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Technological transformation in accounting: Be mindful, purposeful, and flexible

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Thirty-nine percent — that’s how much more revenue per employee firms that are “early adopters” of technology make. 

That number, from a recent RightWorks survey, surprised even me. But it makes sense. The accountant shortage is taking a toll on the millions of small businesses in the United States. Anything that makes firms more efficient in providing service will automatically increase revenue potential, especially if that practice is also optimizing its billing structure. 

The information age, beginning all the way back in the 1980s, created opportunities for businesses of all kinds, including accounting firms, to be more efficient and streamline their processes. But firms didn’t modernize in one fell swoop. In fact, “going paperless” is a discussion some firms are still having. Technological transformation is an ongoing process, and firms need to adapt at a pace that makes sense for them and their clients.

For instance, cloud technology is a given today. Having all your information in one, secure, accessible place is beneficial to staff and clients. Firms report that security is a top concern and reason for hesitation on full cloud adoption, but firms that have completed migrations into a completely integrated cloud system typically report that security (and accessibility) are the top benefits.

When creating a strategy for technological transformation at your firm, remember that advancements in technology are so rapid and fast-moving that concerns from a decade ago may not be relevant today. Of course, security should always be top of mind, and cyber insurance is something to consider. The AICPA offers the AICPA Professional Liability Policy, and there are many other third-party organizations that provide this type of coverage. But also important to remember is that what used to be true, often is not anymore.

For example, firms used to consider the best-of-breed pieces of technology for each need: the best portal technology to speak to clients; the best tax software; the best data analytics tool. Then, as software companies began to offer suites of technology that provided everything a firm would need, where all the pieces talked to each other, that became the norm. Now things are shifting back a bit — it’s possible now to find the best of breed in technology and use third-party APIs to connect those pieces seamlessly. The bottom line is, when creating your technology strategy, think flexibly. Technology changes so quickly that you want to be able to adapt with it — but not so impulsively that you’re changing your stack every year. 

I do see a shift away from platform-based shops — i.e., firms that use primarily one technology provider for their technology stack. It’s an exciting time. Much more is possible these days with API connectors and the right staff to manage the technology (more firms are hiring non-CPA IT staff for this or outsourcing the job during adoption). But at the same time, as always, firms should be careful and deliberate in their technology stack planning.

2024 AI

MangKangMangMee – stock.adobe.com

Artificial intelligence is on the rise. While AI is just automatically embedded in more and more software, some firms also adopt simple tools, such as AI-driven chatbots to perform preliminary conversations with prospective clients through their websites. But clients don’t love them. A recent Harvard Business Review study found that 66% of customers using chatbots (in the telecommunications industry) rated the experience a 1 out of 5. Clients don’t like feeling like they’re speaking with a robot, and AI chatbots aren’t developed enough as yet to give nuanced information or answer complex questions. This is fine if all you require from your chatbot is simple, entry-level conversation, but keep in mind that technology isn’t serving you if the client isn’t happy.

AI is embedded in all kinds of software today, non-client facing and otherwise. But the point is, it’s important to be careful and not rush into adopting technology simply because it’s new and attractive. Yes, early adopters of technology broadly see a lot of benefit — but it behooves small and midsized firms to make a comprehensive plan, consult with experts, and be mindful and purposeful when building their technology stack. Especially because technology is a significant investment.

Think about what drives your firm. Is it primarily tax services? Great — you need a tax platform, and a compliance platform that makes sense. Then think about what supplemental services support what drives your firm. Maybe you’d like to add a piece of technology to provide tax strategy help to clients. Then you want to ask, “How do I layer this into my tech stack?” Decide as a firm what services you are in, what you are offering, and how to deliver these in the best way. And then to tie it all together — what is your internal process of communications to make sure you’re not missing anything?

Finally, remember that you don’t have to do it all on your own. Firms can hire temporary staff to help them through their technology transformation process, or outsource their IT and technological needs to companies that provide such services such as TechGuru or ImagineIT. As you go through this process, do it mindfully, purposefully, and with the ability to be flexible as technological advancement continues to progress.

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Accounting

In the blogs: Higher questions

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Valuations this year; handling interviewees; AI and accounting ed.; and other highlights from our favorite tax bloggers.

Higher questions

Haunting of the Hill House

  • Eide Bailly (https://www.eidebailly.com/taxblog): The House Ways and Means Committee planned to begin to publicly debate and amend tax legislation on May 13, with the ultimate goal to produce the “one big, beautiful” bill to extend the Tax Cuts and Jobs Act: “This is the stage where seemingly dead and buried ideas mysteriously come back to life to haunt the proceedings.” 
  • Wiss (https://wiss.com/insights/read/): Key highlights of the proposed beauty.
  • Current Federal Tax Developments (https://www.currentfederaltaxdevelopments.com/): And a bulleted summary.
  • Tax Vox (https://www.taxpolicycenter.org/taxvox): If Congress expands the Child Tax Credit with TCJA extension, who might benefit and what might it cost?
  • Tax Foundation (www.taxfoundation.org/blog): Policymakers will also decide the fate of the SALT cap. Debate rages about making the cap more generous, along with possible limits on pass-through workarounds and SALT deductions  by corporations. While capping business SALT could raise additional revenue, it would risk slowing economic growth.

Soft skills

Rational decisions

Tidying up

  • Boyum & Barenscheer (https://www.myboyum.com/blog/): Should you vacuum the meeting room? How many times should you talk with a candidate? Keys — some often overlooked — to effective interviewing.
  • The National Association of Tax Professionals (https://blog.natptax.com/): A WISP is the written information security plan that verifies how your firm protects taxpayer information. You can’t ignore them anymore, and here’s how to build a compliant one.
  • Taxing Subjects (https://www.drakesoftware.com/blog): An outstanding guide to SEO for accounting firms. 
  • AICPA & CIMA Insights (https://www.aicpa-cima.com/blog): Where does AI fit into accounting education? Everywhere.

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Accounting

House committee marks up tax reconciliation bill

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The House Ways and Means Committee held a hearing Tuesday to mark up the so-called “one, big beautiful bill” extending the expiring provisions of the Tax Cuts and Jobs Act while adding other tax breaks for tip income, overtime pay and Social Security income and eliminating tax credits from the Inflation Reduction Act for renewable energy as well as the Direct File and Free File programs.

“Today, this Committee will move forward on President Trump’s promise of delivering historic tax relief to working families, farmers and small businesses,” said committee chair Jason Smith, R-Missouri, in his opening statement. “The One Big Beautiful Bill is the key to making America great again. This moment has been years in the making. While Democrats were defending IRS audits on the middle class and tax carveouts for the wealthy, Republicans on this Committee got on the road, to hear from real Americans about how the 2017 tax cuts benefited them. This bill wasn’t drafted by special interests or K Street lobbyists. It was drafted by the American people in communities across the country.”

Democrats blasted the bill. “In 2017, Republicans passed a tax law that was supposed to pay for itself, raise wages, and help working families,” said ranking member Richard Neal, D-Massachusetts. “None of that happened. Instead, it exploded the deficit, worsened inequality, and left everyday Americans behind. Now they want to double down on the same failed playbook. One that rigs the system for billionaires and big corporations while everyone else pays the price.”

Among the provisions, the bill would make the expiring rate and bracket changes of the TCJA permanent and increase the inflation adjustment for all brackets excluding the 37% threshold, according to a summary from the Tax Foundation. The bill would also make the expiring standard deduction levels permanent and temporarily increase the standard deduction by $2,000 for joint filers, $1,500 for head of household filers and $1,000 for all other filers from 2025 through the end of 2028. It would also make the personal exemption elimination permanent, and make the $750,000 limitation and the exclusion of interest on home equity loans for the home mortgage interest deduction permanent. It would also make the state and local tax deduction cap, also known as the SALT cap, permanent at a higher threshold of $30,000, phasing down to $10,000 at a rate of 20% starting at modified adjusted gross income of $200,000 for single filers and $400,000 for joint filers.

Other changes and limitations to itemized deductions would be made permanent, including the limitation on personal casualty losses and wagering losses and termination of miscellaneous itemized deductions, Pease limitation on itemized deductions, and certain moving expenses.

The bill is likely to go through some changes when it goes to the Senate. “Politically, we’ve been talking about the process for the last couple months,” said Mark Baran, managing director at CBIZ’s national tax office. “Congress is finally able to pass a concurrent resolution to unlock the budget reconciliation process.”

“The House and the Senate have completely different instructions on what they’re going to cut and how they’re going to score,” he added. “Some of that’s very controversial, and that needs to be worked out. But now we’re getting into the actual crafting of provisions and legislation.”

According to a summary on the CBIZ site, the bill would make permanent and increase the Section 199A pass-through entity deduction from 20% to 23%, also known as the qualified business income, or QBI, deduction. The bill includes provisions that open the door for pass-through entity owners in specified service industries to use the deduction. It would also extend current deductions for research and experimental expenses through Dec. 31, 2029, and extend 100% bonus depreciation through that same date.

The bill would also allow businesses to include amortization and depreciation when figuring the business interest limitation through Dec. 31, 2029, while making permanent the excess business loss limitation.

In addition, the bill would retroactively terminate the Employee Retention Tax Credit for taxpayers who filed refund claims after Jan. 31, 2024. 

In keeping with Trump campaign promises, the bill would eliminate taxes on tips for employees in certain defined industries where tipping has been a traditional form of compensation. There would be a new $4,000 deduction for seniors that phases out starting at $75,000 of income. The bill would also eliminate taxes on overtime pay.

The bill would give individuals an above-the-line deduction for interest on loans used to purchase American-made cars, but that would be capped at $10,000 with income phaseouts starting at $100,000 (single) and $200,000 (married filing jointly).

The bill would also increase taxes on certain private college investment income up to a maximum of 21% on universities with a student-adjusted endowment above $2 million.

It would also roll back some of the renewable energy provisions from the Inflation Reduction, including a phaseout and restrictions on clean energy facilities starting in 2029, while also limiting or eliminating clean housing energy and vehicle credits. The bill would sunset major IRA clean electricity tax credits, including the clean electricity production tax credit (45Y), clean electricity investment tax credit (48E), and nuclear electricity production tax credit (45U) begin phasing out after 2028 and finish phasing out by the end of 2031; repeal hydrogen production credit (45V) for facilities beginning construction after 2025, according to the Tax Foundation. It would also phase out advanced manufacturing production credit (45X) for wind energy components after 2027, for all other eligible components after 2031. Across several IRA clean energy credits, the bill would repeal transferability after the end of 2027 and further limit credits based on involvement of foreign entities of concern. On the other hand, it would expand the clean fuel production credit (45K), and tighten rules on the 126(m) limitation for executive compensation.

The bill would terminate the current Direct File program at the Internal Revenue Service and establish a public-private partnership between the IRS and private sector tax preparation services to offer free tax filing, replacing both the existing Direct File and Free File programs.  

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Accounting

FASAB mulls accounting impact of federal reorganization

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The Federal Accounting Standards Advisory Board is asking for input on emerging accounting issues and questions related to reporting entity reorganizations and abolishments as the federal government endures wide-ranging layoffs and reductions in force, including the elimination of entire agencies by the Elon Musk-led Department of Government Efficiency.

“Federal agencies and their functions, from time to time, have been reorganized and abolished,” said FASAB in its request for information and comment

Reorganization refers to a transfer, consolidation, coordination, authorization or abolition of one (or more) agency or agencies or a part of their functions. Abolition is a type of reorganization and refers to the whole or part of an agency that does not have, upon the effective date of the reorganization, any functions.

The Trump administration has recently moved to all but eliminate parts of the federal government such as the U.S. Agency for International Development and the Consumer Financial Protection Bureau, and earlier this month, Republicans on the House Financial Services Committee passed a bill that would transfer the responsibilities of the Public Company Accounting Oversight Board to the Securities and Exchange Commission. 

FASAB issues federal financial accounting standards and provides timely guidance. Practitioner responses to the request for information will support its efforts to identify, research and respond to emerging accounting and reporting issues related to reorganization and abolishment activities, such as transfers of assets and liabilities among federal reporting entities. The input will be used to help inform any potential staff recommendations and alternatives for FASAB to consider regarding short- and long-term actions and updates to federal accounting standards and guidance in this area.

The questions include:

  1. Have any recent or ongoing reorganization activities or events affected the scope of functions, assets, liabilities, net position, revenues, and expenses assigned to your reporting entity (or, for auditors, your auditees)? If so, please describe.
  2. What accounting issues have you (or your auditees) encountered (or do you anticipate) in connection with recent or potential reorganization activities and events?
  3. Please describe the sources of standards and guidance that you (or your auditees) are applying to recent, ongoing, or pending reorganization activities and events.
  4. Have you experienced any difficulties or identified gaps in the accounting and disclosure standards for reorganization activities and events? What potential improvements would you recommend, if any?

FASAB is asking for responses by July 15, 2025, but acknowledged that late or follow-up submissions may be necessary given the provisional nature of the request. Responses should be emailed to [email protected] with “RERA RFI response” on the subject line.

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