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THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

3 Moving on from Section 199A — What’s Next RALPH ALBERT THOMAS, CPA (DC), CGMA Chief Executive Officer & Executive Director rthomas@njcpa.org ELLEN C. McSHERRY Chief Operating Officer emcsherry@njcpa.org DON MEYER Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER Content Editor khoffelder@njcpa.org MARC L. REIN Multimedia Specialist mrein@njcpa.org

Because of the Tax Cut and Jobs Act (TCJA), Section 199A of the IRS Code provides a new deduction of up to 20 percent of qualified domestic business income for certain kinds of businesses. But with complex qualifications and the deduction not permanent in its current form, challenges remain. Make sure you know the ins and outs.

6 4 SALT Planning Strategies

There have been many workarounds to recoup losses related to the state and local tax (SALT) deduction cap put in place under the Tax Cuts and Jobs Act, including establishing state charitable funds and signing pass-through entity legislation that would allow businesses to pay taxes at the state level and fully deduct them on the federal level. More strategies are also in the mix.

8 Top 10 Tips for Surviving Tax Season

CPAs all have unique ways to survive tax season, ranging from memorizing due dates to doing extra due diligence to get everything in on time. But following some sage advice before the season starts can also help allay fears from being the new supervisor or taking on that extra client. Here are the top 10 ways CPAs can hold the line.

10 Technology and Taxes: The Accountant’s Responsibility

Accounting firms have access to an abundant amount of personal data on behalf of their clients, ranging from financial records to personally identifiable information. Even the most diligent CPA can be vulnerable to hackers, but firm-wide awareness of risk protocols and the right risk practices in place can help keep client data secure.

2 CLOSE UP

New Jersey’s Fiscal Problems Biggest Issue for Businesses THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 105 EISENHOWER PARKWAY SUITE 300, ROSELAND NJ 07068 973-226-4494 | NJCPA.ORG #NJCPAMAG READ NEW JERSEY CPA ONLINE AT NJCPA.ORG/ NEWJERSEYCPA

TO ADVERTIS E I N NE W J ER S EY C PA Visit njcpa.org/advertising or contact Eileen Proven at eproven@njcpa.org or 862-702-5640.

12 ACCOUNTING, AUDITING & ATTEST

Changes to 401(k) Hardship Distribution Rules 13 ADVOCACY & LEGISLATIVE ISSUES

Under the Gold Dome 14 BECOMING A CPA

A Primer on the 150-Hour Requirement 15 BUSINESS ADVISORY SERVICES

KPI Dashboards for Small Business: Measure It to Manage It

16 CORPORATE ACCOUNTING

Lease Accounting: Key Takeaways and Next Steps for Private Companies 18 FINANCIAL PLANNING SERVICES

Tax Ramifications of Stock Options 20 FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

Understanding and Preventing Employee Theft 21 PROFESSIONAL DEVELOPMENT

3 Steps to Make Change Management a Competitive Advantage

22 TAX

New Tax Law with Great Opportunities 23 TECHNOLOGY & INFORMATION MANAGEMENT

A Scare Tactic That Requires Your Attention 24 NJCPA NEWS

y 10 Members Win CPA Exam Fee Lottery y Career Night a Success 27 CLASSIFIEDS 28 MEMBER STORY

Carolina Carvalho, CPA

CLOSE UP

New Jersey’s Fiscal Problems Biggest Issue for Businesses

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

The most pressing issue impacting the operation of a business in New Jersey over the next 12 months is the state’s fiscal problems, according to nearly 30 percent of the 349 member respondents in an NJCPA survey last fall. State and local taxes (SALT) ranked second by 27 percent of respondents, and health care trailed at 13 percent.

Spending for the state’s unfunded pension and benefits obligations for public employees, currently at $151 billion, is among the top concerns cited by respondents as hindering future economic growth in New Jersey. They also said government mandates cost money and cannot be sustained.

BUSINESS CLIMATE The majority of survey respondents (45 percent) cited the current business climate in New Jersey as “fair,” with about a third (33 percent) calling it “good.” About 20 percent ranked the business climate as “poor.”

“The (New Jersey) economy in general is very slow right now partly because the nation is slowing down,” explains Michael Lahr, Ph.D, research professor and director at Rutgers Economic Advisory Service, part of the Rutgers University Bloustein School of Planning and Public Policy.

Population growth is an important determinant, he says, of a lot of other issues, noting that New Jersey typically experiences about half of the nation’s growth at 0.3 percent currently, and it is expected to fall further to about 0.2 percent growth over the next 20 years. “If you don’t have population growth, it’s hard to get job growth,” he warns.

The only hope, he notes, is if the “better paying” jobs remain in the state since while New Jersey may have a high cost of living, it also has high salaries to counteract that.

Survey respondents noted that there is a lack of “good” jobs available in the state.

As one respondent noted, “many jobs are part time, low wage and no benefits.”

Respondents said existing in a “shrinking investment and talent pool” in the state is a challenge, along with the so-called “wasteful government jobs” that exist currently.

New Jersey still has an exit problem.

“People who move into the state tend to be poorer than those who move out of the state,” adds Lahr. “We tend to have a net loss of income — not because we have more people we are losing; it’s because the people who leave are that much richer than the people who come in.”

Indeed, survey respondents said outward migration from our older citizens and talent from our younger citizens leaving the state will hurt future growth and force taxes higher. Taxes, as well as regulatory burdens, were noted as problem areas that could hinder the state’s future economic growth. The new SALT limitation, respondents said, could weigh heavily on out-of-state executives and keep them from moving to the state. It could also add to lowered property values.

Respondents noted that global trade tariffs and the uncertainty that it and other federal policies bring at the state level could also impact New Jersey-based businesses. In addition, respondents said the state’s minimum wage increase is an obstacle for business owners.

LISTEN MORE NEW JERSEY’S ECONOMY: GOOD OR NOT SO GOOD? njcpa.org/podcast

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068. Issue No. 79 Copyright © 2020 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues.

Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068-1640.

The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.

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JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

MOVING ON FROM SECTION 199A — WHAT’S NEXT

By BENJAMIN ASPIR, CPA, MST

EISNERAMPER LLP

Almost two years have passed since §199A was enacted under the Tax Cuts and Jobs Act (TCJA).

Following much public input and anticipation, proposed and final regulations were issued by the Treasury Department. Where do we stand today on the §199A/qualified business income (QBI) deduction?

WHAT QUALIFIES QBI is defined as all domestic business income other than: investment income (e.g., dividends other than REIT dividends), capital gains, commodities and foreign currency gains. QBI does not include reasonable compensation from an S corporation or guaranteed payments made to the taxpayer.

Material participation under the passive activity rules is not required for the QBI deduction. The QBI deduction will also not reduce an owner’s tax basis in their share of ownership.

An optional taxpayer election is available to aggregate multiple trades or businesses in order to maximize the QBI deduction. In order to claim the election, four key tests must be met: 1. Control (50 percent) for a majority of the tax year.

2. Each trade or business must have the same tax year.

3. All the businesses being aggregated must be a non-SSTB. 4. There must be a business connection between the entities being aggregated.

Prior to the issuance of a safe harbor election and regulations, there was considerable uncertainty surrounding §199A eligibility for the real estate industry.

The IRS has declined to define when a real estate business rises to the level of a trade or business and, therefore, has issued a real estate safe harbor election. If the qualifications are met, the operations would be deemed a trade or business for the QBI deduction.

The IRS stated that if a company fails to

satisfy the requirements of the safe harbor, the rental real estate enterprise may still be treated as a trade or business for purposes of §199A if they otherwise would meet the definition of trade or business.

For taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2026, the TCJA allows a deduction from taxable income of 20 percent of a taxpayer’s domestic QBI from a partnership, LLC taxed as a partnership, S corporation or sole proprietorship.

The 20-percent deduction is also allowed for a taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income.

For taxpayers whose taxable income is above certain thresholds, the 20-percent deduction for QBI is disallowed if earned from a “specified service trade or business” (SSTB).

WHAT ARE SSTBs? Individual taxpayers with SSTB income above the annual limits will not be able to utilize the QBI deduction for related SSTB income. An SSTB is defined as any trade or business (other than architecture or engineering) involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners.

Subsequent §199A regulations attempted to clarify the SSTB categories written into the original law. Table 1 (see page 4) provides a general outline of what falls into the SSTB categories.

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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TABLE 1 FIELD

SSTB

NON-SSTB

ACCOUNTING

Accountants/tax preparers

Payment processing and billing analysis

ACTUARIAL SERVICE

Actuaries and other similar professionals

Analysts, economists, mathematicians

ATHLETICS

Athletes, coaches, team managers and owners

Maintenance and operation of equipment or facilities for use in the athletic events

BROKERAGE SERVICES

Stockbrokers and other similar professionals

Real estate agents and brokers; insurance agents and brokers

ANY TRADE OR BUSINESS WHERE THE PRINCIPAL ASSET OF SUCH TRADE OR BUSINESS IS THE REPUTATION OR SKILL OF ONE OR MORE OF ITS EMPLOYEES OR OWNERS.

Trade or business that consists of any one of the three below: y Receives fees, compensation or income for endorsing products or services y Licenses, receives fees, compensation or other income for use of individual’s image, likeness, name signature, voice, trademark or any symbol associated with individual’s identity y Receives fees, compensation or other income for appearing at an event or on radio, television or other media format.

Any other skill-based services such as plumbers, electricians, beauticians

CONSULTING

Professionals who provide advice and counsel to assist clients in achieving goals and solving problems

Sales; training or educational services; and consulting services embedded in, or ancillary to, the sale of goods or performance of non-SSTB services if there is no separate payment for the consulting services

FINANCIAL SERVICES

Financial advisors, investment bankers, wealth planners, retirement advisors and arranging lending transactions between lender and borrower

Accepting deposits and making loans

HEALTH

Physicians, pharmacists, nurses, dentists, veterinarians, physical/ occupational therapists, psychologists

Health clubs or spas; persons who provide physical exercise or conditioning to customers; research, testing, manufacture and sales of pharmaceuticals or medical devices

INVESTMENT MANAGEMENT

Providing investing, asset management or investment management services

Real estate property managers

LAW

Lawyers and paralegals

Couriers or stenographers

PERFORMING ARTS

Actors, singers, musicians, entertainers and directors

Maintenance and operation of equipment or facilities for use in the performing arts

TRADING AND DEALING

Traders or dealers in securities, commodities or partnership interests

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For 2018 filings for SSTBs, the deduction is phased out for joint filers with taxable income between $315,000 and $415,000, and for individual filers earning between $157,500 and $207,500. The threshold is indexed for inflation annually.

Taxpayers below this income threshold who generate QBI may deduct the 20 percent. Taxpayers above this income threshold who are engaged in non-SSTB may still deduct the 20 percent but are subject to the following limitations: The QBI deduction is limited to the lesser of 20 percent of QBI or the greater of: a) 50 percent of the W-2 wages paid with respect to the qualified trade or business Or b) The sum of 25 percent of the W-2 wages with respect to the qualified trade or business plus 2.5 percent of the unadjusted basis, immediately after acquisition (UBIA), of all qualified property.

After taking all the above into consideration, the overall QBI deduction claimed is limited to 20 percent of overall taxable income in excess of net capital gains. Excess QBI not claimed due to the 20 percent taxable income limit cannot be carried forward to future tax years.

on form 1040 y Deductible unreimbursed partnership expenses y Contributions to qualified retirement plans on form 1040 y Deductible losses from a qualified trade or business

WHAT REDUCES QBI? y §1231 losses relating to the sale or exchange of property (§1231 gains do not increase QBI). A §1231 gain/loss is

WHAT DOESN’T REDUCE QBI? y Losses or deductions that were disallowed, suspended, limited or carried over from taxable years ending before Jan. 1, 2018, (under IRC Sections 465, 469, 704(d), and 1366(d)), are not taken into account in a later taxable year for purposes of computing QBI y Post 2017 suspended losses will not reduce QBI until utilized. y Capital losses It’s important to note that if a partner sells a partnership interest and some portion of the gain is re-characterized as ordinary

the result of property sold that is used in a trade or business (subject to the allowance for depreciation). y Deductible §179 expense. §179 allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service. y Self-employed health insurance premiums deducted on form 1040 y Self-employment tax deducted

income under the “hot asset” rules of §751, the gain will increase QBI. The QBI deduction has changed the tax landscape for many business owners and tax practitioners. The tax consequences of choosing a business structure has completely changed due to TCJA. It is important to note that the §199A deduction is not permanent in its current form.

Benjamin Aspir, CPA, MST, is a senior manager at EisnerAmper LLP. He is a member of the NJCPA Emerging Leaders Council and Cannabis Advisory Group. He can be reached at benjamin.aspir@eisneramper.com.

LEARN MORE JAN. 24, ROSELAND AND ONLINE FEDERAL TAX UPDATE — INDIVIDUALS (FORM 1040) njcpa.org/events

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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4 SALT PLANNING STRATEGIES

By JAMES A. LAWRENCE, CPA, CCPS

TRAPHAGEN & TRAPHAGEN CPAs, LLC

Allowing state and local taxes (SALT) to be fully deductible has been a bedrock principle of our tax code, one of the six deductions on the original 1913 tax return. But the Tax Cuts and Jobs Act (TCJA) changed that.

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The TCJA imposed a new federal limit on a taxpayer’s total state and local taxes of $10,000 for single and married taxpayers filing joint returns and $5,000 for married individuals filing separate returns. An unforeseen result is that the SALT deduction limitation has reduced the number of taxpayers who itemize in favor of the new higher standard deductions ($24,400 for married filing jointly, $18,350 for head of household and $12,200 for single and married filing single).

STATES’ REACTIONS The new law has been unpopular with high-tax states, such as New York, New Jersey and California. Following the TCJA’s passage, some high-tax states implemented strategies to assist their residents in mitigating the effect of the federal SALT deduction limitation.

One approach was the establishment of state charitable funds where the state gives individual taxpayers SALT credits in exchange for contributions to state-run charitable funds. This method was intended to convert non-deductible state and local payments into deductible charitable gifts.

The IRS has effectively shut down this scheme in recently issued final regulations for contributions made after Aug. 27, 2018.

The regulations provide that a taxpayer who makes payments or transfers property to an entity eligible to receive tax-deductible contributions must reduce his or her charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive. However, there is an exception for SALT credits that do not exceed 15 percent of the contributed amount.

Some states have proposed regulations to help residents that have an ownership

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

in a pass-through entity such as sub-S corporations, partnerships, LLCs and sole proprietorships. The rules would allow the state tax to be paid at the entity level, where there is no SALT limitation, on net taxable income instead of having the owners pay the state tax at the individual level. At this time, Connecticut has passed this type of legislation and New Jersey has a similar proposed bill pending (S-3246). The identical bill, A-4807, was introduced after S-3246.

In another attempt to work around the federal SALT deduction limitation, New York has established an Employer Compensation Expense program that shifts the state income tax from the individual taxpayer to the employer. The employer must have enrolled by Dec. 1, 2019, for calendar year 2020.

Last year, New York, Connecticut, Maryland and New Jersey filed a complaint in the U.S. District Court seeking relief to invalidate the SALT deduction limitations on the grounds that the cap violates the U.S. Constitution by interfering with the states’ sovereign authority to decide whether and how much to invest in their residents, businesses and infrastructure. Recently, the Court dismissed the case, finding that the states failed to present any constitutional principle that would bar Congress from exercising its power to impose an income tax without a limitless SALT deduction. In addition, the Court held that the cap is not unconstitutionally coercive because it does not meaningfully constrain the states’ exercise of their own sovereign tax powers.

PLANNING STRATEGIES Even though the IRS has issued regulations to end these creative workarounds and the court challenges have not been successful

related to the preparation of these schedules and receive a deduction.

4. Transfer of Required Minimum Distribution (RMD) to Charity

This strategy is for taxpayers that generally make charitable contributions but do not have enough itemized deductions. In lieu of taking an RMD, the taxpayer would have the amount directly transferred to the charity. There would be no income tax on the RMD as it was not received by the taxpayer but would satisfy the required minimum distribution obligation.

While the new tax law has been unpopular with high-tax states, a small silver lining exists in that state tax refunds are not includible in income to the extent the SALT deduction was not taken.

for the states, there are some tax planning opportunities that exist to minimize the impact of the new tax law:

1. Capitalize Carrying Costs

Taxpayers may make an annual election (for certain property) to capitalize carrying charges, including taxes that normally would be deductible (see IRC Sec. 266 and Reg. 1.266-1(c)). This election is helpful when the taxpayer does not itemize or would otherwise receive little or no benefit from deductible taxes.

Example: Dan Jones owns a valuable tract of undeveloped land near Giants Stadium. Property taxes are $5,000 per year. Dan expects to sell the property in a few years. His total state and local taxes currently exceed $10,000 per year.

Dan can elect, pursuant to IRC Sec. 266, to capitalize the property taxes on the property. By making this election, the property taxes increase the basis in his land. Therefore, when Dan sells the land, if there is a gain on the sale, it will be reduced due to his increased basis.

2. Maximize Itemized Deductions

With the increase in the standard deduction, many individuals will not be

itemizing deductions as they had in years prior to the TCJA. A strategy may be to itemize deductions one year and the following year take the standard deduction. This can be accomplished by bunching certain expenses into one year including medical expenses and charitable contributions. One method to increase the charitable contributions would be the use of a Donor Advised Fund (DAF). Cash and/or appreciated securities can be transferred into a DAF whereby the taxpayer receives a large charitable contribution deduction in year one. Distributions from the DAF can be made over several years to specified charitable organizations. Whenever the taxpayer is not able to itemize in a future year, he or she may make another transfer to the DAF. Taxpayers may also want to consider prepaying a month of mortgage interest to increase their total itemized deductions.

3. Deducting Tax Preparation Fees

The TCJA suspended the miscellaneous itemized expense deduction through 2025, which included tax preparation fees.

Schedule C and Schedule E taxpayers may be able to allocate a portion of the fee

James A. Lawrence, CPA, CCPS, is a tax partner at Traphagen & Traphagen CPAs, an affiliate of Traphagen Financial Group. He is a member of NJCPA Federal Taxation Interest Group and was a former chairman and was a past president of the Society’s Bergen Chapter. He can be reached at jim@tfgllc.com.

READ MORE FEDERAL TAX ARTICLES AND RESOURCES njcpa.org/topics/fedtax STATE TAX ARTICLES AND RESOURCES njcpa.org/topics/statetax

LEARN MORE JAN. 8, ISELIN THE BEST INDIVIDUAL INCOME TAX UPDATE COURSE BY SURGENT

JAN. 10, ROSELAND FORM 1040 RETURN REVIEW BOOT CAMP FOR NEW AND EXPERIENCED REVIEWERS

JAN. 24, ROSELAND AND ONLINE FEDERAL TAX UPDATE — INDIVIDUALS (FORM 1040) njcpa.org/events

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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TOP 10 TIPS FOR SURVIVING TAX SEASON

By MARYANN T. REYES, CPA, PFS WITHUM

Here are my top 10 tips for surviving busy season:

“How can I survive tax season,” you ask? Busy season is a testament to your strength, your endurance, your patience and most importantly your ability to time manage.

10. BE PREPARED y Print out your client list and make sure you know what exactly you are responsible for. y Know your due dates so you can adequately prepare. y Schedule, schedule, schedule — make sure all of your projects have been scheduled and properly staffed. y Has there been a significant change in the tax law? What are the key changes and which of my clients will they affect? Become familiar with the new law, read up, attend CPE classes — maybe even challenge yourself to teach a CPE class. Teaching a CPE class is a great way to learn everything there is to know on a new topic. y Whether your clients are new to you this tax season or have been your clients for years, take 15 minutes to review their returns and keep a list (mental or written) of who will be able to take the qualified business income (QBI) deduction, who may fall short of itemizing their deductions and who may be subject to section 163(j) of the IRS Code (where the deduction for business interest expense is the sum of business interest income, financing interest expense and 30 percent of adjusted taxable income (ATI)).

9. BE ORGANIZED Have a handle on your client list and what returns you will be responsible for.

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y Take ownership, be proactive.

Contact clients either just to check in and see if there have been any significant events during the past year or to set up a timeline for information requests. y Make sure you know what due dates you will be working towards. As you get closer to a due date, approach projects on a first-in-first-out basis as well as what projects are due first. While it doesn’t make sense to work on a return that you have only received partial information for, it does make sense to go through the information and let the client know what is missing. Clients will appreciate an information request list that you will work together completing.

They will appreciate the thought, the organization and the time you have taken to make sure you will put their needs first. y As you get busier, make a to-do list (every day if you need to). You’ll feel better crossing items off the list and you will appreciate the sense of accomplishment.

at once. If you do find yourself with multiple projects due at the same time, let your scheduler, managers and/or partners know. They are there to help you prioritize.

4. MAINTAIN A PERSONAL LIFE Get a haircut, go to the gym, go out for your anniversary, attend your child’s softball game. Take the time away from the office so you can refresh. Go for a walk in the middle of the day. Don’t forget that while busy season may consume us, there is always time for a break. Your family and your wellbeing are important, too.

8. LEVERAGE YOUR PEERS Touch base to see what common issues you may share. Get together early in the season, have dinner, get a drink and discuss the issues. You can trade ideas, share stories, swap research. You’re not in this alone, leverage others as much as you can.

7. CHECK IN WITH YOUR STAFF/MANAGER/PARTNER Request a meeting. Sort your client list by who you will be working with and ask to spend 15 to 30 minutes going over the list so you are all on the same page. Will a client be traveling and need their returns sooner than usual?

Has there been a significant transaction that will need more of your time than the previous year? If you’re new to the project, is there anything you can do to brush up on the issues at hand? Most importantly, go through your client list during tax season and follow up on the clients from whom you haven’t received any information. Don’t assume that someone else will follow up to request the information.

6. FOCUS ON WHAT YOU CAN CONTROL No sense worrying about what you cannot control. Plan as much as you can and be as prepared as possible and then set it aside until you have the information. Don’t focus on the fact that you are assigned to 250 returns; focus on the dozen that are on your desk. Sort through your to-do list by what projects can actually be worked on and what projects will come to a head next week or the week after.

5. IF YOU NEED HELP, ASK Now that you’re familiar with your client list and the projects that you are responsible for, you may find that you have multiple projects that need to be completed by the same date. Figure out how much time you will need to devote to each and realistically decide if you can tackle them all and meet the deadlines.

It’s okay to ask for help as long as it’s in advance of the due date. There are times when projects come in earlier or later than expected and you find yourself trying to prepare or review two projects

3. DELEGATE, DELEGATE, DELEGATE Take a look at what’s on your plate and decide what you can delegate. Look to make the best use of your time. As you prepare for the week ahead, take a few minutes to think about what can be done by someone else. Freeing up your time will enable you to have time for something else.

2. TAKE CARE OF YOU It may sound kitschy, but if you don’t take care of yourself, you won’t be able to give your all to your clients. Make sure you are eating well. When you are working long hours, take the time to get up, walk around or take a walk outside.

Run out for coffee or go to the gym. A brief mental or physical break will do you wonders. Treat yourself to your favorite snacks. If your schedule permits, go home on time one night a week, catch up on some tv, go to bed early and recharge your battery.

1. DON’T PANIC It might sound like a cliché, but it will all get done. The key is to stay on top of your projects, check in with your clients and make sure they’re doing their part. Take it one due date at a time. And most importantly — don’t panic. You will survive busy season!

Maryann T. Reyes, CPA, PFS, is a senior manager at Withum. She is a member of the NJCPA and can be reached at mreyes@withum.com.

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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TECHNOLOGY AND TAXES: THE ACCOUNTANT’S RESPONSIBILITY

By GURJIT SINGH

PRAGER METIS CPAs

In the world we live in today, the only way to avoid becoming a victim to malware and/or identity theft is to disconnect yourself and your workstation from the internet.

Unfortunately, in today’s business environment, that is not an option.

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Accounting firms maintain a significant amount of personal data on behalf of their clients, ranging from financial records to personally identifiable information.

Keeping this data safe is a real concern for every single organization that houses it; the question is, are you following best practices to minimize your risk of a breach?

THE RISK There is no way to be completely sure that a system is impenetrable and safe from a cybersecurity threat; however, exercising best practices can turn the difficult task into a manageable event. Threats will continue to emerge and impact those that do not establish a strategy with best practices. First and foremost, the highest risk is posed by the human end-user. Even a firm with the most well-planned and well-funded technology investment, including safeguarding your perimeter, hardening the endpoints with application whitelisting policies and subscribing to advanced threat protection services, is still at risk through the human end-user. People are the first line of defense against cybersecurity attacks. Hackers are smart; they will start where the path to success does not require penetrating through layers of security.

Instead, they rely on an attachment or a hyperlink that will grant them the level of access they need without breaking a sweat.

One way hackers accomplish their goals is by engaging their target in a phishing expedition. Phishing scams are a popular way for hackers to try to get your personal information, and, if successful, hackers don’t have to do anything to get into your account other than send you an email.

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

EMAIL VIGILANCE Email is another means of information transfer where one needs to be vigilant.

Did you know that if you or a member of your organization receive emails that contain sensitive information and ignore the email, neither deleting nor reporting the incident, the entire company is held liable for irresponsible data handling?

While we’re on the subject of emails, note that the IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information. During tax season, there will be numerous attempts to scam both the accountants and taxpayers, so it’s important to not open any attachments or click on any links contained in the emails. Instead, forward the email to phishing@irs.gov.

THE RISE OF MOBILE The workforce of today has become increasingly mobile, and with mobility comes challenges with securing devices that fall outside of your domain. For example, let’s look at smart phones.

Most firms do not issue firm-owned devices to all employees, opting instead for a “bring your own device” policy. These personal devices store corporate data, including emails, contacts and documents which reside locally. This leaves personal devices open to increased security risks — it only takes one breached or malware-infected mobile application to comb through your personal device and read/ move any data on your device without your knowledge. If your corporate applications are not secured using Mobile

GDPR is also very much in favor of encryption as a security measure. Article 34, Section 3(a), frees data controllers from having to notify affected individuals about a personal data breach if the controller has implemented protection measures, “in particular those that render the personal data unintelligible to any person who is not authorized to access it, such as encryption.”

Device Management solutions, you’re introducing a huge risk to your clients’ personal data. To mitigate some of the risks, all smart phones should have a screen lock and password protection for corporate data applications. It is also important to remember that you should never connect to public WiFi networks. Why? Because the moment your mobile device sends data to a website or service over these public networks, it can be intercepted and will no longer remain private.

WHAT ABOUT FLASH DRIVES? Flash drives are another way that hackers can trick you into giving access to personal information. While it may not be the easiest solution, putting an end to flash drives, unless they’re encrypted, will mitigate some of that risk. Encryption is

one of the most effective methods to protect your data because without the key, any data stored on the device will not be decrypted.

CHANGING REGULATIONS Laws around data protection are rapidly changing, and compliance with these laws will continue to impact modern society. For example, the California Consumer Privacy Act (CCPA) was recently introduced to enhance privacy rights and consumer protection for residents of California. CCPA is the beginning of “America’s General Data Protection Regulation (GDPR).” Similar to GDPR, CCPA will require organizations to focus on user data and provide transparency in how they are collecting, sharing and using such data.

THE ROLE OF THE ACCOUNTANT AS SECURITY ADVISOR The need for robust security changes the responsibility of every individual both inside and outside of an organization. This means that as an accountant, you must carry out your usual duties: preparing tax returns, payments, necessary paperwork and reporting, while also becoming a baseline security advisor to your clients. For example, there is a good chance that your clients are not running the most sophisticated security solutions and yet insist on using their current tools to send you sensitive data.

It is imperative that you stress firm policies and procedures around the transfer of information as often as possible to continue creating awareness for your clients. In addition, firms must adopt policies for receiving data through portals, which are essentially a gateway for clients to share information securely via the internet. Many portals offer virus scans and usually block attachments before they’re eligible for download.

Clients trust their accountants with their most prized possession: data. But as long as there are Internet-enabled devices, there will be those who exploit them to harm the uninformed. With education around best practices relating to security, you’re taking monumental steps to reduce these threats and keep your data from being compromised.

Gurit Singh is the chief information officer at Prager Metis CPAs LLC. He can be reached at gsingh@pragermetis.com.

LEARN MORE APRIL 23, PATERSON CYBERSECURITY UPDATE njcpa.org/events

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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ACCOUNTING, AUDITING & ATTEST

Changes to 401(k) Hardship Distribution Rules

BY MICHAEL K. GILCHRIST, CPA, ROTENBERGMERIL

Individuals suffering from financial hardships have been provided with relief when seeking funds from their 401(k) plans. In addition to participant loans, many plans offer hardship distributions to ease the burden of adverse financial situations.

The Bipartisan Budget Act of 2018 (BBA) changed the hardship distributions rules, providing access to additional funds in the participant’s account while limiting certain consequences of these distributions.

HARDSHIP BASICS Treasury regulations state that a retirement plan may allow participants to receive hardship distributions from a plan due to an immediate and heavy financial need.

The amount of the distribution must be limited to the amount necessary to satisfy that financial need and, prior to the BBA, limited to the participant’s deferrals, regular matching and regular profit-sharing contributions to the plan. In general, a distribution for an immediate and heavy financial need, as defined by income tax regulations, is one that is for: y Medical expenses for participants, spouses, children and dependents y Costs directly related to the purchase of a principal residence y Tuition and related expenses y Payments necessary to prevent eviction from a primary residence or for the foreclosure of mortgage on that residence y Payments for funeral expenses y Expenses for the repair or damage to a principal residence that would qualify for casualty loss deductions Since hardship distributions are subject to income taxes, including, if applicable, the 10-percent penalty on early distributions, the requested amount may include amounts necessary to pay any associated income taxes including penalties and interest.

Until the BBA, a hardship distribution was not considered a heavy financial need until the participant exhausted all reasonable resources available to the employee, such as savings, distributions from other

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employee plans, loans from banks and loans from 401(k) plans. Also, the employee was not permitted to make elective deferrals to the plan for a period of six months after the hardship distribution.

WHAT CHANGED? To provide access to additional funds in times of need, the BBA changed the regulations to include qualified non-elective employer contributions and qualified matching contributions available for hardship distributions. Generally, these are employer contributions made to correct failed nondiscrimination tests. To limit the consequences associated with hardship distributions, the BBA now allows plans to permit the continuance of deferrals during the sixmonth period following the distribution. In addition, participants are no longer required to maximize plan loans before applying for the hardship distribution. Accordingly, administrators are no longer required to stop and start employee deferrals, track the six-month ineligibility period or determine whether the participant has maximized the use of all plan loans before taking the distribution. The changes are effective for plan years beginning after Dec. 31, 2018.

DOCUMENT REQUIREMENTS Hardship rules require that the employee exhaust funding from all other reasonable sources other than loans from 401(k) plans. To satisfy this rule, the plan must obtain a written statement from the participant stating that there are no other available resources such as liquidation of assets or commercial loans to take care of the hardship. The plan may accept this statement unless the employer has actual knowledge to the contrary. The hardship rules also require the amount be limited to the financial need. The participant must provide documents to support the dollar amount such as invoices, medical bills, real estate documents or tuition bills. Alternatively, the participant can provide a written summary of the information as long as the participant also agrees in writing that he

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

or she will preserve the source documents and make them available at any time, upon request, to the employer or administrator.

If the plan’s third-party administrator (TPA) is also responsible for processing hardship distribution requests, the plan administrator should determine if the TPA is requesting and retaining the proper documents from the participant. The responsibility of all plan provisions, including hardship distributions, ultimately rests with the plan administrator. A best practice is to have the administrator retain copies of all documents relating to the hardship distribution, irrespective of the administrator’s perceived responsibility. This will ensure the documents are available and adequate in the event of an audit. Internal Revenue Manual section 4.72.2-1 provides further information and a comprehensive list of specific documents required for the substantiation of hardship withdrawals.

STAY TUNED Proposed regulations would further modify the regulations governing the timing of the distributions; permit hardships for non-casualty repair of primary residences; and apply these rules to 403(b) arrangements.

Michael Gilchrist, CPA, is a senior manager at RotenbergMeril. He is a member of the NJCPA Accounting & Auditing Standards Interest Group and can be reached at mgilchrist@rmsbg.com.

ADVOCACY & LEGISLATIVE ISSUES

Under the Gold Dome

BY JOSEPH HOWE, Ed.D., CPA

Writing this article, I think back to the old Schoolhouse Rock videos on how a bill becomes a law. Most people are familiar with the three branches of government: legislative, executive and judicial. These levels exist on both the federal and state levels. In New Jersey, the executive branch is the Governor’s office and cabinet, and the judicial branch is comprised of the state court system, with the New Jersey State Supreme Court sitting at the top. There are two houses of the legislature: the Senate and the Assembly. New Jersey is divided up into 40 legislative districts, each of which has one senator and two assemblypersons.

A list of legislators by district is available at www.njleg.state.nj.us. State Senators are elected to office every four years and Assembly people every two years.

So, what can a CPA expect when contacting a legislative office? Legislators are very busy people. It is basically like tax season for them the entire year.

LEGISLATIVE PROCESS The legislative term lasts two years. On even numbered years, both houses reorganize and elect a leader. The Senate elects a president, and the Assembly elects a speaker. Both positions preside over their respective houses and have the authority to post bills (or not) and appoint committee members, among other powers. Any member may propose a bill to be enacted as law; that member is referred to as the prime sponsor. Other members may co-sponsor the bill to show their support.

When a bill is proposed, it can be referred to one of the standing committees of the house for consideration. The committee can discuss it, hold hearings where experts or members of the public testify, revise language in the bill, and refer it back to the floor of the house for a vote.

If a bill introduced during the legislative term does not move out of committee or otherwise get voted on by the end of the term, it is said to have “died” and will only be considered again if the bill is reintroduced the following term. In order for a

bill to become a law, it must pass both the Assembly and the Senate and be signed by the Governor.

The legislative committees of particular interest to CPAs and their clients are Commerce and Labor. The Commerce Committee undertakes matters of the licensing and regulation of business in the state. The Labor Committee deals with employment laws and practices. At any given time, one can see bills under consideration by the committees on the legislature’s website. The NJCPA also posts items of current legislative interest on its website at njcpa.org/advocacy.

INTERACTING WITH THE LEGISLATURE Legislators receive hundreds of calls, letters and emails each week from their constituents on a range of topics including feedback on state laws that need to be implemented or changed or for help interacting with state agencies. Each legislative office has support staff that deal in each of these areas.

Here are some best practices when contacting the legislature: y Identify the elected Senator and Assemblypeople that represent the area in which you live or do business at www.njleg.state.nj.us/members/ legsearch.asp.

y Research the issue beforehand to determine if it is already on the Legislature’s radar or if it is a new issue. y Call the representative’s office. For routine matters, this may be all that is needed. y Follow up with a letter to the office. y Use plain language. In communicating on the phone and in email, avoid using technical language that only CPAs may use. y Be specific with the type of action you are seeking. Do you want a new law enacted or an existing law changed? y Determine who else the issue impacts. If it affects other CPAs in the state check in with the NJCPA Legislative Action Center at njcpa.org/advocacy for the latest updates on the issue. Issues of most concern to CPAs are often matters of tax, budget and economic policy. y Gather relevant data points to support your position. Eye-catching statistics can help your representatives communicate the issue to their colleagues. y If the issue isn’t in the NJCPA Legislative Action Center, contact NJCPA Government Relations Director Jeff Kaszerman at jkaszerman@njcpa.org.

Joseph Howe, Ed.D., CPA, is the chief financial officer of a government entity in New Jersey. He can be reached at jhowecpa@gmail.com.

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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BECOMING A CPA

A Primer on the 150-Hour Requirement

BY KENNETH A. HEASLIP, CPA, CULLARI CARRICO LLP

Since July 1, 2000, those seeking to become a CPA in New Jersey must obtain 150 college semester credits. This added a fifth year of education, up from the previous 120 credits required. The 150 credits must include a bachelor’s degree, 24 credits in accounting and 24 credits in other (non-accounting) business courses. The other 102 credits are undefined. This change, commonly referred to as the 150-hour law, was designed to have CPAs receive a more broad-based education in areas such as communication, technology, soft skills and others that should help CPAs better serve the public and their employers.

Previously, the requirement included 30 credits in accounting and 30 in other business courses. Ironically, the additional 30-credit requirement comes with a reduced accounting and business requirement. This reduction in required courses was designed to allow universities and CPA candidates to tailor educational programs toward individual and professional needs.

OBTAINING THE CREDITS Schools have struggled to create a five-year program that would accomplish these goals.

The traditional path consists of obtaining a Masters in Accounting or Taxation. Programs vary among colleges with many adding concentrations such as forensics, audit or data analytics. In many cases, those programs do not address the original concern about lack of needed non-business courses.

Many students have opted to take the additional courses outside of a masters program by taking additional courses each semester or during the summer. Those courses have not always been part of an organized plan of education that would address the concerns which brought about the law change.

When New Jersey adopted the 150hour law in 1995, it was one of the first to allow candidates to take the CPA Exam after obtaining a bachelor’s degree which includes 120 credits. This allows them to take the Exam sooner and to obtain the additional credits later. While this rule was modified a few years ago by adding that the degree must have the required accounting

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and business courses, candidates are still allowed to take the Exam before obtaining the additional year of education.

OTHER CHOICES Many candidates have focused on obtaining the 150 hours as soon as possible in order to qualify for licensure and enhance their resume. Under this path, the candidate will pursue their career in the following order: 1. Obtain a bachelors degree including the required accounting and business courses.

2. Pass the CPA Exam.

3. Work in the profession and find the area of interest for their career path.

4. Take courses, with the option of a masters degree, that will enhance the opportunities in that career path.

Following this sequence has many advantages: y It allows the candidate to take the Exam at a time when they are best positioned to pass. y It grants them the opportunity to focus the courses in areas they know will enhance their career. y It spreads out the cost of the last year over a longer period of time. y It allows more flexibility in scheduling classes.

Taking the Exam soon after an undergraduate degree can be instrumental in successfully

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

passing. Studies have shown that the chances of success in passing the Exam decrease proportionately with delays in taking the Exam.

The ability to focus on more meaningful courses is increased by working prior to taking the fifth year as they will better know what skills they need. For example, if they enjoy tax, they can focus on a tax program, or if they decide they would like to work in the industry, they may feel an MBA will better further their career. This is preferable to rushing into a traditional Masters in Accounting program that many schools developed as their five-year program. A bonus to this approach is that classes are more meaningful to the student, and the student with work experience will come with more maturity. This is why many top business schools prefer graduate students who have work experience.

Kenneth Heaslip, CPA, MBA, MS, CGMA, is a director at Cullari Carrico LLC, a visiting professor at Mercy College and a discussion leader for The Loscalzo Institute. He is past president of the NJCPA Essex Chapter, a former NJCPA vice president and is currently a member of several NJCPA interest groups as well as the Student Programs & Scholarships and Professional Conduct committees. He can be reached at kheaslip@comcast.net.

READ MORE REQUIREMENTS TO BECOME A CPA njcpa.org/becomeacpa

BUSINESS ADVISORY SERVICES

KPI Dashboards for Small Business: Measure It to Manage It

BY ANN MEANS, KLATZKIN

Business process management (BPM), quality circles and Kaizen are widely adopted programs to implement continual improvement. Large corporations have devoted significant resources to BPM, optimizing operations in a department or across divisions. In the past, installation and maintenance costs put the software out of reach for most small businesses.

Cloud-based platforms now make BPM and data visualizations possible with no programming knowledge and at a minimal cost. There are numerous good software options to gather, analyze and package performance metrics in an easy-to-understand, graphical format. CPAs should encourage their clients to use performance metrics to help grow their businesses.

DATA VISUALIZATION USE Data visualization software automates data connection and retrieval and allows the user to create informative and valuable visualizations. Previously available only as part of high-end business intelligence platforms, data visualization options have exploded. Now it is possible to purchase a monthly subscription to a dashboard platform with a variety of drag-and-drop templates that will meet the data visualization needs of all but the largest and most sophisticated corporations.

Infographics, pie charts, bar graphs, Venn diagrams and scatter plots are pervasive today because they are effective. A pie chart, for example, quickly communicates the relationship of parts to a whole, as well as to each other; understanding the same information from a data table or a verbal description would take longer and have less impact.

Infographics are just one method to represent data graphically and intended mainly for readers with general knowledge.

Businesses often use them in marketing collateral or shareholder reports. They describe simple numerical relationships like when A increases, B decreases. For an audience with a particular industry or technical

background, statistical graphics like histograms or probability plots present more complex data relationships.

DASHBOARDS BRING TEAMS TOGETHER In many corporations, cross-functional teams are assembled to advance a company-wide goal. Management chooses members because of their in-depth knowledge of an area. Their responsibility is to jointly monitor the progress toward some performance initiative, like improving quality on a product line. Each member’s everyday concerns can be substantially different from others sitting at the table.

Company meetings for small businesses can be very similar. When staffing of a department is only one or two people deep, there isn’t a lot of knowledge overlap. For either group to function, no matter the company size, finding common ground is vital.

To accomplish an initiative across departments or divisions, people of different backgrounds need a common agenda and the knowledge to make informed decisions. A single page graphical format called a dashboard meets both needs. Here’s how it is constructed.

Team members and leadership start by selecting a few metrics to track certain conditions or performance levels that are critical for the desired outcome. Those metrics are known as key performance indicators, or KPIs, and will be presented in the dashboard. Only a handful of metrics can rightly be called key, so a dashboard should contain no more than 10 to 12 KPIs. Members choose a KPI from their area of responsibility and an associated target value for it at the period end.

With a few more steps, the dashboard can be ready to launch. The frequency of group meetings will determine how often data should be reported. Some software packages

host real-time KPI dashboards online. The contributor of each KPI should be responsible for coordinating the transfer of data that his or her metric tracks. Also, someone must take on software selection and implementation. Typically, software platforms have templates that are data-ready as well as options to choose the size, position and type for each indicator included.

It will take some time to settle on a format as well as KPIs that are worth the effort to track. Each meeting of the group should begin with a review of the KPI dashboard. As data accumulates over time, attendees will start to recognize data trends and see how KPIs are interrelated. It is also likely that some KPIs will show little activity. Maybe the sampling period is too small to exhibit much change. Some KPIs may start as very sensitive to changes in conditions; others might appear to be very insensitive. Be patient and consider minor tweaks before significant changes. The rewards of sticking with the process could be quite substantial.

Ann Means is a paraprofessional with Klatzkin. She can be reached at 267-953-2743 or ameans@klatzkin.com.

READ MORE DATA ANALYTICS ARTICLES AND RESOURCES njcpa.org/topics/data

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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CORPORATE ACCOUNTING

Lease Accounting: Key Takeaways and Next Steps for Private Companies

BY INGO ZIELHOFF AND AMIT SINGH, KPMG

The Financial Accounting Standards Board’s (FASB) decision to defer the effective date for ASC 842 — Leases to annual periods beginning on or after Dec. 15, 2020, gives private companies an additional year from that originally provided. This means a private calendar-year company will have to adopt the standard as of Jan. 1, 2021, rather than Jan. 1, 2020. Now, private companies will have an extra year to implement the new lease accounting standard and can use that time to learn from the challenges many public companies overcame.

Although ASC 842 provides a number of practical adoption expedients, the adoption of the standard for public companies was far from easy, and most companies struggled with one or more of the following challenges: y Availability and functionality of lease software tools y Ensuring completeness of the lease population y Accurate data collection and abstraction y Deriving supportable accounting judgments, including determining a relevant discount rate for its leases y Testing of the leasing tool y Designing and implementing new lease processes and controls Beyond the extra time, private companies stand to benefit from: y Improved lease software solution readiness y Public company disclosure and SEC comment letters y Availability and experience gained by external resources and auditors LEASE SOFTWARE SOLUTION READINESS Much has been written about the lack of readiness of lease software solutions in the wake of the effective date of the standard for public companies. This was also one of the arguments brought forward by the AICPA in its request to defer

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the adoption date for private companies.

Since then, lease software solution providers have improved the functionality of their products significantly, and those solutions will likely be in the market for two years by the time private companies need to go live. That said, careful diligence is still required to pick the lease software solution that is right for your company.

PUBLIC COMPANY DISCLOSURES AND ELECTIONS ASC 842 provides a number of practical expedients and other options that private companies can look to public companies for benchmarking. Table 1 lists a few of them for reference.

EXPERIENCE AND AVAILABILITY OF EXTERNAL RESOURCES AND AUDITORS External consultants and auditors have worked with countless companies on the implementation of the lease standard and therefore have good experience with common practical implementation complexities. Also given the staggered start time, resource levels are not as tight as they used to be. The same is true for your software implementation partners.

NEXT STEPS FOR PRIVATE COMPANIES Following is an illustrative list of steps which may be performed for a successful lease implementation:

TABLE 1 KPMG FINDINGS OF PUBLIC COMPANY DISCLOSURES OF LEASE ACCOUNTING y All companies stated they used the effective date method transition approach. y 92 percent disclosed using the package of practical expedients. y Only 13 percent disclosed using hindsight in their transition accounting. y 86 percent disclosed using the short-term lease exception. y 78 percent disclosed that they elected not to separate lease and non-lease components for one or more classes of underlying leased assets. y 95 percent disclosed using their incremental borrowing rate (IBR) as their discount rate for leases. y Approximately 70 percent presented operating lease ROU assets and non-current operating lease liabilities as separate line items on the balance sheet. y Slightly less than half presented the current portion of operating lease liabilities as a separate line item. y Far fewer companies are presenting their equivalent finance lease ROU asset and lease liabilities separately on the balance sheet.

Source: KPMG review of public filings. The results are the outcome of a review of public filings conducted by KPMG of a select sample of public companies, across industries. The results were presented during KPMG’s FRV ASC 842: Lessee post adoption hot topics webcast held on Sept. 24, 2019.

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

CORPORATE ACCOUNTING

1. Get executive sponsorship and avoid creating silos. The implementation process will reach deep into the business and requires support beyond the finance organization.

2. Perform a thorough assessment of accounting, reporting, process and control changes under the new standard, and roll out tailored training to the organization to alert them to what will change.

3. Develop business requirements for a lease tool and select a vendor early (the specific software drives data collection requirements).

4. Perform and document procedures to ensure a complete inventory of leases (including embedded leases). This will be a key audit focus area.

5. Get buy-in on a data collection approach and template, and roll out

detailed training to ensure good data quality. It is imperative that there is central oversight over the initial data collection to weed out quality issues before the data is loaded into the tool.

6. Ensure sufficient user testing of the lease data and develop opening balance entries and disclosures.

7. Determine the discount rate approach and establish relevant processes and controls.

8. Update lease processes to capture and maintain lease data, including the relevant controls, to ensure compliance post initial adoption.

Companies should involve their auditors early but particularly for steps two, four, six and seven.

The bottom line is the time to get started is now. If there is one thing that public

companies learned: adopting the lease accounting standard required significantly more effort than they expected.

Ingo Zielhoff is a partner in the accounting advisory services practice at KPMG (US). He can be reached at ingozielhoff@kpmg.com. Amit Singh is a director in the accounting advisory services practice at KPMG (US). He can be reached at amitsingh5@kpmg.com.

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17

FINANCIAL PLANNING SERVICES

Tax Ramifications of Stock Options

BY JOSEPH DOERRER, CPA

After countless years of hard work, the valued employee earns an opportunity to become an owner of company stock.

Stock option grants can represent a tremendous wealth-building opportunity.

Income taxes paid in connection with this event can amplify or erode the positive impact of this event on a client’s life. As a trusted adviser, it’s critical to have a firm grasp on the tax ramifications of the client’s actions in this situation.

NON-QUALIFIED STOCK OPTIONS Non-qualified stock options (NQSOs) are one of two general classifications of stock options. NQSOs are the right to purchase shares of stock for a certain price during a specific time period.

Typically, upon grant of NQSOs, there is no income tax event. Once the options are exercised, ordinary income will be recognized for the discount between the fair value of the underlying stock and the exercise price of the options. This discount is known as the “bargain element.”

This income is also generally subject to federal payroll taxes (Medicare and Social Security) to the extent of any applicable limits. Any subsequent sale of the stock will be reported as a capital gain or loss.

The basis of the stock, post-exercise, will be the exercise price plus the bargain element recognized in income. The example in Table 1 illustrates how the tax ramifications of this event play out Generally, after exercise, one can either sell the stock, hold the stock to capture appreciation, or some combination of the two. More advanced strategies include implementing a Section 83(b) or 83(i) election or gifting the NQSOs. INCENTIVE STOCK OPTIONS Like NQSOs, incentive stock options (ISOs) are the right to purchase shares of stock for a certain price during a specific time period. However, ISOs are eligible for preferential income tax treatment. To benefit from this treatment,

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TABLE 1 NON-QUALIFIED STOCK OPTIONS Exercise & Sale Example Exercise Stock’s Fair Value at Exercise

$35.00

Exercise Price

$10.00

Bargain Element/Income Recognized*

$25.00

Sale Stock’s Fair Value at Sale

$50.00

Basis (Exercise Price + Bargain Element)

$35.00

Capital Gain**

$15.00

* Subject to ordinary income tax rates & federal payroll taxes ** Short or long-term character subject to holding period

one must be cognizant of additional rules not seen with NQSOs, like those surrounding employment of the option holder by the issuing company.

The following list highlights some of the rules set forth by Section 422 that must be complied with in order to receive the preferential ISO treatment upon exercise and subsequent disposition of the ISO shares: y ISOs must be granted pursuant to a stockholder-approved plan. The grants must occur within 10 years of the date on which the plan was adopted or approved by stockholders, whichever is earlier. Such options may not be exercisable after the expiration of this 10-year period. y The amount of value becoming exercisable for the first time in any calendar year cannot exceed $100,000. y A qualifying disposition (sale) of the ISO stock must take place more than two years after the grant date and more than one year after the exercise date.

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

This list is not all-inclusive. However, it provides good building blocks from which to gain comfort in dealing with ISOs. Upon exercise of the ISO, there is no event for regular tax. There is a positive alternative minimum tax (AMT) income adjustment for the bargain element of the option. This amount is added to the stock’s basis for AMT purposes.

Upon qualifying disposition of the shares, there will be a negative AMT income adjustment, versus regular tax, due to the increased stock basis for AMT purposes resulting from the additional income inclusion at exercise. The taxpayer will receive long-term capital gain or loss treatment on the disposal.

The example in Table 2 illustrates the tax implications of the exercise and qualifying disposition.

Where Section 422 is not complied with, the ISO will essentially revert to having NQSO status, along with the accompanying less-favorable tax treatment. Rather than deferring regular tax

FINANCIAL PLANNING SERVICES

income upon exercise, and later being taxed on any appreciation above the exercise price at preferential capital gain rates, ordinary income must be recognized.

The amount of income recognized will be equal to the fair market value of the options on the exercise date or the sale

price, whichever is lower, less the exercise price. Where the disqualifying disposition occurs within the same year as the exercise, the AMT adjustment from the exercise is avoided.

There is some overlap between ISO and NQSO planning strategies in a general

TABLE 2 INCENTIVE STOCK OPTIONS Exercise & Sale Example

Regular Tax

Alternative Minimum Tax

Stock’s Fair Value at Exercise

$35.00

$35.00

Exercise Price

$10.00

$10.00

Bargain Element/Income Recognized

$ —

$25.00

Qualifying Disposition

Regular Tax

Alternative Minimum Tax

Stock’s Fair Value at Sale

$50.00

$50.00

Basis (Exercise Price + Bargain Element)

$10.00

$35.00

Exercise

Long-Term Capital Gain

$40.00

$15.00

sense, in that strategies include selling or holding the underlying stock. However, additional planning considerations exists for ISOs, such as complying with Section 422, navigating the AMT adjustment upon exercise and managing any available AMT credit upon sale.

Understanding the tax ramifications of stock option transactions is critical.

Before implementing any strategies, the client’s financial situation should be assessed holistically. It’s important to recognize that the best tax result isn’t always the best financial result for your client. CPAs should, to the fullest extent possible, identify and plan for stock option events before the time to make decisions is at hand. This will allow for the coordination between all interested parties (e.g., client, CPA, financial advisor) to ensure the best chance at implementing a winning plan.

Joseph Doerrer, CPA/PFS, CFP®, MST, is a New Jersey-based tax advisor. He is a member of the NJCPA and can be reached at joedoerrer@yahoo.com.

READ MORE FINANCIAL PLANNING ARTICLES AND RESOURCES njcpa.org/topics/financialplanning

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

Understanding and Preventing Employee Theft

BY RALPH J. EVANGELISTA, CPA, FRAZER, EVANGELISTA & COMPANY, LLC, CPAS, AND SEAN BROPHY, DELOITTE

Employee theft in the workplace is a serious problem for employers: 75 percent of employees have stolen from their employer at least once, and businesses lose 5 percent of their annual revenue to employee fraud, theft and abuse. Employee theft is a crime that is costing U.S. businesses $50 billion annually, but even more shocking is that employers think they are immune from such a crime.

Employees at various levels can steal almost anything they want. Examples include: y Time theft — spending hours each day writing personal emails, surfing the internet and having coworkers clock in or out for them y Skimming — pocketing cash without recording the transaction y Swapping checks for cash — keeping cash and replacing with a check that is not deposited y Lapping — theft of cash or checks by crediting one company’s accounts receivable account through the abstraction of money from another customer’s accounts receivable account y Kiting — building up balances in two or more bank accounts based upon floating checks drawn against the other accounts y Stealing of inventory y Theft of intellectual property HOW EMPLOYEES STEAL Regardless of the industry or type of business, three factors are always present for employee theft to occur: pressure, opportunity and rationalization. The greedy employee will first steal when their income can no longer support their desired lifestyle (pressure).

This employee justifies stealing small quantities before becoming bold and then justifies the theft of larger quantities by believing it is acceptable because of his or her condition. For example, they believe they are underpaid (rationalization) and will only commit the crime when there is a chance to do so (opportunity).

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The following cases demonstrate how these three factors allow for employee theft. y David Smith, a former Quest Diagnostics manager, was reimbursed for over $1.2 million in false expenses through a complex web of deception. Smith set up fake companies, created fake invoices and turned in fake expense reports.

Eventually, the FBI caught on and he was ultimately sentenced to five years in prison. y Barry Webne was hired at Block Communications, Inc., as a “theftprevention specialist.” However, prevention was the furthest thing from his mind. With the help of another co-worker, he wrote checks to himself on company stock. The two were cashing the checks and then destroying the canceled checks that were returned to the company.

Webne made false entries in the company’s books to cover his actions.

Eventually he was caught. In total, Webne robbed Block of a staggering $1.2 million. y After mastering Ikea’s phone and mail-order system, Suraj Samaroo began issuing refunds to himself for merchandise that customers never really returned. Samaroo would cover up his rampant refunding by altering inventory records. In less than a year, he stole just under $400,000.

HOW EMPLOYEE THEFT CAN BE PREVENTED Fortunately, employee theft can be controlled or prevented with specific policies and management’s commitment to eliminating this workplace problem. y Ethics policies and training. Incorporate all aspects of ethics including a code of ethics, an ethical office atmosphere, an ethics consultation committee and regular personal ethics training programs. Establish harsh punishment for infractions and a rewards system for employees who report any dishonest activity.

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

y Mandatory vacation. Make it mandatory for all employees in accounting, human resources and those who handle cash and merchandise to take vacations each year. Employees should be cross trained to do the job of other employees so there is no lapse in duties as well as a double check of the work of vacationing employees. y Internal controls for cash handling.

Make sure a daily reconciliation is prepared, comparing the cash receipts log to the daily bank deposits and the cash held in the safe or a lockbox. Any discrepancies not due to deposits in transit should be investigated and the reasons noted on the reconciliation report. y Segregation of duties. Assign different people the responsibilities of authorizing transactions, recording transactions and maintaining custody of the related assets to reduce the opportunities for any employee to both perpetrate and conceal the crime.

Employee theft in the workplace happens more often than employers would like to think and without a doubt is a financial drain on their businesses. There are many reasons why employee theft occurs and various factors must be present in order for an employee to steal. Many examples exist and there are ways to prevent it. As an employer, know this: the cost of employee theft is too high to ignore.

Ralph J. Evangelista, CPA, MS Taxation, CGMA, is an adjunct professor of accounting and taxation at Seton Hall University and co-managing member of Frazer, Evangelista & Company, LLC, CPAs. He can be reached at rje@evangelista.net. Sean Brophy is an associate at Deloitte and pursuing his Master of Professional Accounting at Seton Hall University.

He can be reached at sbrophy@deloitte.com.

READ MORE FRAUD DETECTION AND PREVENTION ARTICLES AND EVENTS njcpa.org/topics/forensic

PROFESSIONAL DEVELOPMENT

3 Steps to Make Change Management a Competitive Advantage

BY DR. SEAN STEIN SMITH, CPA, LEHMAN COLLEGE

The accounting profession, without a doubt, is the midst of some dramatic changes no matter how the profession is analyzed.

Demographics, technological disruption, non-accountant competition and an evolving regulatory landscape are converging in a whirlwind of change impacting every facet of the profession. Accountants working in public accounting, industry or the nonprofit/ academic sectors are all equally as impacted by these changes and trends. Successfully contending and navigating changes is difficult even when the changes are limited to certain areas, but when the changing effects are so far ranging, it can feel insurmountable. Clearly every organization is different and will operate in a unique manner, but contending with change is always a challenge. Not only do most individuals not like to change too much, or too fast, but the bureaucracy and structures of many organizations can actually hinder change initiatives and projects.

All of that said, the ability of organizations — and the individuals that comprise organizations — to change and evolve over time is a crucial factor to the continued success of the profession. The very changes that are making the most headlines, and that also cause the most anxiety within professional circles, are the very changes that are most important for the profession to embrace. Being able to embrace and thrive in changing environment is not only a requirement, but also represents key steps and processes that form the basis for continued professional development.

In other words, for any CPA to continue to develop and grow as a professional, and be ready for new and intriguing opportunities, managing and embracing change is a must.

Here are some guideposts for CPAs seeking to contend with the wide array of changes impacting the profession: 1. Identify what will actually change.

Buzzwords and hot topics are certainly not in short supply; blockchain, analytics, artificial intelligence and automation are mentioned in virtually every accounting conversation. What

can sometimes get lost, however, is that these technologies are not always applicable to every firm or every process. A new software tool or management idea is only going to have value to the organization if it solves a business problem.

The ability to cut through the noise and pinpoint just what will actually change represents an excellent first step in change management.

2. Obtain buy-in from colleagues and employees. Getting buy-in and support for the change project is an absolute must for any change initiative. One tangible step that can be taken to turn this idea into reality is explaining to employees how this change will impact them (linking back to point #1). Understandably, people get anxious if they feel their roles and tasks are going to change or be eliminated.

Being proactive and assembling a path forward for impacted employees can go a long way toward making change easier on the individuals and the organization.

3. Select a pilot area or project. Change initiatives or projects can be intimidating on the surface and can also wreak havoc if not implemented correctly. Every professional has at least one horror story of how a far-ranging change initiative, launched without proper testing and planning, led to all sorts of problems for employees. Selecting a pilot area, or data to beta test (and then analyze) is a better way to understand how exactly the proposed changes will impact the organization. Even something as simple as pre/ post comparisons can help illustrate just what changes are occurring as a result of the new technology tool or process.

Change is always a process, but whether that process is a positive or negative one is strongly influenced by how change is perceived and implemented inside the company. Taking proactive steps can help address some of the stresses and challenges that will inevitably arise whenever broad

changes are attempted. With the sheer number of changes and forces impacting the profession, the ability to effectively manage change, and do so consistently, will create a competitive advantage for both individuals and companies.

Sean Stein Smith is a professor at the City University of New York – Lehman College. He also is the chairperson of the NJCPA Emerging Technologies Interest Group (#NJCPATech).

Sean serves on the Advisory Board of the Wall Street Blockchain Alliance, where he co-chairs the Accounting Work Group. He is also a Visiting Research Fellow at the American Institute of Economic Research. Sean can be reached at drseansteinsmith@gmail.com.

LEARN MORE JAN. 15, ROSELAND AND ONLINE LEADERSHIP FROM A SLIGHTLY DIFFERENT PERSPECTIVE

JAN. 16, ROSELAND AND ONLINE KEY CONCEPTS OF LEADERSHIP STRATEGY

JAN. 17, ROSELAND AND ONLINE AT THE HELM IN A STORM: SEVEN SURVIVAL STRATEGIES FOR LEADERS IN TURBULENT TIMES njcpa.org/events

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

21

TAX

New Tax Law with Great Opportunities

BY RALPH LOGGIA, CPA, MST, GOLDSTEIN & LOGGIA CPAs

Many CPAs are familiar with the more well-known and established sections of the tax code such as Sections 179 and 1031.

Section 1400Z — special rules for capital gains invested in Qualified Opportunity Zones (QOZ) — which was introduced by the Tax Cuts and Jobs Act of 2017 could soon join those ranks. Section 1400Z offers both gain deferral and gain exclusion in exchange for investment in a low-income community or Opportunity Zone (OZ).

If a taxpayer invests capital gains in an OZ fund, the resulting deferred capital gains, if held a minimum of five years, are given a 10-percent reduction in the amount taxed. If held for seven years, they receive an additional 5-percent tax reduction for a total of 15 percent.

The temporary deferral of capital gains taxes on deferred gains invested in an OZ fund lasts until the taxpayer exits the OZ fund or Dec. 31, 2026, whichever occurs first. If a taxpayer holds the investment for 10 years, the new capital gains accrued in the OZ fund will receive a full step-up in basis after the 10-year period. A taxpayer may make an election to treat the basis on the date of sale as the fair market value of the qualified opportunity fund (QOF).

Similar to a 1031 exchange, the taxpayer has 180 days beginning on the date of the sale to invest the capital gains from the sale of property with an unrelated person in a QOF. If the capital gain is through a partnership, then it is either 180 days from year-end or the partner may choose the date of the sale.

Consider this example: On Feb. 1, 2019, a taxpayer sold Amazon stock for $1.1M with a cost basis of $100,000. The taxpayer then invests the $1M gain into a QOF and sells the entire investment in 2033 for $3M. The Taxpayer recognizes phantom income on Dec. 31, 2026, of $850,000 (1M * (1-.15)) and recognizes no gain in 2033 on the additional $2M gain ($3M - $1M). To receive the 100-percent exclusion ($2M), the taxpayer must sell before Dec. 31, 2047.

The New Jersey Division of Taxation has provided notice that New Jersey

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will follow the federal QOZ rules. New York also allows the QOZ benefits. If the taxpayer is a New Jersey resident and would like to keep the capital gains in New Jersey, the following website lists the designated opportunity zones: nj.gov/ governor/njopportunityzones.

The election to defer eligible gain is made on Form 8949, sales and other dispositions of capital assets.

If a taxpayer makes the initial QOF investment in 2022 or later, then by the time of the five-year anniversary, it will be beyond 2026 and all the gain will have been recognized.

Similar to an investment in a partnership, Section 1231 gains and losses must be netted at the end of the tax year so the 180-day period for a Section 1231 gain being invested in an OZ fund may begin on the last day of the taxable year.

Let’s briefly compare QOF to a 1031 exchange: y With a 1031 exchange, as of Jan. 1, 2018, only real property qualifies, the entire proceeds from the sale (net equity plus debt replacement) needs to be reinvested and tax deferral can be farther out than Dec. 31, 2026. y With a QOF, any property that generates capital gain qualifies, only the capital

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

gain may be reinvested and obtain QOF treatment (although not all of the gain needs to be reinvested) and tax deferral ends on Dec. 31, 2026.

Keep in mind any capital loss carryforwards and NOLs when advising whether a QOF makes sense. In addition, if the investment in the QOF decreases, the potential tax savings can be lost.

Revisiting the above example, if a taxpayer does not know about this potential tax savings opportunity and provides their tax documents in March of 2020, due to the 180-day rule, Section 1400Z would be a moot point.

Advising taxpayers to review their investment portfolio for unrealized gains to be realized can also be advantageous.

CPAs should take action now to inform clients of this tax opportunity.

Ralph Loggia, CPA, MST, is a member of Goldstein & Loggia CPAs LLC. He is a member of the NJCPA State Taxation and Federal Taxation interest groups and can be reached at ralph@agcpa.net.

READ MORE FEDERAL TAX ARTICLES AND RESOURCES njcpa.org/topics/fedtax

TECHNOLOGY & INFORMATION MANAGEMENT

A Scare Tactic That Requires Your Attention

BY ANTHONY MONGELUZO, PCS

Jupiter Research expects more than half of all data breaches globally will occur in the United States by 2023 — a scant four years from now. The cybercriminal impact is so serious that the FBI now has a “most wanted” list. Take a peek at fbi.gov/wanted/ cyber to see if they’re your neighbor. And the small business sector is among the top four targets that hackers attack most frequently. (The other three are energy, education and health care.)

It’s digitally ugly out there and it will get uglier.

You might wonder about the “fear tactic” in this article’s lede. It’s not an accident.

In decades of running an IT business, I’ve seen (almost) all of it, and I’m continually appalled by the failure of small businesses to implement even the most basic IT protection safeguards. And accountants are among those with the most to lose because they’re not necessarily the real target. Digital vampires want to suck the data from client lists because that’s what they feast upon.

There are also personal privacy issues.

How much of your privacy are you willing to share or surrender? We know, for example, that some game developers and cellphone apps extract personal information, sharing it with advertisers and online tracking companies.

The good news is that the cost of protecting yourself and your business is modest when coupled with common sense. Recommended steps include the following: y Create a security plan. This doesn’t have to be a grand plan; it might be a few pages. However, you must designate someone to both implement and review the plan annually. You have three choices: 1) delegate it to your IT person; 2) do it yourself; or 3) turn to an outside vendor who has security IT experience. y Run a penetration test. Can you stand up to a hacker? This is the only way to run a test that will uncover any vulnerabilities. Everything else is a “maybe” or theory. Imagine playing tackle football but not making any contact. Not quite the same, is it?

y Build a virtual private network. It provides you with an “encrypted” tunnel for all your online activities. You’ll have an anonymous IP address while protecting your location. y Backup. Old advice? Yes, but some businesses are still lax about this one. Do it frequently, but nothing is better than a twofold backup. One that is automatic and in the cloud and another that is a hardcopy and stored offsite. You’ll need this if you get hacked or become a victim of ransomware. y Cover the camera on your computer.

A slip of paper works. Hackers can enter via the camera and follow your keystrokes, for example.

Goodbye passwords. y Protect against viruses, spyware and other malicious intruders. Install anti-virus software and anti-spyware, and you’ll get regular updates automatically. Costs are modest, and software vendors provide patches and updates to fix security issues, while improving functionality. Most important, updates provide fresh protection as new viruses enter the digital realm. y Browse safely. Ensure that all your browsers are up to date. This adds security and improves performance. y Review your social media settings.

Ensure that you’re sharing only what you wish. Facebook and Google let you opt out of certain options that affect personalization and tracking. Change default issues if you want more privacy. y Secure your networks. Use firewalls and encryption. If you’re using a Wi-Fi network, keep it secure, hidden and set up a service set provider (SSID) to prevent identifying your network name.

Password protect the router. y Safeguard your internet connection

with a firewall and encrypting information. If you have a WiFi network, make sure it’s secure and hidden. To hide your WiFi network, set up your wireless access point or router so it doesn’t broadcast the network name, known as the Service Set Identifier (SSID). Password protect access to the router.

If you detect a sense of urgency and intensity in this article regarding security and privacy, I’ve succeeded. My goal is to protect my client’s IT security and yours, too.

Anthony Mongeluzo is the CEO and president of Moorestown, New Jersey-based PCS. Contact him at Anthony@helpmepcs.com or follow him on Twitter @PCS_AnthonyM.

READ MORE CYBERSECURITY ARTICLES AND RESOURCES njcpa.org/topics/cybersecurity LEARN MORE JAN. 9, PARAMUS TECHNOLOGY UPDATE APRIL 23, PATERSON CYBERSECURITY UPDATE njcpa.org/events

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

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NJCPA NEWS

Career Night a Success What’s the best way to get your resume in front of human resource professionals?

How can you sharpen your interviewing skills? The answers to these questions and more were discussed at NJCPA Career Night on Oct. 1 at the Pines Manor in Edison.

More than 120 young professionals attended the event, which featured a networking exhibit hall with 24 companies, a panel discussion with review course experts and a consulting firm guru who discussed the best elevator pitches to use on recruiters and hiring managers.

Young professionals were also presented with a new opportunity to receive a free headshot of themselves for use on social media or in applying for jobs.

The exhibitors included: y Acquavella, Chiarelli, Shuster, LLP y Becker Professional Education y CohnReznick y EOS Accountants, LLP y Fairleigh Dickinson University y Friedman, LLP y Holman Frenia Allison, P. C. y IRS-Criminal Investigation y Mazars USA LLP y Mendonca & Partners CPAs LLC y MSPC Certified Public Accountants & Advisors, P. C. y National Association of Black Accountants — Northern New Jersey Chapter y PKF O’Connor Davies y Prager Metis y Roger CPA Review y Rotenberg Meril y RRBB Accountants & Advisors y Smolin Lupin y SobelCo y Surgent CPA Review y Untracht Early y WilkinGuttenplan y Wiss & Company, LLP y WithumSmith+Brown “We routinely hear from employers how important it is to make a good first impression on job interviews. This program helps to ensure our members are ready,” said Ralph Albert Thomas, CPA (DC), CGMA,

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CEO and executive director, NJCPA. “Seeing the bright faces of the next generation of accounting professionals is always a pleasure. I am happy to be part of this event every year.”

The CPA review course panel, which consisted of Moira Gordon, account manager at Becker; Janill Briones-Lopez, senior business development representative at Roger CPA Review; and Brittany Revels, market development associate-Northeast at Surgent, discussed strategies for success on the CPA Exam, including examples of best practices for passing all four parts. The representatives also reviewed their respective software and its capabilities.

Attendees also listened to and received feedback on elevator pitches, or the abbreviated summary of one’s qualifications for a job. According to Rachel Anevski, M.A.O.B, PHR, SHRM-CP,

JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

founder and CEO of Matters of Management and presenter at the event, being able to express oneself succinctly is just as important as the actual interview. “The initial conversation that often occurs in an office setting or on the way up to the interview can set the tone for how well someone performs on the interview,” said Anevski. She discussed the ins and outs of making a successful elevator pitch, having confidence and some practices that can hurt one’s chances to land a job.

Just as companies need to perform a skills assessment for their current employees and what they may need in terms of hiring in the future, candidates need to know what skills they have to fill hiring gaps, she added. “An individual assessment of one’s own skills can go a long way as can having the ability to present that information clearly.”

NJCPA NEWS

10 Members Win CPA Exam Fee Lottery The NJCPA launched its inaugural CPA Exam Fee Lottery in October with 120 Student and CPA Candidate member entries.

Ten were selected at random to each win $750 toward their Exam costs.

The NJCPA Scholarship Fund created the lottery to help offset the high cost of taking the CPA Exam, which can exceed $1,000 when factoring in all four parts of the Exam, initial application fee, review courses, study guides and/or other preparation. Whitman Business Advisors sponsored the lottery.

The winners include: y Nick Buzzeo — Georgian Court University y Nochum Fleischmann — Fairleigh Dickinson University-Lakewood y Roxana Gamarra — Rutgers Business School-Newark y Elizabeth Marshall — William Paterson University of New Jersey y Ermilie Moise — Rider University y Paulina Paredes — Isolatek International

STARTING your practice?

y Moshe Rosenberg — Fairleigh Dickinson University-Lakewood y Aryeh Schecter — Fairleigh Dickinson University-Lakewood y Elizabeth VanSalisbury — Montclair State University y Jason Vazquez — Montclair State University To be eligible, winners have to sign up to take the first part of the four-part CPA Exam between Dec. 1, 2019, and Nov. 30, 2020.

Only current students in New Jersey or those who graduated within the past five years were eligible. Winners were not allowed to receive financial assistance or be reimbursed from their employer for the Exam fees.

“I believe there is an inheritance in public accounting that is just waiting to be had by some of these young professionals. It’s a great honor to help these 10 students,” said Phil Whitman, CPA, CEO and president, Whitman Business Advisors. “When my son, Charles, was signing up for the CPA Exam, I

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had lost sight over the years of how costly it had become. Most young professionals need a coaching course, which could be another $2,500 to $3,500. It’s a pretty hefty sum.”

“This is one of the best professions that anyone could possibly be in,” adds Whitman, who actively encourages those around him to take the CPA Exam as soon as they are able. “Having the CPA license shows that you have reached a certain level of accomplishment. Even if you exit the profession, having that CPA license will take you very far in the business world.”

Whitman has followed in the footsteps of his father, Joel Whitman, a former partner at PricewaterhouseCoopers, in becoming a CPA and in helping the next generation. “As a teen growing up, I heard stories about my father’s clients and the people he worked with and that influenced me to go into public accounting. I’m proud to say my eldest son has decided to go into accounting and follow what has become the family tradition.”

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SAVE 20% ON JOB POSTINGS UNTIL JANUARY 15

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Learn more at njcpa.org/jobs.

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JANUARY/FEBRUARY 2020 | NEW JERSEY CPA

CLASSIFIEDS

MERGERS/ACQUISITIONS

Monmouth County tax and wealth advisory firm seeking partnership or potential acquisition with CPA practice(s) in the Monmouth/Ocean County area.

Seeking an additional source of recurring revenue to complement your tax practice?

Do you have a succession plan for incapacity or retirement? Contact Gregg at gshaw@hstaxwealth.com, 732-268-8813; www.hstaxwealth.com.

The Marchese Group, a father-son CPA firm in Northern NJ, is looking for retirement-minded practitioners for buy-out of entire practice or compilation, review or audit clients. Please contact brian@tmgcpa.net.

Seize a merger/acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas. com; email me, Phillip Goldstein, CPA, Managing Partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation.

Traphagen & Traphagen CPAs, a well-established firm in Bergen County with diverse client base and credentialed support staff is seeking small firms and sole practitioners for acquisition or merger. We are looking for firms ranging in size from $300K to $700K. This is an opportunity to align with a quality peerreviewed firm, while continuing to provide your clients with exceptional service.

To confidentially discuss this opportunity please email us at carolynn@tfgllc.com.

Union County Accounting and Tax practice seeks growth through retirement-minded practitioners looking to transition toward retirement. Ideal annual billing should range from $250K to $750K, but would welcome all discussions. Please reply in strict confidence to gary@mlcpanj.com. To learn more about us, please visit www.mlcpanj.com.

New Jersey practices for sale: gross revenue shown: Union Co. tax clients (virtual office) $100K; Atlantic County CPA $1.030M; Long Branch CPA $180K; multi-location (3 territories) tax franchise $200K. For more information, call 800397-0249 or visit www.aps.net.

PROFESSIONAL SERVICES

Retirement minded Middlesex County CPA, looking for CPA to take over my firm. Gross $400K. Must have strong background in tax. Small existing client base a plus. Reply in confidence to tploskonka@comcast.net.

Quality Review for CPA firms: audit, review, compilation; guidance in revenue recognition. Contact James M. Sausmer, CPA at 732-261-7710 or james.sausmer@gmail.com.

Merger acquisition opportunity. Our firm is looking for accounting practices ranging from $200,000 to $500,000 to gain efficiency in sharing of office expenses and staffing costs. Our firm is netting 55% positive cash flow due our staffing model and resource allocation for various tasks and projects. Visit us at www.hassanalicpa.com and our staffing company www.amdintegral.com.

Please email advisor@hassanalicpa.com or call me at 732-669-7214 for a confidential discussion.

To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

NEW JERSEY CPA | JANUARY/FEBRUARY 2020

27

MEMBER STORY

her creativity and a way to express herself, she notes. Her two paths did combine in college when she attended Monmouth University’s five-year program for accounting and graduated with a BS in accounting and finance and an MBA. “Even though I was doing completely the opposite of music, I still participated in the music program and the chamber choir and orchestra on campus.” She even was able to sing at Monmouth University’s presidential inauguration which, according to Carolina, was “an unbelievable experience.”

One Accountant’s Journey from Lincoln Center to Withum

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

Carolina Carvalho, a tax staff level II at Withum and an NJCPA CPA Candidate member, has been playing the cello and classically singing since she was about 10 years old — and playing the piano since three. Since then, she has put in almost as many hours poring over tax returns for clients and studying for the CPA Exam.

This musically inclined accountant still favors both music and accounting — and, thankfully, she doesn’t have to choose between them.

So, how did a tax accountant come to sing operetta at the NJCPA 2019 Annual Convention & Expo? Or, one could ask, how did a classically trained singer end up at an accounting convention in Atlantic City? For starts, Carolina always had a penchant for music, beginning with piano, cello and singing lessons as a child. She quickly went from St. Michael’s church

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choir in West End, New Jersey, to youth carol and regional music groups, and eventually on to Avery Fisher Hall and Lincoln Center. From 10 years of age through high school, Carolina performed in various countries — a new one every other year.

“One night we would be singing in the choir and another night we would be playing in the orchestra,” she recalls, noting that each event was more exciting than the next. She particularly favored performing at Carnegie Hall and St. Patrick’s Cathedral in New York. “One of the most memorable events was singing in front of Pope Benedict XVI in Rome in 2005,” she said. “Every two years, we would travel to a different country,” she explains. While she likes the cello, she found that she “extended her love for music with singing.”

Music, whether singing or playing an instrument, has always been an outlet for

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FAMILY TRADITIONS So, how does she maintain both her musical side and her accounting prowess? It helps that Carolina’s sister, Maria, who is older by 17 months, is also an accountant studying for her CPA and just as trained in music as Carolina. Her dad is an accountant and so was her grandfather.

Before going to college, she passed multiple rounds of Royal Schools of Music exam levels; but, even before high school she decided to follow in the footsteps of her father and grandfather in accounting. “With accounting, you can learn something new every day and something different every day, especially with the new tax laws.”

She also favors working with clients and helping to assist businesses with their taxes.

“I love working with people. In order to learn, you have to be on different teams and have exposure to many things,” She explains, “I never really thought about pursuing music as a professional career. Accounting was the best career path within business.”

Though she has a practical day job in accounting, music will always be in Carolina’s life. “I trained knowing whatever I did in life, I would always have music with me,” she says. “In music, you have to perform, you have to be open-minded.

In accounting, you have to keep an open mind, especially in a changing world,” she says. She still sings with her sister every Saturday at St. Mary’s Church in Deal and also sings at weddings.

Down the road, she’s open to pursuing more accomplishments — the Chartered Global Management Accountant (CGMA) credential. “You learn throughout your entire life,” she says.

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