way, and if the client likes to operate like that, it’s not a good fit.”

Advisory is the cure

Jones was not even sure the accounting profession was a fit for her until she participated in the Goldman Sachs 10,000 Small Businesses program and learned to conceptualize a new future for her career.

“I was thinking, ‘I’m not a good accountant, I can’t do this, it’s way too stressful,'” she explained. “It was realizing it’s not tax I hated, but the constant working toward deadlines, doing things last minute, all a surprise. But it’s not. It’s one of the easiest, most predictable industries. You can plan due dates. Operating with blue-sky thinking, I could step away from what I’m doing now, and it taught me what it could be like and how to make that a reality.”

ASE Group’s lower-stress tax seasons involve scheduled phone calls to check in on clients’ current financial needs and lean more into the advisory side of tax planning.

“What you need first, is advisory all throughout the year,” she said. “So that at the end of the year it’s not a pop quiz — what am I going to do on my taxes? It doesn’t have to be a surprise. I hate delivering bad news, and I also hate surprises. It’s like Groundhog Day, telling people [what to do on their taxes] … having the same conversations over and over again. People expected that they did all they needed all year, then dump it on their accountant. I’m not a magician. I felt so anxiety-ridden. The cure for that suffering is advisory.”

ASE’s regular client calls — scheduled six months out — also alleviate other common ailments, like financial anxiety and procrastination.

“It’s getting us in the position to help them reduce surprises,” Jones explained. “By the time tax season rolls around, it’s just filing season. Not strategizing season, not planning season. When a child has a test, like the SATs, they don’t show up on test day ready to study. When they show up to the test, they make sure they had a good night’s sleep, they ate breakfast, and they sharpened their pencils. All year is study season.”

The phone calls are mandatory, whether or not clients have updates. “Some clients don’t have anything new to tell you. Those clients don’t have to use all the time — if they get on the phone and tell me absolutely nothing … I’m happy to end the phone call early. The beauty is creating a routine, the consistency of it.”

Often, however, clients who think they have nothing new to report realize that they do when Jones and her colleagues engage them in more casual conversation leading to relevant life updates.

“Sometimes they struggle with financial anxiety, and don’t always want to tell you things aren’t great,” Jones shared. “The conversation is relaxed, and those conversations become more fluid and open.”

“We don’t want you to go on Google and Tiktok trying to be your own advisor,” she continued. “We ask that you allow us to prepare you for what creates an issue versus what doesn’t. We are talking in conversations about kids, family trips. In those conversations we have an agenda of listening to what they are saying … . If [for example] they are thinking of starting a new job, ‘We can help you complete a W-4.’ Something we can support you in.” AT

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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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