If the predictions and emerging trends are right, it’s important for firm leaders to plan accordingly. M&A is a profoundly serious matter, and you need to be prepared. Do not schedule any conversations with your competition without tackling the following priorities:

Define success. Both sides in a transaction have to know what success will look like. Generally, success incorporates staffing, expanded client service, enhanced market presence, expertise, broader support, growth, security, and profitability. Parties may be looking for different things, but success is achieved when both can deliver it for each other and when the results do not cause conflict for the parties.

Examine anxieties. It is natural to have concerns about change. Thinking through worries that may result either from a problem or from success is crucial to starting a meaningful and productive dialogue. Nothing goes 100 percent right. Both parties need to be realistic and forthcoming in the conversations. Think through and discuss the things that would keep you both up at night.

Know your data. And know what data other firms like to dissect. CPAs are by nature data-driven, and the finance culture is validated by data. Billing rates, AR turns, achieved rate, production per full-time employee, and realization by service line are all solid starting points.

Understand strengths and weaknesses. No business is perfect — and no one expects it to be. At the same time, the strongest businesses know what they are and what they are not. Get an objective expert to provide an assessment ahead of meaningful conversations so you know how to protect and pursue your best interests while looking for a firm that complements yours.

Be aware of value and compensation. M&A transactions have a strategic purpose, but, without a fair set of financial terms, the deal is doomed. Be aware of the going ranges for value and the most prevalent compensation models.

Get personal. Mergers are successful when people are comfortable. Firm cultures need to align, and operational priorities need to be in sync. Each side needs to understand what kind of compromise they are ready for, what kind of compromise they may need to make, and an idea of what the consequences might be upon merging. Best practices may be difficult to coordinate if parties have strong preferences. Think through some of the potential culture and personality roadblocks (or synergies), and know where they are rigid ahead of a serious conversation with another firm.

Think about time and timing. All practices have their own rhythm. This rhythm should influence when any transaction would be effective in terms of time of year and time within the professional lifelines of the players. To succeed, the players have to be ready to spend time. Get a sense from experts — whether they are consultants or deal-making firms — as to how long a process the M&A could be. Not putting the right time in early will be in no one’s best interest.

In our current environment, getting contacted about M&A should not come as a surprise, but you may be surprised by the firm contacting you. In the way that every firm prepares for busy season, every firm should prepare itself for M&A conversations. The pandemic has made us all realize how precious time is. Get ready now so you can optimize your time and set yourself up for success when the calls happen.

For more information visit: https://www.accountingtoday.com/opinion/get-ready-for-the-next-merger-wave-in-accounting

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It is important to have a CPA during tax negotiations because these factors are not obvious, and they are indirectly related to the items in your spouse’s financial assets. For example, who would think to examine a list of vendors for proper Form 1099-MISC documentation? I’ll tell you who… a good CPA who is familiar with divorce proceedings. 

The amount and the number of the assets involved will determine what is at stake. Our advice is to consider the list of financial assets as a starting point and tell your attorney you’d like to have your CPA do a review from a tax and financial perspective.              

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1. P.S. 58 costs

When an employer pays the premium on a life insurance policy for the benefit of an employee, the “P.S. 58 costs” are normally applied to determine the taxable benefit passing to the insured employee. Such costs are documented by a Form 1099-R. The dollar amount of the 1099-R is usually immaterial, but it may translate to a large insurance policy.

Why this is important: Many divorce agreements require that life insurance be held until certain conditions/terms are met. So, if there is an existing policy already in place with your client’s spouse’s employer, this will likely reduce the need for a new or additional policy. Also, the policy may have some cash value, which will be an additional marital asset to be split. Furthermore, if there is a policy in place, you will want to confirm who is selected as a beneficiary on the policy.

2. $15,000 annual gift limit

Each year, taxpayers can give up to $15,000 to anyone they want — without any income or gift tax implications. Keep in mind that the recipient will pay tax on any income they earn from this money in the future, but they do not have to pay any tax on the actual gifted money when they receive it. Your client’s spouse is excluded from this as unlimited gifting is allowed between spouses.

Why this is important: If your spouse has been giving money to their friends and family, over the annual limit to reduce their net worth then that will need to be factored into the settlement. Excluding the assets from their net worth is a big concern here, and it is critical that these funds are included and part of any settlement. 

3. Applicable federal rates

If you lend someone a substantial amount of money, you must include interest to make it stand up as a valid loan. In this instance, many people would use the IRS applicable federal rates which represent the absolute minimum market rate of interest a lender could consider charging a borrower to prevent unnecessary tax complications. There are three AFR tiers — short-term (for loans with a repayment term up to three years), mid-term (loans with a repayment term between three and nine years), and long-term rates (for loans with a repayment term greater than nine years).

Why this is important: If your spouse is claiming that someone has lent them money, this will directly reduce their net worth and they likely reported it as a liability on their net worth statement. Any loan they report on their net worth statement needs to have supporting documentation. So, the first thing to check is to see if the loan documents include an interest rate, at least at the minimum AFR rate corresponding to the term of the loan. If not, then this is not a valid loan, and the amount should be added back to their net worth statement and be deemed part of their assets.

4. Section 179

This is the IRS section that allows a taxpayer’s business to deduct the cost of certain property as an expense when the property is placed in service. Generally, this applies to real property, improvements and tangible personal property such as machinery and equipment purchased for use in a trade or business.

Why this is important: If your spouse is claiming that the business had lower profits last year and therefore their business is worth a lot less, they need to examine the business tax return. It is possible that their spouse took advantage of Section 179 depreciation, which reduced the business net taxable income. 

5. Form 1099-MISC

If a business engages independent contractors, and that independent contractor or entity is an unincorporated business, to “validate” the business deduction, the business will need to prepare and file a 1099-MISC form with the IRS. This lets the IRS know that the business incurred a business deduction, and the recipient of the form should include it in their income.

Why this is important: While doing due diligence on the records of your spouse’s business, if you find that payments were made and a 1099-MISC Form was not prepared, then your spouse is likely trying to reduce their business income with non-business expenses. These amounts should be added to the net income of the business and will likely increase the value of the business.

6. 529 plans

Contributions to 529 college savings plans are covered under the gift tax rules — the $15,000 annual maximum outlined above — with one exception. Individuals may contribute as much as $75,000 to a 529 plan in 2020 if they treat the contributions as if it were spread over five years. 

Why this is important: Legally, once the funds are deposited into the 529 account, the funds belong to the beneficiary, likely your child. Many times a spouse thinks the funds are theirs and will try to withdraw the funds from the 529 account at a later date, without telling the child, and not use it for the child’s education. You need to make sure that these accounts are tracked and that the funds are used for their original intent.

7. 1031 exchange

Simply put, Section 1031 allows an investor to defer paying capital gains taxes on an investment property when it is sold.

Why this is important: It is critical to understand the correct tax basis of each property to ensure that assets are split equitably. For example, let’s assume you own two investment properties, each with a fair market value of $1 million. Both properties were purchased at a cost of $900,000. One property was recently purchased for cash and the second property was acquired using a 1031 exchange where your client deferred $500,000 of gain, from a property they owned for many years. If they sold the first property, they would have a taxable gain of $100,000. If they sold the second, their taxable gain would be $500,000. While these properties are equal in current fair market value, they are not equal in after-tax fair market value — which is critical to a fair and equitable split of assets.

8. Equity-based compensation and awards

Equity-based compensation comes in many forms, but most equity-based compensation awards are made under some form of a written plan. The plan will provide a full understanding of compensation, including the value and terms of the awards. Vesting rules and transferability limitations are also crucial. Vesting is, in effect, when the award is actually “owned” by the recipient. So, if the award is for $100, but the employee is only 25 percent vested, they only own $25. The key issue is to understand when they “own” the other $75. Transferability refers to the rights and limitations around the ability to transfer the ownership of the award to others.

Why this is important: Equity awards are complicated rights governed by multiple authorities. They can be a significant portion of the marital estate. Unfortunately, there is no method of valuation of equity awards that is widely recognized and accepted — so, you should be prepared for multiple rounds of information gathering and analysis. Just understand that many award-related actions have a taxable impact, many of which are very significant.

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Any business owner understands the difficulty of starting a new business and keeping the business alive. In most cases, crucial decisions must be made in order for the business to move forward, including potential buyouts as part of a growth strategy or exit strategy. This is where mergers come in.

Mergers and acquisitions (M&A) is an umbrella term that covers quite a lot. For the purpose of this article though we are defining a merger as two or more businesses “joining together”. If you are a business owner who is considering a merger at some point, it is vital to learn more about this process early in the game. While a merger can prove vital for your business, the business will definitely go through some changes in order to stay relevant and profitable. Mergers are a principle way for some businesses to expand, however, there are certain traps you must avoid.

Finding a Good Fit

Trap: Disalignment of desires and intentions 

Each owner may have an initial idea of what he or she wants to accomplish with the merger, but together they may fail to flush out the details. If the owners have failed to discuss their expectations candidly, they will probably become frustrated and unhappy after the deal has closed, which can undermine the success of the merged businesses. Many business owners use consultants to facilitate these discussions and ensure that both businesses are truly open about their desires and intentions.

Trap: Clash of company cultures.

One business may have very talented personnel; the other has more name recognition, which can translate into greater marketing success. Even though on paper a merger may seem like a good idea, owners and employees of the two businesses may not mix well. One team may be used to autonomy; the other may thrive under micromanaging. Make sure that your proposed marriage with another business won’t suffer from incompatibility.

Control

Trap: Failing to allocate each owner’s percentage 

Rarely is a merger a 50-50 proposition. Carefully allocate each owner’s percentage before committing to the merger. Give consideration to pre-merger accounts receivables as well as any promised/expected bonuses that have not yet been paid before a merger is completed.

Trap: Confusion of who has the last word 

One of the key issues for business owners when two businesses merge is who will call the shots. Until the merger, each owner has been supreme within his or her business. Decide who will be in charge when the merger is completed. There are ways to have these decisions rotate for fairness and also ways to deal with tiebreakers. Other issues to settle before the merger include:

• Business Name
• Positions on the governance board
• Staff retention

The Unknown

Trap: Failing to bring in professionals in the beginning.

Business owners may shake hands on a deal before even talking with their CPA and attorney about the merger. This mistake can be critical. A consultation will help owners think through the structure of the deal as well as the shape of the practice after the merger.

Trap: Failing to do your due diligence

When deciding whether to merge with another business, ask your CPA to assist in doing a due-diligence and check for any debts, judgments or potential judgments, payroll and other taxes, contracts with suppliers, employment contracts with staff, and other obligations you may incur. This is very tricky because it is a search for the unknown. You have to think of what was undisclosed or not fully represented, that you wish you’d have known before you made a commitment? This is very easy to leave unattended or to short-cut the process because you were caught up in the excitement of doing the deal. This is where our brains give way to our emotions. Here is where the help of a CPA and legal counsel, who are independent and experienced and who can ask the tough questions to find out if things are truly what they seem to be. 

Final Word

M&A is a powerful strategy that practices have been using for decades. As long as it is done correctly and with enough preparation, you’ll be able to enjoy its benefits in the long run. Use your outside professionals early on so that negotiations take place in a business-like manner and the road to future success will be laid out with much more certainty.

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For some CPAs, the transition to remote was fine, and some even thrived. For others, the transition to a remote career has been more of a challenge. To help smooth out the remote process consider these pointers:

Manage projects transparently

Showing clients the progress on their projects or requests can increase the level of trust between the client and the accountant. Project trackers such as Trello or Workfront enable you to easily share a project dashboard with clients. 

Digitize payments

These days there fewer and fewer paper invoices and checks. Some CPAs cling to checks because they’re useful for establishing an audit trail. However, they can create cash management problems for clients and vendors. Sophisticated CPAs enter their payees’ ACH info once and automate the payments from thereon. 

Even more advanced CPAs use AI platforms to digitally parse, allocate, and pay invoices. This results in more time to provide more interesting high-value information to clients.

Stay collaborative

CPAs are used to sitting with their clients (or company executives) in a conference room where everyone has a copy of the financial statements. It can be hard to understand the numbers without context. Consider doing introductions and catch up with video conferences, and then use screen-sharing to share spreadsheets, navigate clients through their QuickBooks, or show invoices from an AR or AP automation platform. This approach will streamline approvals and slow the slew of emails and questions you would receive later if clients were to review the numbers on their own.

Be proactive, but not annoying

CPAs need to find a balance between being proactive and annoying. Yes, clients want your help surviving the shutdown, but they don’t want to hear from you daily or weekly. Most would prefer a short and relevant email once a month that provides actionable information.

Be concise or call

Use one introductory sentence, two at most. Deliver the details in bullets, then be done. If a client opens your email on their smartphone and has to thumb-scroll more than once to reach the end, that email won’t be read for days. If you find yourself overwriting, pause, and schedule a call instead. Fifteen minutes on the phone is more productive than a chain of 15 distracting emails.

Offer clients an automated scheduler

Don’t waste your time emailing time back and forth instead offer your clients an automated scheduler (e.g., Calendly, Appointlet or GigaBook) where they can pick times within parameters that can be pre-set.

Conclusion

Working with clients and coworkers remotely can be challenging, but new technology advancements are improving efficiency daily. These new and improved methods will ensure a more resilient, secure, transparent, and convenient future for the accounting world, whatever the future may hold.

For more information please visit: https://www.accountingtoday.com/list/6-productivity-hacks-for-the-remote-cpa

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The percentage jumps in this survey seem significant given that in recent years preparers prep fees tend to increase about 5 percent a year, with higher increases coming in the wake of tax law changes or the retooling of forms, both of which happened in the last two years.

Flat-fee or Bill-by-form has also become much more popular (81 percent of respondents) than hourly billing.

For more information please visit: https://www.accountingtoday.com/news/big-jumps-seen-in-tax-prep-fees-survey

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Major Findings of the Survey:

Just under a third of large accounting firms reported plans to downsize their office space in the aftermath of the pandemic. Over two-thirds of respondents felt “very positive” about their firm’s response to the pandemic. Regardless of firm size, two-thirds of leaders at practices reported that the greater number of employees working from home had led to a decrease in productivity. Overall, 82 percent of accounting firms were “very” or “somewhat” likely to allow employees to work remotely even after the pandemic, compared to 73 percent of businesses in the broader survey.

Note from Ferrone & Associates CPAs

Like many other firms across the country, Ferrone and Associates CPAs has also made the decision to permanently change our work environment to a hybrid in-person and remote situation.  Luckily, we were already prepared when the decision to work remotely was made.  We have continually been investing in new technology out of curiosity and in search of benefits for increased functionality and flexibility. Although the decrease in in-person communication has required some adjustments, we are proud of our preparedness and adaptability. 

As we enter a new era, we will now have a presence in an executive office suite.  Our contact information will remain the same, with the exception of our address which is now 3001 South 700 East, Suite 500, Salt Lake City, UT 84107. 

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Approved Uses for the PPP Loan Funds

As you get ready to spend your newfound funds, it’s crucial that you utilize them exclusively for approved uses. To make sure you don’t accidentally misuse the money from your PPP loan, we’ve listed out the core spending options for your business:

We’ve listed some of the core spending options for your business:

• Payroll Costs
  • Salary, wages, commission, or similar forms of compensation
  • Paid vacation, parental, family, medical, or sick leave
  • Allowance for dismissal or separation
  • Healthcare benefits (including insurance premiums)
  • Retirement benefits
  • State or local taxes assessed on the compensation of employees
• Other Business Costs
  • Interest, but not principal on your mortgage 
  • Rent
  • Utilities
  • Interest on any other business debt that was incurred before February 15, 2020

Despite being lumped into only 2 categories, the ways you can safely spend your Paycheck Protection Program (PPP) loan are incredibly diverse, so it’s important to keep them in order. Also if you received any Economic Injury Disaster Loans (EIDL) and/or related Emergency Economic Injury Grant (EEIG), you need to be aware that any crossover in funds could result in you losing out on the chance for total loan forgiveness. As scary as that scenario sounds, there’s a pretty spectacular solution.

Ferrone & Associates PPP Bookkeeping Program

At Ferrone & Associates CPAs, we can assist you with tracking these expenses with the setup and aid of our  Online PPP Bookkeeping Program. PPP bookkeeping is the online tool we use to track all of your expenses and stay on top of your PPP loan use. Packed with all manner of exciting features, this service can help your business grow while keeping an eye on your operations. And the best part is—it’s completely affordable.

An impressive expense tracking system is built right into the program. 

Once you’ve joined our program, we will assist you in linking the bank account and credit cards for your business, and all of your expenses and income can be automatically categorized. These incredible features mean every time you use the funds from your Paycheck Protection Program (PPP) loan, you know exactly where it’s going, how it’s being used, and how to report on all the details when the time comes. No stress, just easy bookkeeping, that we do for you. 

The Financial Features Your Business Needs

The practical applications of this robust bookkeeping system go way beyond monitoring expenses as they relate to the PPP. There’s a laundry list of incredible features designed to make your life easier. Ferrone & Associates CPAs can:

1. Put Your Business on the Fast Track to Future Capital Any business owner who has applied for loans, grants, or any other form of financial aid can attest to the red-tape rigamarole that goes along with it. When other small businesses scramble to organize receipts, bills, and other expense details, Ferrone & Associates CPAs can set you up for success. Using our PPP Bookkeeping Program, we can keep and categorize your information with automatic expense tracking and financial reports, which can help you satisfy the requirements of the government or other lenders, as well as identify areas of operational improvement that will help reduce stress during crises like the coronavirus (COVID-19) pandemic.

2. Help You Manage Cash Flow PPP Bookkeeping offers highly customizable invoices. These invoices allow you to plug in your logo, business, and billing information, add sales taxes based on the location of your customers, and more. You can also send individualized quotes and estimates that easily convert into invoices with one click. You can also add discounts, handle refunds, and see where your invoices sit, whether they are paid, unpaid, or overdue.  At Ferrone & Associates, CPAs, we are highly experienced in implementing and aiding you in the customization of your invoices.

3. Give You a Personal Business Bookkeeper For business owners who don’t have the inclination, knowledge, experience, or even the time to mess with bookkeeping, using Ferrone & Associates CPAs will give you access to a real-life, professional CPA. Starting at only $149 per month, you can sync your expenses and offload the hassle to an expert. We can handle the monthly closing of your books, help with your taxes, and be available to answer all of your questions by email or text.

The Right Call for Your Business

Whether it’s to track the relevant expenses for your PPP loan, EIDL, and EEIG or to make sure your customers are using your high-quality invoices to pay you on time, PPP Bookkeeping is an excellent addition to your daily small business setup. Whether you use the basic bookkeeping version or upgrade to other services that we provide, Ferrone & Associates CPAs is capable of taking your business to the next level. Now’s the time to join in, you’ll be glad you did.  

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At first glance, the plan’s provisions seem simple. Adults would get $1,200 each and $500 per child.

However, as income increases, the checks get smaller: The benefit would start decreasing at a rate of $5 for every additional $100 in income. The phaseout starts at $75,000 in adjusted gross income for singles, $112,500 for heads of household, and $150,000 for married couples filing jointly. It would be phased out entirely by $99,000 for singles and $198,000 for couples (with no children). For example, a single childless person with an AGI of $85,000 would receive $700 instead of the initial $1,200 because their high-income results in $500 of the benefit being phased out.

To receive a check of any amount, an income tax return must be filed. If you haven’t filed your 2019 tax return then the IRS will use your 2018 tax return to determine if your eligibility.

It is estimated that in 2019 about 43.8 percent of American “tax units” owed zero tax or expected a refund. Most of these Americans will file tax returns to get refunds, but millions of others (roughly 12 percent) don’t file their taxes for various reasons. The Senate bill as written would require these people to file 2019 returns to get their coronavirus checks.

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1. Know if you will take the standard deduction

It’s important to know whether you expect to take the standard deduction before making decisions on year-end spending that would normally generate itemized deductions.  Tax reform doubled the standard deduction while repealing or limiting numerous itemized deductions, leaving millions fewer taxpayers claiming actual itemized deductions.

 If your itemized deductions are unlikely to total at least $12,200 (or $24,000 if married and filing jointly), you will not get any deduction for things like charitable gifts or elective health care procedures.

2. Maximize “above-the-line” deductions

Above-the-line deductions are especially valuable because so many taxpayers will no longer itemize deductions. They also reduce the taxpayer’s adjusted gross income, and AGI affects whether they’re eligible for many tax benefits.

Common above-the-line deductions include traditional individual retirement account and health savings account contributions, self-employment taxes, certain health insurance costs and any bank penalties you may have had to pay for early account withdrawals.

Note that tax reform repealed some popular above-the-line deductions, such as moving expenses (except for members of the military) and alimony payments (for divorces finalized after 2018).

3. Leverage retirement account tax savings

It’s not too late to maximize contributions to a retirement account. Traditional retirement accounts like 401(k)s and IRAs still offer some of the best tax savings in the Tax Code.  Contributions reduce taxable income at the time a taxpayer makes them, and they don’t pay taxes until the money is taken out at retirement.

The 2019 contribution limits are $19,000 for a 401(k) and $6,000 for an IRA (not including the $1,000 catch-up contributions for those 50 years old and older). Remember that 2019 contributions to an IRA can be made as late as April 15, 2020

4. Defer tax

Deferral remains a cornerstone of good tax planning.  Why pay tax today when you can put if off until tomorrow and enjoy the time value of money? Deferring tax is about accelerating deductions and postponing income.  You may be able to control the timing of items of income and expense.  Consider deferring bonuses, consulting income, or self-employment income.

On the deduction side, you may be able to accelerate charitable contributions (also known as “bunching”), state and local income taxes, interest payments and real estate taxes, but keep in mind the $10,000 cap on deducting tax, and whether or not you will be using the standard deduction. 

5. Plan for the new version of the “kiddie tax”

Tax reform repealed the old “kiddie tax,” which generally taxed the unearned income of children at parents’ marginal rates.  Now a child’s unearned income is taxed at trust and estate rates.  The change cuts both ways.  For some low- and middle-income families whose children receive unearned income like scholarships or military survival benefits, the trust and estate rates are much less favorable than their parents’ tax brackets.  For some high-income families, the ability to use the trust tax brackets may allow their children to enjoy more capital gains and qualified dividends in the zero and 15 percent brackets.

Consider whether it may benefit you to transfer assets earning investment income to children, but beware of the gift tax consequences and watch for changes in law.  The House has passed legislation restoring the old “kiddie tax” regime, and retroactive enactment is a possibility.

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