New Jersey CPA - Winter 2021/22

WINTER 2021/22

TELEWORKING: STATE AND LOCAL CHALLENGES TIPS FOR A LESS-STRESSFUL YEAR-END CLOSE ACCOUNTING FOR DISTRIBUTED LEDGERS AND CRYPTO ASSETS HOW DEI IS BEING PRIORITIZED IN THE ACCOUNTING PROFESSION

Looking for an Easier Way

to Do 1099s & W-2s?

1099

Print, Mail & E-File with efile4Biz

W-2

No Software – No Forms – No Hassle

Simplicity

Security

Savings

Do it all online – no need for paper forms, software or even envelopes and stamps. You can also import the data directly from Excel, QuickBooks® or Xero accounting software. We save your payer and recipient data year-over-year to make future filings even easier.

As an authorized e-file transmitter, we protect your data using the strongest encryption program available. Data is then transmitted to our high-security, SOC 2-certified print-and-mail facility.

Pay only for the number of forms you file even if it’s only one. Plus, save the labor costs of printing, mailing and manually submitting the forms. TIN matching is also available on a per contact basis, saving you money and helping you avoid costly mismatches.

It’s Easy!

Visit efile4Biz Today Remember – no software, no forms, no envelopes, no postage … and a lot less of your valuable time.

*Offer details: Offer expires 1/27/22 at 11:59 p.m. ET. Enter Code 15OFFB12 at checkout. Discount cannot be used for Direct-to-State Filing, Edits, Corrections, Subscription Services, TIN Matching or combined with any other offer or applied to previously placed orders. Limit one discount per customer.

SAVE 15%!

Enter code

15OFFB12 at checkout*

©2021 ComplyRight, Inc.

contents WINTER 2021/22

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

4 Teleworking Presents New Challenges for

RALPH ALBERT THOMAS, CPA (DC), CGMA Chief Executive Officer & Executive Director rthomas@njcpa.org THERESA HINTON Chief Operating Officer thinton@njcpa.org DON MEYER, CAE Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER Senior Content Editor khoffelder@njcpa.org DIANE ESPIRITU Senior Graphic Designer despiritu@njcpa.org 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 ADVERTISE OR P R OV I D E S PONSORED CON T EN T IN NEW J E R S E Y C PA Visit njcpa.org/advertising or contact Eileen Proven at eproven@njcpa.org or 862-702-5640

State and Local Tax

As full remote and hybrid work operations become viable work arrangements, it’s important to understand the state tax pitfalls that one can fall into. The state and local tax (SALT) effects of telecommuting range far and wide, from business income tax to sales tax to payroll tax to tax residency.

6 Tips for a Less-Stressful Year-End Close

All too often, the year-end close is seen as something to dread or agonize over. But careful planning and leveraging technology as much as possible can alleviate many pressures before they start.

8 The Wild West: Accounting for Distributed

Ledgers and Crypto Assets

On a federal level, there is a pronounced deficiency in authoritative accounting and auditing guidance related to crypto assets and blockchain, though several states have pending legislation. Fortunately, there is some guidance available to help.

10 DEI: What Priority is it Given at the Top?

Diversity, equity and inclusion (DEI) are not just buzzwords anymore. Practical, proactive approaches to make hiring practices and promotion tracks more equitable are being deployed. Find out what steps the accounting profession is taking and what’s still needed.

2 CLOSE UP

Diversity, Equity and Inclusion: Why the Profession Needs to Change and How to Do it 12 ACCOUNTING, AUDITING & ATTEST

A Look at Salvage Value and Depreciation 13 BECOMING A CPA

New Book Offers Advice for Starting and Advancing in Accounting

14 BUSINESS MANAGEMENT

Funding Small Businesses and Startups under Regulation Crowdfunding 16 FINANCIAL PLANNING SERVICES

Understanding Self-Directed IRAs SPONSORED CONTENT

A Primer on the Federal Reserve and Interest Rates 18 FIRM MANAGEMENT

6 Steps to Sustainable Succession Management

19 INDUSTRIES

24 TECHNOLOGY

Nonprofit Accounting Considerations for Crypto Assets

Getting to Know the NFT Marketplace

20 LITIGATION SERVICES & BUSINESS VALUATION

y NJCPA Awarded for Passage of BAIT Act

Case Study: The Importance of Using Standard Methodology in Calculating Economic Damages 22 TAX

New Jersey Provides Tax Deduction for College Savings Plan Contributions Benefits of the Employee Retention Tax Credit

25 NJCPA NEWS

y 30 Under 30: Then and Now y CPA Exam Fee Lottery Winners Announced y Student Programs Encourage Pipeline Growth y NJCPA Publishes Audit Report 31 CLASSIFIEDS 32 MEMBER PROFILE

Kathleen Bloch, CPA

CLOSE UP

Diversity, Equity and Inclusion: Why the Profession Needs to Change and How to Do It

BY DON MEYER, CAE, NJCPA CHIEF MARKETING OFFICER

“Diversity in the CPA profession has changed very little in the last 25 years.”

That was the opening line to a diversity article I wrote in 2012. Unfortunately, the line still applies in 2021.

For decades, the accounting profession has pursued diversity, equity and inclusion (DEI) initiatives to create opportunities for all to feel welcome, valued and critical to serving the public interest. Yet, progress is inconsistent at best.

There are more than 500,000 licensed CPAs in the United States, but only 2 percent of them are Black. According to the American Institute of CPAs, minority hiring in the profession has seen slight improvements but overall stagnation.

Even though accounting has been consistently ranked as one of the leading majors for students, minority students are not considering it a viable option, tending to opt for other majors or professions where they see more diversity. Additionally, the profession has difficulty holding onto qualified candidates. At each step in the supply chain, the percentage of minority representation drops, from college enrollment to overall CPA firm employees.

The profession must dispel the stereotypes and misconceptions about accountants and the business community and address the social, cultural and economic challenges associated with attracting minorities into the CPA profession.

A BUSINESS IMPERATIVE To put it simply, demographic changes are making diversity a business imperative. The total number of minorities in the U.S. will be the majority by 2042, and the number of minorities who are business owners or occupy top roles continues to grow. Organizations looking to do business with those companies need to ask themselves, “Do we have the know-how, understanding and in-house human capital to fully understand the culture, needs and sensitivities of our minority clients?”

2

WINTER 2021/22 | NEW JERSEY CPA

There are many valid reasons for accounting firms and companies to pursue a DEI strategy. Here are two key reasons: y The mission case. DEI directly and indirectly enhances a company’s mission. A diverse group of internal and external constituents working in an inclusive culture are empowered to speak up, take risks and think big, and are more likely to co-create and participate in needed solutions — all to the benefit of the company’s mission as strategic organizational decisions are made. y The revenue case. One of the most basic claims in the business case for diversity is that diversity is profitable.

Improved productivity and creativity, better market connections and reduced costs from turnover are all said to positively affect the bottom line resulting in an improved competitive position relative to less diverse companies.

NJCPA’S COMMITMENT TO DEI In principle and in practice, the NJCPA is committed to diversifying the accounting profession, because we understand that a workforce that's reflective of the communities it serves is strongly positioned to succeed in an evolving, global marketplace.

We support diversity in the profession through our DEI action plan, which includes the following:

y Implementing processes that expand entry points for potential Board members, mentoring and developing the leadership of diverse Board members, and nominating and appointing diverse candidates as successors to committee chairs and interest group leaders y Educating members about the business case for diversity in the accounting profession y Honoring DEI champions in accounting and finance through the NJCPA Ovation Awards y Raising awareness of the accounting profession and providing programs and financial assistance to students from underrepresented populations through career awareness presentations and our new minority scholarship pilot program (see page 30 for details) For the NJCPA, DEI is both a business principle and practice. So, we will continue to commit time, attention and resources to DEI and help members do the same in their companies.

READ MORE DEI Knowledge Hub njcpa.org/diversity

New Jersey CPA (ISSN 1534-6692) is published quarterly by the New Jersey Society of Certified Public Accountants, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068. Issue No. 89 Copyright © 2021 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 the 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.

WHAT’S BETTER THAN CALLING ANY TIME YOU NEED ADVICE ABOUT PRACTICE SUPPORT AND RISK MANAGEMENT?

REACHING KNOWLEDGEABLE EXPERTS. CAMICO ® policyholders know that when they call us, they’ll speak directly with in-house CPAs, JDs and other experts.

We have dedicated hotlines for loss prevention, tax, and accounting and auditing issues. You can call as often as you need and consult with experienced specialists — all at no additional cost. No one knows more about the profession, because we provide Professional Liability Insurance and risk management for CPAs only — it’s all we’ve done for 35 years and why more than 8,000 CPA firms insure with CAMICO.

To learn more or to receive a coverage quote, please contact CAMICO representative:

Irene M. Walton Area VP, Affinity Manager T: 215.351.4765 E: irene_walton@ajg.com

Lauren Pitonyak Account Executive T: 215.351.4701 E: lauren_pitonyak@ajg.com

Accountants Professional Liability Insurance may be underwritten by CAMICO Mutual Insurance Company or through CAMICO Insurance Services by one or more insurance company subsidiaries of W. R. Berkley Corporation. Not all products and services are available in every jurisdiction, and the precise coverage afforded by any insurer is subject to the actual terms and conditions of the policies as issued.

3 ©CAMICO Services, Inc., dba CAMICO Insurance Services. All Rights Reserved.

NEW JERSEY CPA | WINTER 2021/22

TELEWORKING PRESENTS NEW CHALLENGES FOR STATE AND LOCAL TAX

By JASON ROSENBERG, CPA WITHUM

With many business leaders forecasting that remote work is here to stay, full remote work or hybrid telecommuting arrangements will likely be commonplace. Therefore, it’s crucial that both businesses and employees understand the potential state tax pitfalls of telecommuting.

4

WINTER 2021/22 | NEW JERSEY CPA

The state and local tax (SALT) effects of telecommuting range far and wide, from business income tax to sales tax to payroll tax to tax residency.

BUSINESS TAXES With corporate income tax or sales tax, the impact of nexus is very apparent. For a jurisdiction to impose a tax, it is required that a sufficient connection exists, or what is referred to as having “nexus.” Traditionally speaking, a business establishes nexus when an employee is physically working from that state. Although a tax authority may provide limited exceptions to this, such as an employee working from home, an employee whose activities are de minimis (i.e., immaterial day count) or COVID-19 relief, these exceptions are few and far between. In fact, effective Oct. 1, 2021, New Jersey’s COVID-19 waiver of income and sales tax nexus no longer applies.

A more likely exception might be P.L. 86-272, but this federal law is limited to only income tax for businesses that only sell tangible goods, and the employee’s activities must be limited to sales. Although in most cases an employee working from home creates nexus, with states generally imposing widespread economic nexus provisions, for many businesses physical presence is not even a requisite to establish nexus. A business with economic nexus, absent of any exceptions, will nevertheless find itself with a filing imposition. At the very least, for many businesses, the remote employee

will increase audit risk detection for noncomplying businesses.

With business income taxes, the reverberations of telecommuting with respect to state tax apportionment could be as consequential. While many states have shifted away from the traditional three-factor formula to a single-sales factor, many states still use payroll in computing state taxable income. Remote employees may dictate how businesses compute state-apportionable income due to a variable payroll factor. As a result, businesses should not overlook these effects, as even an apportionment increase of a couple of percentage points could result in a significant tax impact.

Possibly even more significant are states that still retain cost of performance (COP) sourcing for computing the sales factor of apportionment. Although there are many variations of COP sourcing, situsing revenues under COP, in effect, allocate revenues to the extent the business incurs expenses such as payroll in the state when rendering its services. As such, for service businesses subject to COP sourcing, such as New York City’s Unincorporated Business Tax (UBT), which sources income from services by the place where the services are performed, there may be an opportunity to significantly reduce entity-level UBT taxes as more employees work from home in the suburbs. This contrasts with New Jersey’s provision which sources sales based on the office at which its personnel (e.g., employees, independent contractors) are situated or connected to.

PAYROLL TAX WITHHOLDING Another area that has garnered significant attention, even outside the tax community, is payroll taxes. Mainstream news media covered New Hampshire’s lawsuit against Massachusetts regarding taxation of New Hampshire residents who normally had worked in Massachusetts but who were working remotely during the pandemic.

Effectively, Massachusetts put in place a “convenience of the employer” rule, albeit temporarily. Traditionally speaking, a convenience of employer rule treats wages as state sourced for an employee assigned to the employer’s office, unless the work was performed outside the state at “the necessity of the employer,” as opposed to for the

convenience of the employee. Employees may find themselves in the unique situation where they could be subject to tax in two states: the state they are working remotely in and the state of their employer’s office.

Adding to this confusion are COVID-19 relief, reciprocity states, convenience of employer rule exceptions and credit for taxes paid considerations. Considering the lack of uniformity across the states, these rules have created a lot of havoc for payroll tax administrators.

PERSONAL TAX RESIDENCY Remote work has shown that, for many employees and business owners, work can be done distantly in a low-taxed state.

Moving out of a state requires more than just changing a driver’s license or a voter registration. The failure to properly change a tax residency means that all of one’s wages, business income and intangible income will be subject to income tax.

In many states, tax residency may be established if a taxpayer’s tax “domicile” is in a state. Domicile is a subjective test, and multiple questions are considered in determining if a permanent move has been made, such as: y Where does the taxpayer spend most of their time? y What is the value and size of each residence? y Where do they attend doctor appointments? y Where do their children attend school? y Where are their most precious possessions kept? y Where are their business interests located?

If the taxpayer prevails that they changed their domicile, then often the focus turns to the statutory test. A taxpayer will still qualify as a tax resident if a permanent place of abode is maintained in a state and presence exceeds 183 days in a state. In the event a taxpayer is domiciled in one state but establishes a statutory residency elsewhere, this dual-residency status may result in double taxation. However, even a win on tax residency doesn’t mean there won’t still be some state-sourced income as a nonresident. Residency tax planning is

vital; developing a residency position after the fact can sometimes be unworkable, since the position and documentation could be contradictory as states aggressively target lost revenue.

THE GREAT STATE TAX MIGRATION There has been a significant uptick in businesses and people moving to states with more favorable business climates.

However, the tentacles of state tax can be far reaching, and it’s essential that employers and employees understand all of the implications so they can engage in proper tax planning and put in place safeguards to mitigate any unintended tax consequences.

This includes evaluating current operational models for nexus mitigation and apportionment optimization, developing remote workforce policies, implementing employee tracking procedures and executing residency tax planning prior to a move.

Teleworking may present new challenges for SALT, but it also may present many tax and non-tax opportunities as well.

LEARN MORE Dec. 10 or Dec. 15, Live Webcast ANNUAL TAX SEMINAR

Dec. 21, Live Webcast

MULTISTATE TAXATION

Dec. 21 or Jan. 20, Live Webcast

STATE TAX NEXUS FAQ:

FREQUENTLY AWKWARD QUESTIONS

njcpa.org/events

READ MORE STATE TAXATION KNOWLEDGE HUB

njcpa.org/hub/statetax

DO MORE

JOIN THE STATE TAX INTEREST GROUP

njcpa.org/groups

Jason Rosenberg, CPA, CGMA, EA, MST, is a senior manager in the state and local tax practice at Withum. He is the vice leader of the NJCPA State Taxation Interest Group and serves on several other NJCPA committees. He can be reached at jrosenberg@withum.com.

NEW JERSEY CPA | WINTER 2021/22

5

TIPS FOR A LESS-STRESSFUL YEAR-END CLOSE

By DAVID LOPEZ, CPA

DAVID A. LOPEZ AND COMPANY

As the end of 2021 draws near, external CPAs, corporate controllers and internal accounting staff are looking towards the year-end close.

For far too many accountants, the year-end close is a stressful activity that strikes up feelings of anxiety and tension.

6

WINTER 2021/22 | NEW JERSEY CPA

Feelings of uneasiness are not limited to just small company fiscal personnel. The financial professionals that practice within large business enterprises often express the same level of anxiety when the fiscal year is coming to an end. Whether its Dec. 31, June 30 or some other date on the calendar, the year-end close does not have to be a stressful activity that ruins the holiday season or summer vacation plans. With proper planning, the year-end close can be a seamless activity that can be completed efficiently and — most importantly — accurately.

PLAN AHEAD The year-end close process should begin well before the end of the year. The most important characteristic of a smooth close is timeliness. Timeliness in recording transactions, timeliness in reconciling accounts and timeliness in investigating unusual variances ensures accountants are not scrambling at the end of the year.

Let’s assume the business operates on a calendar year. At the latest, the annual closing of the books and records should start by Oct. 1, the first day of the fourth quarter. Some people may think this is too early to start the close, but getting out of the gate early in the fourth quarter minimizes the chances of mistakes being made or important entries being missed as the accounting team is not working under the stress of a looming deadline.

During the first days of the fourth quarter, the members of the accounting team — both internal and external — should develop a closing checklist. This checklist should include all the tasks, analysis and

entries that must be completed, calculated and “booked” to ensure the accurate and complete closing of the general ledger. In many cases, this checklist stays consistent from year to year, but a thorough review of the document should be completed annually to ensure any new activities that require attention are not forgotten.

Another advantage of getting an early start is that those responsible for the year-end close can request information from individuals outside of the accounting department. Many times, information from other departments is needed to complete the close, so requesting it early ensures it is available before year end or shortly thereafter. In addition to working with internal co-workers, critical financial information may also be needed from external professionals. For example, one of our firm’s clients has a large pension liability on their balance sheet. The liability must be analyzed and valuated by an actuary on an annual basis. Without this valuation, the books cannot be closed. Therefore, we communicate with the actuary well before year-end to ensure that the required information is in our hands on a timely basis. The actuary provides a report delivery date, and this allows the controller to be ready to book the entry as soon as the document is in his inbox.

In addition to distributing requests for information, an early start to the close allows the finance team to perform actual accounting tasks before the last weeks of the year. For example, during the final 60 days of the year, a fluctuation (flux) analysis can be performed. The flux analysis, which compares results of operations from year to year, may identify variances that require attention. If needed, entries to address the variances can be booked prior to the end of the year. Lower-risk items such as fixed asset additions, disposals and depreciation expense can be booked. General ledger accounts that can be rolled forward, such as inventory, can be reviewed. In many companies, inventory counts can be done 30 days before the calendar turns to a new operating cycle. Take the count 30 days

before Dec. 31, then “rollforward” the balance to the last day of the year. The accounting team can also look at cash accounts and determine the proper treatment of older checks yet to clear on the monthly reconciliation. As tasks are completed, they can be removed from the closing checklist. Fewer open tasks at year-end means less stress on the staff.

LEVERAGE TECHNOLOGY Finally, and most importantly, use technology as much as possible when it comes to the year-end close. Technology and computerized accounting and finance packages are abundant in today’s marketplace.

Depending on the size of the company, accounting software packages can become very expensive, but, whatever the cost, the tool must be used effectively. According to recent studies, most businesses, no matter

the size, that utilize accounting software only use 30 percent of the package’s capabilities. Clients should be encouraged to use their accounting software to its full capabilities. Consider helping to automate journal entries that are constant. When it comes to payroll, inventory, accounts receivable and accounts payable modules, CPAs can help to automate customer billing and vendor payments.

There are practical, easy-to-implement steps that can make the year-end close less stressful. Accounting professionals who change their mindset, start early and use technology to its full capabilities will reap the rewards.

David A. Lopez, CPA, PSA, is the managing director of David A. Lopez and Company, LLC. He is a member of the NJCPA and can be reached at davidlopezcpa.com.

LEARN MORE Dec. 7, Dec. 31, Jan. 28 or Feb. 22, Live Webcast SHORTEN MONTH-END: CLOSING BEST PRACTICES

Dec. 9 or Feb. 20, Live Webcast

QUICKBOOKS: RECONCILING BALANCE SHEET ACCOUNTS HAS NEVER BEEN EASIER

njcpa.org/events

READ MORE BUSINESS MANAGEMENT KNOWLEDGE HUB

njcpa.org/hub/ businessmanagement

NEW JERSEY CPA | WINTER 2021/22

7

THE WILD WEST: ACCOUNTING FOR DISTRIBUTED LEDGERS AND CRYPTO ASSETS

By DR. ETHAN KINORY RUTGERS SCHOOL OF BUSINESS-CAMDEN

When it comes to adopting distributed ledger and crypto asset technologies, one common reason why companies have hesitated is the lack of adequate regulatory guidance.

Securities and Exchange Commission (SEC) Chair Gary Gensler complained that, “Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West.”

8

WINTER 2021/22 | NEW JERSEY CPA

As of May 2021, 31 states had pending legislation relating to crypto assets and blockchain concerns including California which has called for the formation of a working group to study the potential uses, risks and benefits of blockchain technology (A.B. 2658). California has also authorized its corporations to utilize blockchain ledgers to record stockholder activity (S.B. 838). Similarly, on the federal level there is a pronounced deficiency in authoritative accounting and auditing guidance. For example, there are no Financial Accounting Standards Board (FASB) Accounting Standards Codifications (ASCs) relating to digital assets, and FASB recently rejected a proposed agenda item to discuss accounting standards for cryptocurrencies. Instead, legislation at the federal level has been more focused on raising revenues by, for example, including (as of the time of this writing) provisions in the infrastructure bill to vastly increase cryptocurrency brokers’ tax reporting requirements. Since auditors are required to understand a client’s compliance with applicable regulatory requirements, this can be vexing. What is an auditor to do? Fortunately, there is some important guidance that accounting professionals can refer to.

RECEIVING CRYPTO ASSETS An AICPA Practice Aid issued in June 2021 advised that crypto assets (e.g., bitcoin) received in exchange for cash should be recorded at their cost and accounted for as an indefinite lived intangible asset (FASB

ASC 350-30) and not as cash, a cash equivalent, foreign currency or financial instrument. The crypto asset should not be amortized but must be tested for impairment at least annually or more frequently if the facts and circumstances (FASB ASC 350-30-35) suggest that it is more likely than not that the asset is impaired even if the impairment is believed to be temporary in nature. If a company repurchases a crypto asset for a lower price than the carrying value of its preexisting crypto assets, this suggests that an impairment charge is necessary. Once an impairment has occurred, a write down is required for the amount by which the crypto asset’s fair value exceeds its carrying value. Impairment write downs cannot be subsequently reversed, even if the crypto asset recoups its value. Accordingly, recognition of unrealized gains on crypto assets are deferred until the time of sale, but impairment rules essentially require that losses in value be recognized much more timely.

RECEIVING CRYPTO PAYMENTS The accounting treatment differs for crypto assets received in a sale. If the crypto asset is contemporaneously received from a customer in exchange for goods and services provided in the ordinary course of trade or business, the transaction should be recognized at the fair value of the crypto asset at the time of contract inception (ASC 606). Subsequent changes to the value of the crypto asset would not affect the transaction price (ASC 606-10-32-23).

In the event that the crypto asset is not received contemporaneously with the exchange of goods or services, but at a later point in time, an assessment must be made as to whether the crypto asset constitutes a derivative or a hybrid instrument containing an embedded derivative (FASB ASC 815).

SELLING DIGITAL ASSETS Accounting for the sale of a digital asset to a customer for fiat currency requires the recognition of revenue at the time the transfer constitutes a sale (FASB ASC 606). If the sale is not to a customer in the ordinary course of business, then the transaction should be accounted for as a derecognition of a nonfinancial asset (ASC 610-20) or as a nonmonetary transaction (ASC 845). Gains or losses should be recognized as appropriate. In circumstances where only a portion of the digital asset is sold, it may not be feasible to employ specific identification to determine the cost basis. Therefore, since digital assets are fungible and can be split into fractional units, a reasonable and rational method should be used for purposes of establishing the cost basis.

SELLING CRYPTOCURRENCY Treatment for cryptocurrency sales differs depending on whether the sale is part of an entity’s ongoing major or central operations.

In cases where cryptocurrency is sold to a customer for a fiat currency such as the U.S. dollar, revenue is recognized when control of the cryptocurrency has

been transferred and the transaction is considered a sale under FASB ASC 606.

However, if the transaction is not with the customer, then the sale should be accounted for as a gain/loss from the derecognition of a nonfinancial asset (ASC 610-20) or, if applicable, under ASC 845 as a nonmonetary transaction. For purposes of determining cost basis, entities might find it difficult to identify which specific units of the digital asset were sold particularly since they are fungible and can be divided into smaller fractional units. Therefore, a reasonable and rational method (e.g., FIFO) can be utilized for determining the cost basis.

TAX IMPLICATIONS Because virtual currencies (cryptocurrencies are a specific type of virtual currency that uses cryptography) do not have legal tender status, the IRS does not recognize them as “real” currencies. Instead, cryptocurrencies such as Bitcoin are treated as property for tax purposes. If they are received in exchange for good or services, then the fair market value of the virtual currency becomes its basis and must also be included in the recipient’s gross income.

Subsequent sales will give rise to capital gains or losses, assuming they were capital assets in the taxpayer’s hands. Otherwise, the gains or losses will be ordinary income.

Notice 2014-21 and Revenue Ruling 2019-24 provide tax guidance for more complex virtual currency transactions.

One area that remains active relates to disclosure. In March 2021, the IRS

announced that taxpayers who purchase virtual currency with real (fiat) currency do not need to answer ‘yes’ on Form 1040 Box 3, which asks whether the taxpayer acquired any financial interest in a virtual currency. At the time of this writing, the U.S. Infrastructure and Jobs Act (approved by the Senate but awaiting passage in the House of Representatives) includes an expanded definition of “brokers” required to provide reporting information on cryptocurrency transactions. The provisions are intended to generate additional tax revenue and, if passed by the House, would take effect in 2023.

Hopefully, the next year brings more regulatory clarity. With the advent of a regulatory framework, standardization and greater adoption is likely to follow.

Dr. Ethan Kinory is an assistant professor of accounting at Rutgers School of Business-Camden and can be reached at ethan.kinory@rutgers.edu.

LEARN MORE Dec. 14, Dec. 30, Jan. 19 or Feb. 23, Live Webcast

BITCOIN FUNDAMENTALS — WHAT EVERY CPA SHOULD KNOW

Dec. 20, Jan. 14, Jan. 26, Feb.11 or Feb. 23

THE TAX ASPECTS OF CRYPTOCURRENCY

Jan. 12, Live Webcast

CRYPTO TRENDS AND UPDATES —

WHAT THE PROFESSION SHOULD KNOW

Free webinar for NJCPA members

njcpa.org/events

DO MORE JOIN THE EMERGING TECHNOLOGIES INTEREST GROUP

njcpa.org/groups

READ MORE BLOCKCHAIN & CRYPTOCURRENCY KNOWLEDGE HUB

njcpa.org/hub/crypto

NEW JERSEY CPA | WINTER 2021/22

9

DEI: WHAT PRIORITY IS IT GIVEN AT THE TOP?

By KATHLEEN HOFFELDER

NJCPA SENIOR CONTENT EDITOR

Great strides are occurring within organizations to make hiring practices and promotions more diverse, equitable and inclusive. But to achieve broader, comprehensive change, discussions should start with the main influencers at the top — the board.

Organizations that discuss diversity, equity and inclusion (DEI) from a topdown approach tend to put in place more permanent diversity policies and engage more internal departments. A 2020 EY report, “How Boards Can Lead on Racial Diversity, Equity and Inclusion,” states that boards are the ones that can play a big role in leading the DEI charge. According to the report, boards can lead their companies through “business and social change in ways that promote sustainability, performance and value for the benefit of the company, its investors and other key stakeholders.” The report suggests that companies should be examining the ways that racial diversity, equity and inclusion intersects with corporate value and other areas of board oversight, including corporate strategy, risk management, human capital and culture.

Bill Bradshaw, CDP, director of inclusion and diversity at Withum, says DEI should fit into an organization’s goals and objectives. “When companies align their DEI priorities with business objectives, it’s easy

to see where they should focus their efforts.

Whatever decisions the firm makes around processes, people, benefits, philanthropic engagement, client work, etc., should tie back to the pre-established vision and goals,” he explains.

Making DEI practices part of an organization’s culture will also help create a more equitable work environment. “Like many other organizations, we realized that we could be doing more. Several efforts and elements of our culture are now specifically focused on DEI, and we expect that to grow in the coming years,” says Lea Chown, senior manager in the human resources group at Friedman LLP. NOT JUST TALK Withum put its policies into action with the recent launch of unconscious bias training. More than 75 percent of its team members voluntarily participated. As Bradshaw explains, “Our two-part training, which consisted of an e-learning module and facilitated dialogue, expanded on what unconscious bias looks like in the workplace and how acknowledgment creates a more-inclusive culture.” Team members received tools to recognize, mitigate and dive into themes surrounding bias.

So, what was the outcome? Upon completion of the training, Bradshaw says the team members acknowledged the need to pause and self-reflect before making hiring decisions and staffing client engagements.

Similarly, Bowman & Company LLP kick started its DEI initiatives by assembling a Diversity & Inclusion Committee. The

COMMENTATORS (in order of appearance)

10

WINTER 2021/22 | NEW JERSEY CPA

BILL BRADSHAW, CDP

LEA CHOWN

ROBERT E. BIDDLE JR.

CRYSTAL COOKE

Director of Diversity and Inclusion Withum

Human Resources Senior Manager Friedman LLP

Principal Bowman & Company LLP

Director of Diversity & Inclusion Association of International Certified Professional Accountants

committee helped plan Bowman’s first firm-wide Day of Understanding, which provided a facilitated discussion on unconscious bias and an opportunity for staff to be a part of the movement towards a more equitable workplace and industry.

“We hope to embolden different perspectives and expand the accounting industry’s equitable opportunities,” explains Robert E. Biddle Jr., principal at Bowman & Company. “We acknowledge that the road ahead may be long, but we are committed to journeying it together.”

Friedman also created inclusive initiatives across all staff levels. It regularly asks employees five questions about themselves, which allows them to highlight and share something unique about who they are and their experiences. “We have found that these stories are helping people connect with each other to share similar experiences and learn more about each other, fostering strong connections across our firm,” says Chown. Additionally, they recently made Veterans Day and Juneteenth official firm holidays. “These two days in particular hold special significance to several of our employees, and we are proud to help honor them.”

WHERE IT BEGINS Informing future racially or ethnically diverse accounting professionals about the job opportunities in the field is just as important as fixing current hiring policies.

As Crystal Cooke, director of diversity and inclusion at the Association of International Certified Professional Accountants and

the vice chair of the American Institute of CPAs National Commission on Diversity and Inclusion, notes, when looking to hire these candidates, one should start by addressing high school students. “Because of the small number of Black CPAs, school counselors also don’t think to direct Black students into the profession. To me, this translates to us needing to go back into high schools and provide more education and widen the pipeline from the earliest level.”

It may also be necessary to change how these high school seniors view accountants.

Cooke notes that “a lot of people think accounting is just tax. Broadening and scaling our reach is probably what’s necessary.”

She also adds that these students should be hearing the message that accounting provides good job security.

Many organizations and accounting firms have realized that scholarships are a way to reach these individuals and assist with their financial burden. The NJCPA has expanded its accounting scholarship offerings to include a Minority Scholarship.

Funded by Deloitte, the new scholarship was created to open the doors to the accounting profession for New Jersey high school seniors who are racially or ethnically diverse and considering accounting as their college major. Multiple scholarships of $1,500 each will be awarded to qualifying applicants from four New Jersey high schools as part of a pilot program.

Additionally, Bowman is one of 10 accounting firms across the U.S. to co-sponsor the AICPA’s PCPS (Private Companies Practice Section) George

Willie Scholarship and Internship Program, where 10 ethnic minority college accounting students will receive up to $10,000 each for their final academic year tuition and an internship. “Welcoming this intern into our workforce is just one of the ways we are committed to creating a more eclectic and inclusive workforce,” explains Biddle.

A concerted effort by boards, top organizational leadership and academia could help move the needle that much further in making the accounting profession more open, as well as equitable.

READ MORE DIVERSITY, EQUITY AND INCLUSION KNOWLEDGE HUB

njcpa.org/hub/diversity

LEARN MORE Dec. 14 or Dec. 27, Live Webcast

6 STRATEGIES TO PROMOTE DIVERSITY & INCLUSION IN YOUR WORKPLACE

Dec. 22, Jan. 29 or Feb. 28, Live Webcast

UNCONSCIOUS BIAS WITH DR. TOBY GROVES

Dec. 29, Jan. 27 or Feb. 28, Live Webcast

ETHICS AND WORK: DIVERSITY, EQUITY AND INCLUSION

njcpa.org/events

NEW JERSEY CPA | WINTER 2021/22

11

ACCOUNTING, AUDITING & ATTEST

A Look at Salvage Value and Depreciation

BY EVAN C. WASSERMAN, CPA, MBA, AND MARSHALL SAUNDERS, CPA, MBA, RUTGERS BUSINESS SCHOOL

To compute depreciation, three pieces of information are required: the asset’s cost, the asset’s salvage value and the asset’s stimated useful life. To compute annual depreciation expense, the depreciable cost (asset cost less salvage value) is divided by the estimated useful life. Each of these components will have a material effect on the amount of depreciation recorded each period.

Let’s consider salvage value with respect to an acquisition of real estate. Since real estate generally appreciates, the salvage value will be higher than cost and there should be NO depreciation expense reported on the income statement. Interesting point, right? The case outlined below illustrates the impact that salvage value has on the calculation of depreciation expense on real estate assets.

FACTS OF THE CASE An auditor is auditing fixed assets at a client.

The client purchased a new warehouse in the current year for $1,000,000. The auditor notices that the client has not provided any depreciation expense on that building. When the auditor enquires about the lack of depreciation, the controller says that the company followed the accounting standards related to depreciation. The factors that went into the company’s calculation are as follows: y y y y

Cost: $1,000,000 Salvage value: $1,000,000 Estimated useful life: 30 years Depreciation method: Straight-line

The client says that depreciation is calculated by dividing the depreciable cost by the estimated useful life. Using the factors shown above, the depreciation expense would compute to zero.

The auditor asks the controller why the company used a salvage value equal to the cost. The controller presents the textbook definition of salvage value: Salvage value is an estimate of the asset’s value at the end of its useful life. This value may be based on the asset's worth as scrap or on its

12

WINTER 2021/22 | NEW JERSEY CPA

expected trade-in value. Like useful life, salvage value is an estimate. In making the estimate, management considers how it plans to dispose of the asset and its experience with similar assets.1 The controller explains that, based on the company’s experience with similar assets (real estate), the value of the buildings upon sale (at the end of their “useful life”) was at least equal to the building’s historical cost. The controller also says that the recently purchased building is in a very popular commercial real estate park. Buildings in that park have appreciated more than 75 percent in the last 10 years.

The auditor tells the controller that generally accepted accounting principles require the use of the expense recognition (matching) principle where companies recognize expenses in the period in which they make efforts (consume assets or incur liabilities) to generate revenue and match expenses with revenues in the period when the company makes efforts to generate those revenues.1 Depreciation is one of those expenses that should be recorded as you utilize your plant assets. As defined, depreciation is the process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner.

Such cost allocation enables companies to properly record expenses (efforts) with associated revenues (results) in accordance with the expense recognition principle.1 The auditor’s argument would support recording some depreciation expense related to the building.

ANALYSIS OF THE CASE Is the client’s position sustainable? Has the client made a bad estimate? The company appears to be following the accounting rules. Is such a discussion with the client outside of the realm of possibility?

Here are some questions to consider: y Is it possible a real estate company (e.g., apartment complex) can show no depreciation expense?

y Should salvage value (for real estate) be abolished so a company reflects depreciation expense (as part of operating expenses) as the asset is used and as the company produces revenue? y Should the Financial Accounting Standards Board look into the concept of salvage value?

Food for thought.

Evan C. Wasserman, CPA, MBA is an assistant professor of professional practice at Rutgers Business School. He is a member of the NJCPA and can be reached at evan.c.wasserman.cpa@rutgers.edu.

Marshall Saunders. CPA, MBA is an instructor of professional practice at Rutgers Business School.

He is a director of the NJCPA Passaic County Chapter and can be reached at msaunders@business.rutgers.edu.

1 Definitions from Financial Accounting, Eleventh Edition, by Jerry J. Weygandt, Ph.D., CPA, Paul D. Kimmel, Ph.D., CPA, and Donald E. Kieso, Ph.D., CPA

ACCOUNTING KNOWLEDGE HUB

njcpa.org/hub/accounting

READ MORE

DO MORE JOIN THE ACCOUNTING & AUDITING STANDARDS INTEREST GROUP

njcpa.org/groups

LEARN MORE On-Demand Nano CPE

ISSUESWATCH PODCAST — A&A UPDATES

njcpa.org/nano

Dec. 17 or Dec. 30, Live Webcast

ADVANCED COST ACCOUNTING — ASSIGNING OVERHEAD

njcpa.org/events

BECOMING A CPA

New Book Offers Advice for Starting and Advancing in Accounting

BY KATHLEEN HOFFELDER, NJCPA SENIOR CONTENT EDITOR

Whether a student is looking for a way to begin a new accounting career or a working professional has their eyes on a coveted chief financial officer job, former KPMG Philadelphia Office Managing Partner Jerry Maginnis, CPA, has the inside tips and hands-on know-how to make those dreams a reality. His new book, Advice for a Successful Career in the Accounting Profession: How to Make Your Assets Greatly Exceed Your Liabilities, published by Wiley, sheds light on how to be successful at all levels within an accounting career — something that’s not readily discussed in the classroom.

The book, which took about three years to write, according to Maginnis, was never a financial endeavor — it simply was meant to educate and pass on advice to those around him. “I’ve had many conversations with students at Rowan University about their future aspirations, such as ‘How do I get that first internship?’ or ‘Should I take the CPA Exam?’” he explained. “It’s great if I can help point a couple of these kids in the right direction, but is there a way to capture some of this advice I’m sharing with them and share it more broadly?” he asked himself before writing the book.

“Every student is unique, and you try and help them,” said Maginnis. “Through mentoring, teaching and coaching, I have had hundreds of interactions with young professionals. My motivation was basically to help that next generation of CPAs at the end of the day.”

LESSONS TO PASS ON With key takeaways in every chapter, readers learn practical tips about the accounting profession from the reasons why one should enter in the first place to what benefits it can provide over a lifetime. Section one of the book focuses on college and high school students who may still be investigating the profession, while the second section discusses issues, challenges and opportunities for early career professionals in need of some fundamental lessons.

the CPA Exam. There are costs involved, but from an ROI standpoint, a person will certainly make that money back hundreds of times over the course of their career, he explains. y I don’t want to go into public accounting due to the crazy hours.

There's always talk going around about the long hours professionals often work in accounting, but work/life balance is possible. Yes, there’s a busy season, he said, but it’s not all the time. Employers have gotten a lot better at compensating for that busy season with time off and other considerations. y Accountants are introverts. Forget the stereotypes, according to Maginnis.

There are many dynamic, funny, friendly, outgoing and charismatic accountants.

The third section of the book applies broadly to anyone in accounting who may be looking to advance or switch careers.

The chapters include how to make the best career decisions at every level and how to avoid burnout. “Many folks change jobs for different reasons,” Maginnis noted, and the book walks the reader through what to expect in those situations. “Change has always been a constant, and you need to be able to adapt to that change. The pace of change is accelerating, but don’t be afraid of it — it can actually be your friend.”

MYTH BUSTERS Throughout the book, Maginnis also explains the commonly held perceptions that may be keeping one from a career in accounting. The following are some of the myths sprinkled throughout the book as well as a reality check on what the truth is:

Technical knowledge as well as having a commitment to staying current, a value creation mindset and ability to build and maintain relationships is critical to success, said Maginnis. He also advises to ask for feedback and listen carefully. A second edition of the book could be a possibility in the future, he added.

Save 40 percent on Advice for a Successful Career in the Accounting Profession: How to Make Your Assets Greatly Exceed Your Liabilities. Go to https://bit.ly/AccountingCareerAdvice and use promotion code promotion code JMAS4.

y The CPA Exam is too hard and not worth the time and money. As Maginnis explains, more than a half a million people have taken and passed

NEW JERSEY CPA | WINTER 2021/22

13

BUSINESS MANAGEMENT

Funding Small Businesses and Startups Under Regulation Crowdfunding

BY DR. CARLA CABARLE, DBA, MS, CPA, STOCKTON UNIVERSITY

According to the latest SEC Staff Report to the Commissioner ( June 2019), there have been more than 1,300 regulation crowdfunding (Reg. CF) offerings made between the regulation’s inception in May 2016 and Dec. 31, 2018. Approximately half of the offerings were successful — small businesses and startups raised an average of $208,400, and the total raised during this time was over $108 million.

Since then, Reg. CF offers continue to be an appealing capital raising option for entrepreneurs. Furthermore, regulators continue to enhance the rules, with the latest amendment made in November 2020 to encourage businesses and investors to participate.

BENEFITS FOR SMALL BUSINESSES Certain features of Reg. CF appeal to small businesses. Because Reg. CF is an unregistered securities option, it circumvents some of the stringent and costly rules applicable to IPO issuers. For instance, Reg. CF offers are not limited only to accredited investors, and they are not required to include audited financial statements or Sarbanes-Oxley Act (SOX) compliance in the filing. Similar to nonexempt registrants, Reg. CF issuers must include the equivalent of a management discussion and analysis (MD&A) in the filing documents, but the discussion points are much less prescriptive and comprehensive. Furthermore, an intermediary is used to solicit and manage the offer and issuance, as well as provide educational

14

WINTER 2021/22 | NEW JERSEY CPA

materials to investors and enforce investment limitations applicable to unaccredited investors. The intermediary is typically an SEC-registered online funding portal that specializes in capital formation (although registered broker-dealers are permitted), and the fees charged by portals are fairly low (typically 4 to 6 percent of the issuance). Two popular online funding portals are WEFunder (wefunder.com) and StartEngine (startengine.com).

HOW IT WORKS Accredited investors are encouraged to invest in Reg. CF by way of no investment limitation. Regulators and stakeholders believe that if accredited investors invest, unaccredited investors will be encouraged to also invest. As an investor-protection measure, the regulation limits investment amounts for unaccredited investors.

The offer is assigned a tier based on its size, and the tier determines the level of assurance required. The dollar amount used to determine the size of the offer, or tier, is the current offer’s stated maximum (oversubscription) plus amounts raised from other Reg. CF offers in the previous 12 months. Therefore, no initial Reg. CF offerings are required to include audited financial statements, even at the maximum offer allowed, which is currently $5 million.

It should be noted that if the issuer already has audited financial statements, they must be included at any tier. Tier 3 offers ($535,000 to $5 million) are required to include management certification and independent CPA-reviewed financials, and any subsequent offerings must include audited financials. Tier 2 offers ($250,000 to $535,000) must include management certification and independent CPAreviewed financials, and Tier 1 offers ($1 to $250,000) are required to include only a management certification but not reviewed financials. Issuers can choose to provide a higher level of assurance than the tier requires.

The management discussion section of the filing must address the issuer’s financial condition, including material trends, uncertainties, historical data, liquidity and capital resources. It also must include the business plan and a discussion of the planned purpose and intended use of the proceeds at both the minimum offer amount (target) and the maximum (oversubscription). Additional required disclosures include the current number of employees; a discussion of the material risk factors of the investment, including relatedparty transactions; current ownership and capital structure; and material indebtedness. During the offer period, the issuer must inform the public of its progress towards its funding goal, and, if the offer is funded, the issuer must provide annual updates to investors. Companies that do not comply with the annual reporting requirements are prohibited from offering Reg. CF securities in the future.

Reg. CF can be a win-win for both small business and investors because buyers can easily find and invest in startups and small businesses at a low cost, and a company can gauge public interest in its stock through a crowdfunding campaign without committing to accounting changes and internal control policies that would be required for an IPO. This saves the issuer time and money and allows them to broaden their reach to a wider pool of investors.

Dr. Carla Cabarle, DBA, MS, CPA, is an assistant professor of business studies and accounting at Stockton University. She is a member of the NJCPA Cannabis, Emerging Technologies and Emerging Leaders interest groups and can be reached at carla. cabarle@stockton.edu.

READ MORE BUSINESS MANAGEMENT KNOWLEDGE HUB

njcpa.org/hub/ businessmanagement

1,440

$

CLOSING COST CREDIT * When you finance your home with Marc Demetriou As a Member Benefit Provider of the New Jersey Society of Certified Public Accountants, Guaranteed Rate is dedicated to offering you a low priced mortgage, along with topnotch customer service and perks not available to the average customer.

NJCPA for more information and take advantage of: Visit rate.com/N • Competitively low rates

• Closing cost credit*

• A fast, seamless and digital mortgage experience

*Credit valid through Marc Demetriou for applications submitted after 09/10/20201 and prior to 09/10/2022. Coupon/Credit must be presented/mention at time of application. $1,440 credit will be applied at time of closing and is factored into the rate and APR. Lender credit cannot exceed 5% of total closing costs. Applicant subject to credit approval. If loan does not close for any reason, costs will not be refunded. This offer and/or receipt of application does not represent an approval for financing or interest rate guarantee. This coupon cannot be redeemed for cash/has no cash value. Restrictions may apply, contact Guaranteed Rate for current rates or more information.

Contact me today to learn more!

Marc Demetriou

Let’s get started

SVP of Mortgage Lending/Branch Manager

O: (973) 521-8345

C: (201) 286-3386

Rate.com/marcdemetriou

LICENSED IN ALL 50 STATES

350 Main Road, Suite 203 Montville, NJ 07045

marc.demetriou@rate.com

NMLS ID: 111118, MN - MN-MLO-111118, MO - MO-111118, MS - 111118, MT - 111118, NC - I-183413, AK - AK111118, AL - Licensed, AR - 121177, AZ - 1017281, ND - NDMLO111118, NE - Licensed, NH - Licensed, NJ - 516426, NM - Licensed, NV - 70417, CA - CA-DBO111118, NY - Licensed, OH - MLO-OH.111118, OK - MLO23120, OR - Licensed, PA - 40719, RI - Licensed, CO - 100521136, CT - LO-111118, DC - MLO111118, DE - MLO-111118, SC - MLO - 111118, SD - MLO.11125, TN 234385, FL - LO16461, GA - 59849, TX - Licensed, UT - 12139412, VA - MLO-44562VA, VT - VT111118, HI - HI-111118, IA - 42039, ID - MLO-2080111118, IL - 031.0064902, WA - MLO-111118, WI - 111118, WV - LO-111118, WY - 100952, IN 48744, KS - LO.0043208, KY - MC737616, LA - Licensed, MA - MLO111118, MD - 26-47847, ME - Licensed, MI - 111118 NMLS ID #2611 (Nationwide Mortgage Licensing System www.nmlsconsumeraccess.org) • AL - Lic# 21566 • AK - Lic#AK2611 • AR - Lic#103947 - Guaranteed Rate, Inc. 3940 N Ravenswood, Chicago IL 60613 866-934-7283 • AZ - Guaranteed Rate, Inc. - 14811 N. Kierland Blvd., Ste. 100, Scottsdale, AZ, 85254 Mortgage Banker License #0907078 • CA - Licensed by the Department of Business Oversight, Division of Corporations under the California Residential Mortgage Lending Act Lic #4130699 • CO - Guaranteed Rate, Inc. Regulated by the Division of Real Estate, 773-290-0505 • CT - Lic #17196 • DE - Lic # 9436 • DC - Lic #MLB2611 • FL - Lic# MLD1102 • GA - Residential Mortgage Licensee #20973 - 3940 N. Ravenswood Ave., Chicago, IL 60613 • HI - Lic#HI-2611 • ID - Guaranteed Rate, Inc. Lic #MBL-5827 • IL - Residential Mortgage Licensee - IDFPR, 122 South Michigan Avenue, Suite 1900, Chicago, Illinois, 60603, 312-793-3000, 3940 N. Ravenswood Ave., Chicago, IL 60613 #MB.0005932 • IN - Lic #11060 & #10332 • IA - Lic #2005-0132 • KS - Licensed Mortgage Company - Guaranteed Rate, Inc. - License #MC.0001530 • KY - Mortgage Company Lic #MC20335 • LA - Lic #2866 • ME - Lic #SLM11302 • MD - Lic #13181 • MA - Guaranteed Rate, Inc. - Mortgage Lender & Mortgage Broker License MC2611 • MI - Lic #FR0018846 & SR0018847 • MN - Lic #MN-MO-20526478 • MS - Guaranteed Rate, Inc. 3940 N. Ravenswood Ave., Chicago, IL 60613 - Mississippi Licensed Mortgage Company, Lic # 2611 • MO - Guaranteed Rate Lic # 16-1744-A • MT - Lic# 2611 • NJ - Licensed in NJ: Licensed Mortgage Banker - NJ Department of Banking & Insurance • NE - Lic #1811 • NV - Lic #3162 & 3161 • NH - Guaranteed Rate, Inc. dba Guaranteed Rate of Delaware, licensed by the New Hampshire Banking Department - Lic # 13931-MB • NM - Lic #01995 • NY - Licensed Mortgage Banker - NYS Department of Financial Services- 3940 N Ravenswood, Chicago, IL 60613 Lic # B500887 • NC - Lic #L-109803 • ND - Lic #MB101818 • OH - Lic #MB.0804160 & Lic #SM.501367 - 3940 N. Ravenswood Ave., Chicago, IL 60613 • OK - Lic # ML002651 • OR - Lic #ML-3836 - 3940 N. Ravenswood Ave., Chicago, IL 60613 • PA - Licensed by the Pennsylvania Department of Banking and Securities Lic #20371 • RI - Rhode Island Licensed Lender Lic # 20102682LL, RI - Rhode Island Licensed Loan Broker Lic # 20102681LB • SC - Lic #-MLS - 2611 • SD - Lic# ML.04997 • TN - Lic #109179 • TX - Licensed in TX: Licensed Mortgage Banker & Licensed Residential Mortgage Loan Servicer- TX Department of Savings & Mortgage Lending • UT - Licensed in UT: Utah-DRE Mortgage Entity License #7495184 & Utah-DFI Residential First Mortgage Notification – Utah Department of Financial Institutions • VT - Lic #2611-1 & 0930 MB & 6100 • VA - Guaranteed Rate, Inc. - Licensed by Virginia State Corporation Commission, License # MC-3769 • WA - Lic #CL-2611 • WI - Lic #27394BA & 2611BR • WV - Lic #ML-30469 & MB-30098 • WY - Lic#2247

NEW JERSEY CPA | WINTER 2021/22

15

FINANCIAL PLANNING SERVICES

Understanding Self-Directed IRAs

BY SHARIF A. MUHAMMAD, MBA, CPA, MST, CFP®, UNLIMITED FINANCIAL GROUP INC.

As many of the major U.S. equity indices recently reached all-time highs, retirement plan investors found themselves facing a “deal or no deal” quandary: take market winnings out of the markets to sit on the sideline in cash or stay invested and “let it ride.” With approximately 40 percent of US. household wealth stored in retirement accounts, many families, weary of the market crashes of 2008 and the COVID-19 crash of 2020, would welcome access to investment options that have little-to-no correlation to the general stock market.

To add another complication, most investors are not sophisticated (in terms of meeting the income or net worth requirements to satisfy the SEC’s “accredited investor” definition) enough to invest in hedge funds, private equity and other alternative investments that many wealthy and corporate insider investors have access to.

So, with such investment limitations, clients may come to CPAs for assistance with evaluating options that will help to achieve this investment diversification objective.

Enter the self-directed IRA (SDIRA).

Governed by IRS Code §s 408 and 408A, these IRAs allow owners to invest in an expanded offering of “alternative” investments outside of the typical cash, bonds, equities, mutual funds and ETFs typically found in broker-dealer-custodied IRAs. Except for two specific assets — investments in insurance (per IRC § 408(a)(3)) and collectibles — there is very little that an SDIRA can’t invest in. Known mostly for investments in real estate and gold, SDIRAs allow for many different investments, ranging from tax liens to racehorses.

Sounds almost too good to be true?

Here are some basic considerations with respect to SDIRAs. DOS AND DON’TS OF SELF-DIRECTED IRAs y Understand IRA rules and follow them. All traditional and Roth IRA rules apply, so make sure that clients’ SDIRAs understand and comply with all contribution, rollover, distribution,

16

WINTER 2021/22 | NEW JERSEY CPA

timing and, if applicable, reporting requirements (e.g., Forms 5498, 1099-R). y Understand the SDIRA structures and the responsibilities associated with them. There are SDIRAs where the owner directs the custodian who handles the receipt of and distribution of funds (often referred to as custodian IRAs) and others where the IRA owner has “checkbook control” (referred to as checkbook IRAs). This involves the creation of an IRA LLC that is owned by the SDIRA. The IRA owner acts as a non-owner manager of the LLC that directs the deployment of funds in the permissible investments. Note that when the custodian’s role is passive (as is the case with checkbook SDIRAs), the IRA owner may be faced with more responsibilities, such as recordkeeping, timely reporting and other compliance requirements. y Be aware of custodian limitations.

Even though the IRS Code may permit investors to invest in a certain asset, if the custodian is not equipped to properly handle the administrative and legal duties associated with such an asset class, the transaction can invalidate the SDIRA, potentially triggering taxes and penalties. Also, it is important to be aware of which administrative roles the custodian does or doesn’t do. Do they do periodic reporting? Do they prepare tax filings? Do they do valuations?

Knowing who is responsible for what can help avoid administrative lapses that can be costly to clients. y Understand what is deemed to be a prohibited transaction with respect to SDIRAs (IRC § 4975). This is a key area where SDIRAs draw the most scrutiny from taxing authorities.

Knowing the restrictions regarding who clients can transact with as well as the type of transactions that clients can execute is critical to maintaining tax-deferred status.

y Watch out for unrelated business income tax (UBIT). Defined under IRC§ 511(b)(1), UBIT refers to the tax that is payable when a tax-advantaged vehicle such as an SDIRA earns gross income that is from an “unrelated trade or business” that is carried on for what is considered a “regular basis.” In general, UBIT as it relates to SDIRAs revolves around unrelated business income and unrelated debt-financed income.

SDIRAs can be a powerful tool in providing diversification to an investment portfolio.

As trusted advisors and confidants, CPAs should 1) help clients understand their options; 2) educate clients on the ins and outs of SDIRAs — benefits, challenges, responsibilities and costs; and 3) assist clients with due diligence, vendor selection and finding appropriate council should they decide to take the plunge and utilize SDIRA structures.

Sharif Muhammad, MBA, CPA, MST, CFP®, is the founder and chief executive officer of Unlimited Financial Group Inc. He is a member of numerous NJCPA committees and interest groups and can be reached at smuhammad@unlimited-financial.com.

LEARN MORE Dec. 11, Dec. 23, Jan. 10 or Feb. 1, Live Webcast

INDIVIDUAL AND FINANCIALPLANNING TAX CAMP

Dec. 29, Jan. 31 or Feb. 23, Live Webcast

RETIREMENT PLANNING: NEXT

STAGE FOR YOU OR YOUR CLIENT

njcpa.org/events

READ MORE FINANCIAL PLANNING KNOWLEDGE HUB

njcpa.org/hub/financialplanning

FINANCIAL PLANNING SERVICES

SPONSORED CONTENT

A Primer on the Federal Reserve and Interest Rates Their purchases ended in late 2014. As the COVID-19 pandemic gripped the U.S. economy in March and April of 2020, Congress authorized the Fed to purchase up to $4 trillion in Treasuries.

Few financial issues receive more attention in the press than the Federal Reserve Board’s actions with interest rates. It seems there is always some mention of what Fed Chair Jerome Powell is saying or might say about the economy, interest rates or the markets in general.

As the independent central bank established by Congress in 1913, one of the Federal Reserve’s primary functions is to help maintain the economic soundness of the U.S. economy. It does this by setting the interest rates banks charge each other for overnight loans.

Thousands of banks in the country frequently borrow money or lend money to other banks for short periods, often just overnight. The Fed oversees that activity and sets the interest rates on borrowing and lending. This type of institutional borrowing helps to keep liquidity in the financial system and the banking system strong.

HOW IT WORKS The Fed has a 12-member Federal Open Market Committee that meets eight times per year to review the economy and make changes to the “overnight loan” rates. For the past few decades, the Fed has tried very hard to keep inflation under control by managing the overnight interest rates.

The members review all types of information and keep their meetings and decision-making process secret. At the end of their meetings, there is an announcement of any changes they make.

These announcements are anxiously awaited and studied very carefully by financial

professionals to get a glimpse into the thinking of these decision-makers.

KEY FED ACTIONS In 2008, the Fed reduced rates several times in response to a weakening economy and to provide additional liquidity as financial markets dealt with uncertainties in the sub-prime mortgage and other credit markets. By January 2009, the Fed had reduced their targeted rate to a range of 0 to 0.25 percent and kept that target through early 2015. From December 2015 through December 2018, they raised rates an additional five times to a range of 2.25 to 2.50 percent. Starting in August 2019, they began decreasing rates by a quarter point through October 2019 to a range of 1.50 to 1.75 percent. Then, in response to recession fears due to the COVID-19 pandemic, the Fed lowered rates twice in March of 2020.

Congress granted the Federal Reserve significantly more authority to deal with the turmoil in the financial markets, beginning in the late summer and fall of 2008. This included purchasing illiquid securities from institutions, making loans to troubled firms and making investments in banks and other institutions to provide additional capital for their operations.

Beginning in 2010, the Fed started buying U.S. Treasury obligations and other government debt as part of their efforts to keep interest rates low, make credit available and stimulate the economy. In the summer of 2013, the Fed indicated they were planning to reduce their purchases.

IMPLICATIONS FOR BUSINESSES AND INDIVIDUALS The cost of borrowing has a direct effect on businesses and individuals. By raising or lowering this central interest rate, the Fed can influence how fast or how slow the economy will grow or contract. However, it usually takes many months to see the full effect of any changes they make.

Many consumer interest rates are strongly influenced by changes made by the Fed. Usually, when the Fed raises or lowers rates, the prime rate (the rate charged to large corporations by banks) changes almost immediately. Many credit card and consumer loan rates are tied directly to the prime rate. In addition, mortgage rates are also greatly influenced by the Fed rate changes.

Since the stock and bond markets are closely interwoven, changes by the Fed can also affect the stock market. While there is no direct link, the market tends to react positively to rate cuts and negatively to rate increases. Usually, the markets are already sensing what actions the Fed may take, and prices may rise or fall long before the Fed actually meets and announces any changes.

There is probably nothing specific that an individual investor should do about the Federal Reserve Board’s actions. However, it makes sense to watch what they say and do and try to incorporate their actions into overall financial thinking.

Provident Bank and its wholly-owned subsidiaries provide a comprehensive suite of financial products and services for businesses and consumers as well as fiduciary, wealth management and insurance services. Learn more at provident.bank.

NEW JERSEY CPA | WINTER 2021/22

17

FIRM MANAGEMENT

6 Steps to Sustainable Succession Management

BY ROBERT TRAPHAGEN, CPA, CGMA, TRAPHAGEN CPAs & WEALTH ADVISORS

You can't spell "succession" without "success."

So why is succession often such a challenge for CPA firms? CPAs prioritize providing quality services to foster client relations and grow their firms; however, they relegate succession to the back burner. According to the 2020 Succession Planning Survey conducted by the AICPA Private Companies Practice Section and Succession Institute LLC, more than half of multi-owner firms (55 percent) said they are currently experiencing succession challenges, up from 26 percent in 2016, the last time the survey was conducted. Succession, in a sense, is viewed more often as an end game by many firms rather than a critical component of firm management.

It is imperative to focus on the future of the firm by adopting a strategy that builds sustainability. This will add value and allow a firm to be in a position of strength to determine its own destiny — be it a sale, merger (upstream/downstream), acquisition or internal succession supporting a legacy approach.

Here are six steps to creating a bestpractice sustainability plan.

1. IDENTIFY THE FIRM’S CULTURE Karl Nelson, a New York Giants Super Bowl 1986 winner, said the following when asked how the Giants won that year: “Each player on that team knew their role as well as each other’s role on the team. We knew who we were as a team, and where we were going!” Every firm should know, live and breathe its culture. Ask and answer the following questions: y What is the firm’s mission statement?

What does the firm actually do? y What is the firm’s vision? Where is the firm going? y What are the firm’s core values? Who is the firm and how does it operate?

2. BUILD INFRASTRUCTURE Every structure or entity starts with a strong foundation. The following initiatives can help firms develop a pipeline of talented, tech-savvy young professionals to build upon, nurture and grow with the firm:

18

WINTER 2021/22 | NEW JERSEY CPA

y y y y

Offer a college ambassador program.

Develop an onboarding process.

Provide training and coaching.

Promote professional networking for lateral growth.

3. IDENTIFY LEADERSHIP Identifying emerging leaders is an essential component of any successful organization.

Historically, many very successful small to midsize firms were founded by partners who left larger firms in part because they were not looked upon as leaders at these firms. Focus on the firm's leaders by using the following approach: y Adopt a Firm Competency Model (competency.aicpa.org/media_resources/ 209523-cpa-firm-competency-model) and communicate competencies that are needed for success. y Establish a career path. y Provide a road map for partner criteria. y Offer alternative leadership roles such as non-equity partners and developmental managers.

4. PROFESSIONAL DEVELOPMENT The best firms invest in their staff ’s professional development. Firm success is dependent upon having a system to monitor goals and commitments. Firms that maximize the abilities of their members have a competitive advantage. Management is a learned skill. Employ the following tactics: y Use periodic performance management to provide feedback. y Invest in entrepreneurial development (e.g., emerging leaders conferences, Dale Carnegie seminars). y Delegate and empower others. y Implement performance-based compensation.

5. INVEST IN TECHNOLOGY The accounting profession is rapidly changing due to new technologies. The accountants of the future will need to evolve with the changing profession. As David Ben-Gurion says, “It’s not enough to be up to date, you have to be up to tomorrow.” Consider the following actions:

y y y y

Fully leverage technology.

Consistently review and update systems.

Develop IT specialization within the firm.

Facilitate technical upskilling at all levels.

6. CLIENT TRANSITION A successful transition should give clients peace of mind in knowing there is continuity to meet their business and personal needs without disruption. According to the Succession Institute, “Orderly succession is about creating a system that supports change without change; organizational changes should always come from strategy redirection, not vacancies.” Sustainability is a success strategy, a most rewarding and exciting one; it allows a firm and its team members to change and grow. Components of this include the following: y Developing a team service concept y Having a Build a Village (BAV) versus Eat What You Kill (EWYK) mindset y Building brand loyalty versus partner loyalty y Redefining roles and responsibilities Succession is a process that can take years, and it is never too early to start planning.

Robert Traphagen, CPA, CGMA, is the managing partner of Traphagen CPAs & Wealth Advisors. He is a past president of the NJCPA and is a trustee of the NJ-CPA-PAC. He can be reached at robert@tfgllc.com.

LEARN MORE Dec. 20, Live Webcast

HOW TO DEVELOP TOMORROW’S LEADERS TODAY: SUCCESSION PLANNING THAT WORKS

njcpa.org/events

DO MORE SAVE ON SUCCESSION PLANNING SERVICES WITH NJCPA MEMBER BENEFIT PROVIDER WHITMAN BUSINESS ADVISORS

njcpa.org/marketplace

INDUSTRIES

Nonprofit Accounting Considerations for Crypto Assets

BY JAIME RAPPS, CPA, GRASSI ADVISORS & ACCOUNTANTS

As cryptocurrencies become more popular and easier to access, many nonprofits are facing the decision to accept virtual currency or miss out on substantial donations.

Other organizations are weighing the benefits of purchasing cryptocurrency as an investment strategy against the risks associated with its market volatility.

A nonprofit’s CPA can help guide them through the considerations that need to be evaluated when deciding to move forward with the purchase or receipt of crypto assets, especially when it comes to understanding how these transactions will impact the financial statement. With no formal accounting standard on crypto assets, the accounting considerations are often just as new and unique to the accounting profession as they are to the nonprofit recipient.

A crypto asset is a digital asset that uses cryptography to record, secure and verify transactions on a digital ledger called a blockchain, as well as to control the creation of new units of currency. In today’s market, there are several forms of crypto assets, with Bitcoin and Ethereum being the most widely recognized. Other forms of crypto assets are becoming popular, such as non-fungible tokens (NFTs) to buy and sell artwork and provide proof of ownership.

FINANCIAL STATEMENT IMPLICATIONS Because crypto assets lack physical substance and are not financial assets, they are treated as intangible assets on the financial statement and are recorded at acquisition cost. They are accounted for as indefinitelived intangible assets and are subject to impairment testing on an annual basis or more frequently if changes in circumstances indicate it is more likely than not that the asset is impaired.

If impairment exists and it is concluded that the carrying amount of the crypto asset exceeds its fair value, the nonprofit

should recognize an impairment loss for the amount equal to that excess. Once the impairment loss is recognized, the adjusted carrying value then becomes the new basis of accounting of the crypto asset.

Once impaired, the organization cannot recover the impaired value until the asset is sold and gain is realized as the difference between the sales price and the impaired value.

CHALLENGES While “intangible assets” is, by definition, the category best suited to crypto assets, the treatment has its share of challenges: y Volatility and impairment. While betterknown crypto assets have increased in value over the past years, there have been major price swings. This leads to questions such as: When is the crypto asset impaired (during the volatility or only at the end of the reporting period)?

And is there any subsequent-event consideration as the financial statements are getting ready to be issued? y Auditing considerations. Most crypto assets are used as mediums of exchange in actively traded markets; however, there is no market close. At what point in time on any given day would the crypto asset be valued? In addition, since these assets exist in a digital wallet, which can be kept on a digital exchange (“hot wallet”) or offline (“cold wallet”), are auditors properly trained to audit these assets, as well as the blockchain?

These challenges may lead the CPA to consider a Generally Accepted Accounting Principles (GAAP) departure. However, in that instance, a modified opinion would be rendered, and the financial statement preparer would need to evaluate management’s rationale.

If the preparer agrees with management’s assertion that following GAAP would make the financial statement appear misleading, then one would be able to justify a qualified opinion as it would not be considered to be pervasive. If the preparer believes that management is making the argument to make their results look better, and the situation is pervasive enough to call management’s integrity into question, an adverse opinion may be warranted. For a more in-depth description of the different types of opinions, see AU-C Section 705.

BE PROACTIVE As crypto assets are more readily accepted by vendors, and major governments complete the process of creating a digital currency, cryptocurrency donations will become increasingly more common.

Nonprofit organizations will need their CPAs and other advisors to help them proactively evaluate the procedures and strategies that are needed to position their organizations on the receiving end of this profitable trend.

Jaime Rapps, CPA, is an audit senior manager at Grassi Advisors & Accountants. He is a member of the NJCPA Nonprofit Interest Group and can be reached at jrapps@grassicpas.com.

LEARN MORE Dec. 8 or Dec. 23, Live Webcast

THE MOST CRITICAL CHALLENGES

IN NOT-FOR-PROFIT ACCOUNTING TODAY

njcpa.org/events

NEW JERSEY CPA | WINTER 2021/22

19

LITIGATION SERVICES & BUSINESS VALUATION

Case Study: The Importance of Using Standard Methodology in Calculating Economic Damages

BY MONICA H. KADEN, ASA, ABV, CHFP, MBA, SOBELCO

When preparing an economic damages report, it is important to 1) include certain components discussed in this article, 2) ensure that the expert report is specific to the damages being calculated, and 3) identify the actual harm done to the plaintiff.

I was hired as an expert in a recent matter to rebut a plaintiff ’s expert’s report.

The plaintiff ’s expert was a well-known, credible professional from a large, respected firm. However, there were certain flaws in the report that I believe changed the outcome of the subject case.

KEY COMPONENTS OF THE CASE y This was a case in U.S. Federal court because the plaintiff and defendant companies were located in different states. y The plaintiff sued the defendant for breaching restrictive covenants. y The plaintiff’s expert was hired to prepare an economic damage calculation report. y The defendant had purchased several clients from the plaintiff. y The plaintiff ’s expert calculated a hypothetical transaction price to show the value of all potential clients that plaintiff ’s expert believed the defendant had the ability to potentially attract, and not limited to just those the defendant had purchased already.

A SIGNIFICANT CONCERN The plaintiff ’s expert did not show an actual forecast of lost customers or lost revenues and profits, but rather developed a value for the potential customer relationships the defendant might attract. He did this using the model used to value intangible assets (the multi-period excess earnings model).

Basically, the plaintiff ’s expert developed a hypothetical purchase price that the expert believed the defendant should pay the plaintiff for the possibility of attracting these customers. The calculated damage was the difference between what the defendant had already paid to the plaintiff

20

WINTER 2021/22 | NEW JERSEY CPA

to purchase certain customers and the total hypothetical purchase price that was calculated by the expert.

To simplify the concept without using the real numbers of the case, if $300,000 was paid for certain customers by the defendant to the plaintiff in a transaction, and the hypothetical value of all customers that the plaintiff deemed to be at risk was calculated to be $800,000, the economic damage calculated by the plaintiff ’s expert was $500,000 (the difference).

FAULTY METHODOLOGY The plaintiff ’s expert was faced with a Daubert challenge from the defendant’s legal counsel for performing an economic damage calculation that the defendant’s attorneys did not believe followed standard methodology and practice for the calculation of damages. Additionally, the damage calculation did not show the specific harm, such as lost revenues, lost clients or lost profits, that was allegedly experienced by the plaintiff.

The Daubert challenge was heard in the Federal judge’s chambers in Philadelphia in U.S. District Court. After the hearing, the judge recommended that the two sides settle that day, because his ruling on the plaintiff ’s expert’s report and the Daubert challenge was going to change the nature of the case and upcoming trial. Based on the

judge’s statements, the two sides did settle that day.

While we cannot know for sure what the judge was thinking, I suspect that he was likely going to dismiss the plaintiff ’s expert’s report because it did not show the actual harm and economic damages suffered by the plaintiff. In Pennsylvania, harm to the plaintiff must be shown as part of damages, and this aspect of the report was omitted.

PRESENT RELEVANT FACTS Certain facts in the case had been ruled on by the judge before this hearing, specifically regarding certain restrictive covenant provisions. The judge had ruled that the defendant had been compliant and had not breached certain covenants. The plaintiff ’s expert’s report was not updated to account for the latest rulings that were favorable to the defendant. By not adjusting the plaintiff ’s report for the changes in the case, the expert report became less relevant to the case.

COMPONENTS OF A STRONG ECONOMIC DAMAGE REPORT There are certain key elements in an economic damage report as well as standard economic damage methods that should be used, or at least addressed, in order to avoid an issue with the report. The standard recognized and tested methods

LITIGATION SERVICES & BUSINESS VALUATION

for calculating economic damages are the “Before and After” method, the “Yardstick” method, the “Sales Projection” method and the “Market Model” method.

An excellent explanation of these methods can be found in The Comprehensive Guide to Economic Damages, Volume One, edited

by Nancy J. Fannon and Jonathan M. Dunitz. This book is an excellent resource for preparing damage reports. Additionally, certain key concepts are discussed in the guide which should also be discussed in an economic damage expert report: causation, foreseeability, reasonable certainty and mitigation efforts.

Financial experts (e.g., valuation analysts, CPAs) used in litigation are considered experts because their work is expected to be based on standards, methods and other trusted protocols that have been tested and tried. The analysis and calculations shouldn’t be “outside of the box” unless they have to be, and, in that case, the expert must explain why he or she

is deviating from normal practice. Use of a traditional, recognized method generally will be much better received by the court and much easier to defend.

When calculating economic damages, the expert should show the damages and harm experienced by the plaintiff. The expert report must show the actual damages incurred (with reasonable certainty) and should show any harm done. In the case described above, the judge was looking for the specific harm done, and the expert’s report only showed a hypothetical purchase price and a calculation of what the expert thought the defendant should pay based on the hypothetical purchase price. This didn’t address any harm experienced by the plaintiff.

Different states have different laws that are pertinent to damage calculations.

Thus, what has to be shown in a damages report (such as the concept of harm in Pennsylvania) is based on each state’s unique laws regarding damage calculations.

It is important to have a conversation with the attorney to find out if there are specific conditions in the relevant state’s law that should be taken into consideration in preparing an economic damages claim or report.

Monica H. Kaden, ASA, ABV, CHFP, MBA, is the managing director of business valuations at SobelCo and can be reached at monica.kaden@ sobelcollc.com.

LEARN MORE Dec. 13, Live Webcast I WANT THE TRUTH: PREPARING TO BE AN EXPERT WITNESS

Dec. 15, Live Webcast

THE ACCOUNTANT AS THE EXPERT WITNESS

njcpa.org/events

Two Resources to Help with Your Clients Year-end planning has proven to be complex with the changing legislation and regulations, creating additional time constraints with your clients.

Accountant Knowledge Center (AKC) Free to accounting professionals: self-study online CPE, state and federal resources, customizable The Accountant Year-End Reference Center Year-end guides, state and local updates, planning for 2022

Learn more at payx.me/nj-acct-professionals

Paychex is proud to be a NJCPA Premier Partner

NEW JERSEY CPA | WINTER 2021/22

21

TAX

New Jersey Provides Tax Deduction for College Savings Plan Contributions

BY RALPH LOGGIA, CPA, MST, GOLDSTEIN & LOGGIA CPA’s, LLC

Many states provide an income tax deduction for contributing to a college savings plan, including New York, which provides a maximum annual $10,000 deduction; Pennsylvania with a $30,000 maximum; and Connecticut with a $10,000 maximum. Beginning in tax year 2022, New Jersey will join its peers in allowing a state income tax deduction of up to $10,000 per taxpayer with a gross income of $200,000 or less, under the New Jersey College Affordability Act. Also provided under the new law is a deduction of up to $10,000 on the gross income of currently enrolled students on payments made directly toward in-state college tuition. This applies to individual taxpayers as well as for any spouse or dependent. In other words, there is a state tax deduction of up to $10,000 on in-state tuition payments for families with incomes of up to $200,000.

Eligible taxpayers (households earning up to $200,000) will be allowed to deduct up to $2,500 from gross income for the principal and interest paid on a student loan under the New Jersey College Loans to Assist State Students (NJCLASS) loan program.

What does this mean in terms of tax savings? Take the following example: A taxpayer with total gross income of $175,000 is in the 5-percent tax bracket and contributes $10,000 to a New Jersey college savings plan in 2022. The New Jersey tax savings is approximately $500.

However, tax savings is not the only thing to focus on; management fees, annual fees and performance are other important considerations.

FEDERAL IMPLICATIONS College savings plans fall under Internal Revenue Code Section 529, Qualified Tuition Programs. Unlike many states, the IRS does not provide a current tax deduction for contributions made to the plan. Contributions of up to $15,000 per beneficiary

22

WINTER 2021/22 | NEW JERSEY CPA

can be funded annually, and married couples can contribute up to $30,000 annually.

If a taxpayer wants to fund more in a given year, then a gift tax return needs to be filed. For those taxpayers who can afford to do so, up to five years’ worth of contributions can be funded in one year ($75,000 single or $150,000 MFJ) and, most likely, this would be an informational-only tax return filing since the lifetime gift tax exemption is over $11 million. The New Jersey college savings plan has a maximum contribution limit of $305,000 per student.

If the child has completed their college education or does not attend college, and money is withdrawn from the account and not used for qualified education expenses, the earnings are subject to a 10-percent penalty. One way to avoid the penalty is to change the beneficiary to another family member.

It is important to be careful with Form 1099-Q, Payments from Qualified Education Programs. When money is withdrawn from a college savings plan, the account administrator will issue a Form 1099-Q which shows the gross distribution, earnings and basis. If the distribution was used for qualified education, the earnings are clearly not taxable. However, if this information is entered into a tax software program and not coded correctly, the earnings are included in taxable income and the distribution could be subject to the 10-percent penalty. One easy solution is to ignore the 1099-Q form if it is known that the distribution was used for qualified education expenses.

ADDITIONAL COLLEGE BENEFITS On top of the tax benefits, there are a number of other college-related benefits for New Jerseyans. y New Jersey’s Higher Education Student Assistance Authority (HESAA) can provide taxpayers with gross income of $75,000 or less a one-time grant of up

to $750 matched dollar for dollar on an initial deposit into a New Jersey Better Educational Savings Trust (NJBEST) 529 College Savings Plan account for accounts open on or after June 29, 2021. y Effective June 2021, the NJBEST scholarship, which is available to students attending college in New Jersey, was increased from $750 to $3,000. y New Jersey college students from households with incomes of less than $65,000 are now eligible for up to four years (previously two years) of free tuition and fees under the Community College Opportunity Grant Program.

This does not cover books, transportation costs and room and board. y The NJCPA Scholarship Fund supports accounting students with scholarships ranging from $1,500 to $6,500. More information is available at njcpa.org/ scholarships.

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

TAX

Benefits of the Employee Retention Tax Credit

BY BENJAMIN ASPIR, CPA, MST, EISNERAMPER

The Employee Retention Credit (ERC), a fully refundable IRS payroll tax credit for employers, is now available to a broad cross section of businesses and has the potential for millions in savings on federal payroll taxes. The ERC had been originally overshadowed by the Paycheck Protection Program (PPP) due to a prohibition on businesses from obtaining both the ERC and PPP funds. Retroactive to 2020, the Consolidated and Appropriations Act allowed businesses that received PPP funds to still qualify for the ERC. BENEFITS The maximum payroll tax credit under the ERC program is: y Tax year 2020: $5,000 per employee per annum (50 percent of the first $10,000 of eligible wages) y Tax year 2021: $7,000 per employee per quarter, which translates into a maximum credit of $28,000 per employee for 2021 (70 percent of the first $10,000 of eligible wages per quarter, per employee; assuming a business qualifies for all 2021 quarters) For example, if a small business with 50 employees is deemed eligible for all four quarters of 2021, it could potentially receive a $1.4 million IRS payroll tax credit (50 employees x $28,000).

ELIGIBILITY In order to qualify for the ERC, a business must experience either a government-mandated full/partial suspension of operations or a significant decline in gross receipts. y Tax year 2020: A “significant decline” in gross receipts is if an employer’s gross receipts for a given quarter are less than 50 percent of their gross receipts for the same calendar quarter in 2019 y Tax year 2021: A “significant decline” in gross receipts is if an employer’s gross receipts for a given quarter are less than 80 percent of their gross receipts for the same calendar quarter in 2019

For all 2021 quarters, an optional election is available which allows a lookback to the prior quarter if there hasn’t been a 20-percent decline in gross receipts.

The election allows a lookback at gross receipts of the immediately preceding calendar quarter. For instance, if in Q1 2021, a taxpayer doesn’t experience a 20-percent decline in gross receipts, they can elect to compare Q4 2020 gross receipts to Q4 2019 gross receipts in order to determine eligibility for Q1 2021.

START-UP BUSINESSES For Q3 and Q4 of 2021, if a business does not meet the requirement of either suspended operations or a significant decline in gross receipts, it may still be eligible for the ERC. The American Rescue Plan Act of 2021 created a new tax provision for “recovery start-up businesses” (RSBs). An RSB is an employer that began carrying on a trade or business after Feb. 15, 2020, and had average annual gross receipts of not more than $1 million.

The ERC is limited to $50,000 per quarter for RSBs. EMPLOYEE COUNT Businesses of any size may potentially benefit from the ERC. However, there are limitations on the ERC for “large employers.” If a business is deemed to be a large employer, it can only claim the ERC for wages paid to employees not to work or employer-paid health insurance premiums for furloughed employees.

A large employer for purposes of the ERC is defined as: y Tax year 2020: a business that had averaged more than 100 full-time monthly employees in 2019 y Tax year 2021: a business that had averaged more than 500 full-time monthly employees in 2019 If a business is not deemed to be a large employer, it may potentially claim the credit for all eligible employees, whether working or not.

For Q3 and Q4 of 2021, if a large employer’s gross receipts for a given quarter are less than 10 percent of their gross receipts for the same calendar quarter in 2019, the limitation would not apply.

Therefore, a “severely financially distressed employer” may claim the ERC for all eligible employees, whether working or not.

INTERPLAY BETWEEN THE ERC AND PPP Eligible businesses can claim the ERC on wages that are not used toward payroll costs when applying for PPP forgiveness.

Businesses should analyze their payroll costs in order to obtain 100-percent PPP loan forgiveness and maximize their ERC. The PPP loan forgiveness program allows businesses to report up to 40 percent of qualified non-payroll costs (e.g., utilities, rent) on its application.

The ERC is claimed on IRS Form 941.

An eligible business may reduce its federal employment tax deposits by the allowable ERC amount. If the ERC exceeds the remaining federal employment tax deposits for that quarter, the business may file Form 7200 to claim an advance refund. In order to claim the ERC for previously filed quarters, a form 941-X must be filed.

As of the writing of this article, pending legislation would eliminate the ERC for Q4 2021, except for recovery start-up businesses. If signed into law, eligible employers could still claim the ERC for calendar quarters prior to Q4 2021.

Benjamin Aspir, CPA, MST, is a senior manager in the Eisner Advisory Group at EisnerAmper. He is the leader of the NJCPA Federal Taxation Interest Group and can be reached at benjamin.aspir@ eisneramper.com.

LEARN MORE Dec. 15 or Dec. 23, Live Webcast

EMPLOYEE RETENTION CREDIT — GRABBING BACK CASH FOR YOUR POCKET

njcpa.org/events

NEW JERSEY CPA | WINTER 2021/22

23

TECHNOLOGY

Getting to Know the NFT Marketplace

BY MARK ECKERLE, CPA, WITHUM

Non-fungible tokens (NFTs) really came to the forefront in 2021 as another way to utilize blockchain technology as well as digital currencies. The marketplace for NFTs continues to grow as more and more individuals create digital content to be sold.

Additionally, the emergence of celebrities and influencers in the NFT community has helped garner more attention from the everyday individual who otherwise may not be interested in these items.

seem foreign to many, but, as a society, we are transitioning to more of a digital economy, and this is the next step in that process. Many skeptics think that rather than buying an NFT, they can just go online and see the image or watch a video of the moment. However, the main distinction is that an NFT shows the ownership of that one-of-a-kind item. While copies can be made, that’s exactly what they are: copies, rather than the original.

WHAT ARE NFTs? To get an understanding of what nonfungible means, it helps to know what fungible means. An example of a fungible token is bitcoin where trading one bitcoin for another means you have exactly the same thing. There is no difference between one bitcoin and another. Non-fungible means that each item is unique and can’t be replaced — in other words, one of a kind.

WHAT HAS BEEN SOLD SO FAR? There have been a few items that have sold for large dollar amounts as well as significant use by celebrities. Some items that have sold include the following:

WHAT CAN BE AN NFT? In short, NFTs can be anything digital.

These digital collectibles can be anything from physical artwork to trading cards to music to digital pictures. Anything that can be digitized and collected can be turned into an NFT. In early 2021, one of the events that really helped kick start the NFT movement was NBA Top Shots, which were NFTs of NBA trading cards or moments that had happened.

WHY PURCHASE AN NFT? Buying an NFT is the same as buying a physical good, except it is in a digital format. This is similar to how many people today do not use physical cash and have transitioned to buying items with credit cards or using their phones and using online banking. This is digital ownership instead of having a closet full of goods that have been purchased. Once you purchase an NFT, these items can be tracked on the blockchain, creating an immutable and permanent transaction with full transparency.

The concept of having digital ownership rather than owning the physical item may

24

WINTER 2021/22 | NEW JERSEY CPA

y Jack Dorsey, CEO of Twitter, auctioned off an NFT of his first tweet for $2.9 million. y Auction house Christies sold an NFT created by digital artist, Beeple, for more than $69 million. y Sports figures, including Tom Brady, Rob Gronkowski, Derek Jeter, Wayne Gretzky and Tiger Woods, have created digital trading cards and sold them to the public. y Kings of Leon tokenized their latest album which garnered more than $2 million in sales and also included special ticket access to one show of every Kings of Leon tour for life. y Grimes, who is a musician and partner to Elon Musk, has sold more than $6 million of NFTs representing her digital artworks of more than 10 pieces.

These are just a few examples of things that can be made into a digital collectible.

As the NFT marketplace continues to grow, there will be more and more platforms available to consumers to buy and sell these goods. Currently, the method to purchase NFTs was limited to a handful of marketplaces like OpenSea, Nifty and Rarible, but now there are many more options.

The popular sports betting application, Draftkings, has rolled out an NFT

marketplace directly in their app. Tom Brady has created an NFT platform, Autograph, which will bring together athletes and brands in the sports and entertainment industry.

NFTs are an emerging trend and will continue to be popular as the transition from physical to digital goods continues.

While the prices of some of these items may seem overvalued, prices will likely become much more reasonable as more options become available and the ecosystem becomes more mature.

Mark Eckerle, CPA, is a senior manager at Withum. He is the leader of the NJCPA Emerging Technologies Interest Group and can be reached at meckerle@withum.com.

LEARN MORE Jan. 12 or Jan. 19, Live Webcast

CRYPTO TRENDS & UPDATES —

WHAT THE PROFESSION SHOULD KNOW

njcpa.org/events

JOIN THE EMERGING TECHNOLOGIES INTEREST GROUP

njcpa.org/groups

DO MORE

READ MORE BLOCKCHAIN/CRYPTOCURRENCY KNOWLEDGE HUB

njcpa.org/hub/crypto

NJCPA NEWS

NJCPA Awarded for Role in Passage of BAIT Act on Jan. 13, 2020. Since the signing, the NJCPA has helped extensively to educate its members on the new tax benefit, as well as worked with the state’s Treasury office and the New Jersey Division of Taxation on implementation.

“Rewarding our efforts in this area signifies how useful CPAs are in helping to advance causes that benefit so many in the Garden State. We are grateful to have received this award and for Alan Sobel’s ingenuity and perseverance,” said Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director at the NJCPA. The New Jersey Society of CPAs won the American Society of Association Executives’ (ASAE) Power of A Silver Award for its commitment to the passage of the New Jersey Pass-through Business Alternative Income Tax (BAIT) Act in 2020. The award recognizes associations that have gone over and above by making extraordinary contributions and efforts to enrich lives, create a more competitive workforce, drive innovation and make a better world.

The NJCPA worked alongside past president Alan Sobel, CPA, CGMA, managing member at SobelCo, who originated the

concept, to help write the Act and advocate for the bill with the New Jersey Legislature.

The primary sponsors of the bill were Senators Paul Sarlo (D-36), Troy Singleton (D-7), Steven Oroho (R-24) and Anthony Bucco (R-25), along with Assembly members Daniel Benson (D-14) and Roy Freiman (D-16). Senate President Stephen Sweeney and Assembly Speaker Craig Coughlin were also supportive of the bill.

Estimated to help save New Jersey business owners between $200 and $400 million annually due to the ability to elect to pay taxes at the entity level, the Act was signed into law by Governor Murphy

LEARN MORE Dec. 16, Live Webcast

PASS-THROUGH ENTITY TAXES: UPDATES ON NJ BAIT AND NY PTET

njcpa.org/events

READ MORE BAIT KNOWLEDGE HUB

njcpa.org/hub/bait

CAPSTAN

our strength. your tax savings.

Your Trusted Partner in Cost Segregation Tax Savings Maximizers Subject Matter Experts

capstantax.com

Call Us Today! 215-885-7510

NEW JERSEY CPA | WINTER 2021/22

25

NJCPA NEWS

30 Under 30: Then and Now 2011

Ten years ago, we named a group of young NJCPA members to our inaugural “30 Under 30” list in recognition of their leadership, success and drive. We recently checked in with them to see what they’ve been up to since 2011. In this third and final update, here are six past 30 Under 30 Award winners who continue to inspire us today. Look for additional updates in the Spring and Summer 2021 issues of New Jersey CPA. DANIELLE DVORAK, CPA, MS Senior Tax Manager at Friedman LLP Danielle’s involvement in the NJCPA has been a true catalyst in her career, including landing her first full-time job through Scholars Institute and gaining leadership skills throughout various positions on the Emerging Leaders Council and Strategic Planning Committee. She has since been elected as a member of the AICPA Council, recognized as a 2020 NJBIZ Accounting Power 50 and was an NJCPA Woman to Watch winner.

CHRISTINA M. FESSLER, CPA Supervisor of Accounting at Point Pleasant Schools While Christina found her niche in public education, she touts her work on the board of trustees for a local not-for-profit for seven years as providing first-hand opportunities that helped shape the culture of an organization.

In that capacity, she held multiple positions on the board including second vice president and treasurer. She recommends always asking for a “seat at the table” and serving on local boards.

26

WINTER 2021/22 | NEW JERSEY CPA

MICHAEL J. KIRCHNER, CPA, MBA Assistant Corporate Controller/ International Controller at Mistras Group, Inc. With experience in both public accounting and private industry, Michael knows what it takes to excel in the profession. He has also held several leadership roles at the NJCPA, including president, vice president, secretary, treasurer and director of the Mercer Chapter as well as a presenter in the career awareness program. Looking back, he would advise others to focus on technology and analytical writing.

ANTHONY F. MARONE, JR., CPA, CGMA Managing Director of Blackstone and CFO at Blackstone Real Estate Debt Strategies Tony was fortunate enough to be on the balcony of the New York Stock Exchange

early in his career in 2006 and returned again in 2013 to ring the bell for Blackstone Mortgage Trust, Inc. (BXMT) as CFO. As an NJCPA scholarship winner, Tony learned early on to appreciate all of the support he has been given along the way in transitioning from academia to the workforce, and that one is never done learning.

DAVIDMICHAEL VAN HERWYNEN, CPA/ABV, CVA Manager at Prager Metis CPAs No stranger to tests, shortly after passing the CPA Exam, David-Michael also passed the National Association of Certified Valuation Analysts’ CVA Exam, and, a few years later, he passed the American Institute of CPAs’ ABV Exam. Since then, he has been working with accounting firms to build up their valuation departments. He has also learned the valuable lesson of networking and how, many times, it plants the seeds for future relationships.

NJCPA NEWS

JENNIFER WUENSCH, CPA Senior Audit Manager at EisnerAmper LLP

Very few people can say that they’ve stayed with the same company for 16 years as Jennifer can. EisnerAmper has provided her opportunities to work with unique clients across multiple industries. While she’s advanced to her current role as senior manager in the audit department, Jennifer

is most proud that she’s had the opportunity to become a mentor to staff and seniors.

Looking back, she would recommend finding a good work/life balance.

CPA Exam Fee Lottery Winners Announced Ten winners of the NJCPA CPA Exam Fee Lottery were selected in November to receive $750 each towards the cost of taking the CPA Exam. The winners, who were chosen randomly out of a pool of more than 70 applicants, had to be either Student or CPA Candidate members of the NJCPA. Funds were distributed from the NJCPA Scholarship Fund, which has supported more than 2,000 New Jersey students since its inception in the 1960s — totaling more than $7 million in scholarships.

To be eligible to win, applicants need to sit for the CPA Exam between Dec. 1, 2021, and Nov. 30, 2022, and they must be currently enrolled in a New Jersey college or university or graduated within the past five years.

The Lottery was created to offset the high cost of taking the CPA Exam, which can run upwards of $1,000 when factoring in the test and exam prep.

“It is a pleasure to provide some financial relief to these aspiring CPAs who will be our next leaders in the business world,” said Henrietta Fuchs, CPA, president of the NJCPA Scholarship Fund and partner at CohnReznick LLP. CONGRATULATIONS TO THE FOLLOWING STUDENT WINNERS: y Tyler Bell, Rowan University

y Hafsa Ijaz, Monmouth University y Rebecca MacLane, Rowan University y Filippo Menegon, Stockton University y Amin Moawad, New Jersey City University y Dayana Nunez, William Paterson University of New Jersey y Yaakov Rabhan, Fairleigh Dickinson University-Metro Campus

y Julia Commiso, Rider University y Amanda Croce, Fairleigh Dickinson University-Madison

IF YOU ARE READInG THIS...

So Is Your Buyer!

CONNECTING MORE SELLERS AND BUYERS

y Lauren Helfrich, Ocean County College

Delivering Results One Practice At a time

Bradley Holmes Bradley@APS.net

800-397-0249 www. APS.net

NEW JERSEY CPA | WINTER 2021/22

27

NJCPA NEWS

Student Programs Encourage Pipeline Growth

BY KIM CONDURSO, NJCPA MEMBERSHIP DEVELOPMENT SPECIALIST

The NJCPA hosted its Level Up career readiness virtual event in September. This event, which was free for NJCPA Student and CPA Candidate members, helped navigate aspiring CPAs through the path to entering the accounting profession with a series of workshops on interview dos and don’ts; resume building and developing a brand; the CPA Exam review course; and a glimpse into tax, audit, advisory and corporate environments.

Participants were also given an opportunity to meet employers at more than a dozen New Jersey firms to learn more about firm culture, internship and entry-level opportunities, and tips for career success. Resumes were collected and shared with all firms in attendance.

Sessions have also been recorded and can be viewed at njcpa.org/levelup.

NJCPA SCHOLARSHIP PROGRAM Since 1960, the NJCPA Scholarship Fund has supported more than 2,000 New Jersey students with more than $7 million in awards.

The 2022 Scholarship program started accepting applications in early October.

Two new awards have been added for the 2022/23 academic year for minority high school students and college sophomores: y High School Minority Scholarships.

Funded by Deloitte as a pilot program, the NJCPA High School Minority Scholarship has been introduced at four New Jersey high schools in Rahway, West Orange, New Brunswick and East Side (Newark). College-bound minority high school seniors with the intent to major in accounting can apply for a $1,500 award.

y College Sophomore Scholarships.

New Jersey college sophomores planning to continue their education at a four-year New Jersey college can apply for a $2,000 award.

The introduction of these two new awards is in addition to the existing $1,500 award for high school seniors entering a four-year accounting degree program in the U.S. as well as the college scholarship, a $6,500 award for college juniors, seniors and graduate students.

All applicants must write a 500-word essay and complete an interview with NJCPA volunteers in addition to meeting other eligibility requirements. To learn more, visit njcpa.org/scholarships.

NJCPA Publishes Audit Report

BY GORDON SMITH, CPA, NJCPA CHIEF FINANCIAL OFFICER

The combined financial statements for the NJCPA and Affiliates (NJCPA Education Foundation and NJCPA Scholarship Fund) for the year ended May 31, 2021, have been published.

The effects of the COVID-19 pandemic that began in the latter part of the fiscal year ended May 31, 2020, persisted through the fiscal year ended May 31, 2021. Social distancing requirements continued to prevent members from attending education events in person, and all Society interest groups, committees and the Board of Trustees continued to meet remotely. While this has not been ideal, members, volunteers and staff have persevered. Summer brought renewed hope for the return to in-person events, but the rise of the Delta and other COVID variant strains slowed the progress. As of this writing, in-person events will not resume until after the new year.

28

WINTER 2021/22 | NEW JERSEY CPA

Unrestricted consolidated revenues for fiscal 2021 increased 3.3 percent from the prior year. Investment income gained the most as the investment portfolios returned between 26 and 28 percent for the year, the result of strong financial markets.

Improvements were also seen in advertising revenue, royalties and commissions, and peer review fees.

NEW JERSEY SOCIETY OF CPAs Under the Society, membership dues were $3.56 million, a decrease of less than 1 percent from the prior year; a slight decrease in dues-paying members offset the implemented small dues increase.

Overall membership decreased from 14,725 members at May 31, 2020, to 14,301 members at May 31, 2021, with 70 percent of the decrease attributable to nondues-paying Student members. The Fellow member retention rate remained strong

at 94.6 percent in fiscal 2021, the same as the prior year, while the overall member retention for 2021 was 90.5 percent versus 90.1 percent for 2020.

Peer review fees for fiscal 2021 from administration of that program rose slightly to $353,000, the result of a small price adjustment, though there remains pressure on the program as firms continue to evaluate whether they will continue to perform certain attest services and remain part of the program.

As previously noted, the investment portfolios had strong returns for the fiscal year as financial markets performed well.

Unrealized gains drove the results while decreases in interest and dividends, the result of companies managing cash and operations during a pandemic, pared down those returns.

Expense savings versus budget were realized in several areas, the largest being

NJCPA NEWS

mately $752,000 versus a flat budget. For 2021, all-virtual educational programming served more than 27,000 registrants and delivered just under 60,000 credit hours of CPE.

in the Travel and Meetings line as costs for attending in-person meetings were essentially non-existent due to the lack of such meetings. Costs relating to staff education were significantly below budget as any learning was done virtually as opposed to attending in-person. Employee-related costs were below budget as staff compensation was limited due to the pandemic, and certain information technology costs were delayed or canceled, also due to the pandemic.

With a modest increase in revenues and a decrease in total expenses, the Society experienced an increase in net assets of $819,000. Separately, the Society applied for and received funds under the federal government’s Paycheck Protection Program, with such proceeds shown in the Statement of Financial Position under liabilities; the Society expects forgiveness of such loan once its application is filed and reviewed.

NJCPA EDUCATION FOUNDATION Throughout fiscal 2021, the NJCPA Education Foundation continued to provide educational programming on a fully virtual basis, as was done in the latter part of fiscal 2020. Fiscal 2021 included a portion of calendar year 2020, the last

year of New Jersey’s CPE reporting cycle.

While the last year of a triennial normally brings increased revenues due to higher attendance, and though attendance was very strong, fiscal 2021 programming revenues were lower than the prior year due to the fact that online programming carries lower per-unit revenues. However, the direct costs to produce programs decreased more than revenue decreased, resulting in better gross margins for fiscal 2021.

As in the Society, investment income was strong on portfolio performance and, from an expense perspective, employeerelated costs came in below budget as less staff time than expected was allocated to educational activities. Reduced expenses versus budget were also seen in, among other categories, printing and distribution, as printed catalogs were not produced as information was disseminated digitally, and contributions to the Scholarship Fund were held as the Education Foundation Board analyzes investment needs moving forward.

Although the Foundation saw revenues decline in fiscal 2021, expenses declined even more, and the fiscal year brought a positive change in net assets of approxi-

NJCPA SCHOLARSHIP FUND Revenues in the NJCPA Scholarship Fund for fiscal 2021 were approximately $443,000 over budget. Investment income came in $504,000 over budget on large, unrealized gains as financial markets performed very well but were partially offset by lower contributions from the Education Foundation, as that entity’s Board analyzes funds needed for future investment. Total expenses for fiscal 2021 were roughly $30,000 below budget as the awards ceremony was cancelled for a second year due to COVID along with reduced employee-related costs.

The Fund restructured its award given to high school seniors beginning their college careers from a four-year, scaled award to a one-time award. A total of $250,500 was awarded in state and local scholarships to 52 applicants, while making payments on prior-year awards for another 53 students; overall award expense was $4,200 below budget.

The higher-than-budgeted revenues and reduced expenses resulted in a positive change in net assets of $308,000 for fiscal 2021 versus a budgeted negative change of $164,000 and compared to a negative change in net assets for fiscal 2020 of $103,000.

READ MORE

NJCPA COMBINED FINANCIAL STATEMENTS

njcpa.org/about

NEW JERSEY CPA | WINTER 2021/22

29

NJCPA NEWS

MAKE 2022 TAX SEASON A SUCCESS.

You got this!

Brush up on tax knowledge with our CPE

Hire staff with the JobBank njcpa.org/jobs

We’re here to support you and help you thrive. njcpa.org/events Enroll in Find-A-CPA

Join the State Tax and/or Federal Tax interest groups

njcpa.org/findacpa

njcpa.org/groups

WE’RE HERE TO SUPPORT YOU AND HELP YOU THRIVE. 30

WINTER 2021/22 | NEW JERSEY CPA

Save 25 percent on Wolters Kluwer CCH tax publications njcpa.org/marketplace

CLASSIFIEDS

Monmouth County CPA firm is looking for experienced CPAs to join and acquire a well-established practice.

Collections exceed $1,000,000 a year with concentration on tax, write up, and consulting. Senior partner will be retiring/reducing work load in the next few years. Reply in Confidence.

PROFESSIONAL SERVICES

Quality Review for CPA firms: audit, review, compilation, employee benefit plans, Yellow Book, revenue recognition.

Contact James M. Sausmer, CPA at 732-261-7710 or james.sausmer@gmail.com.

MERGERS/ACQUISITIONS

Whitman Business Advisors www.whitmanbiz.com has been helping CPA firms with their M&A needs since 2008. We are working with several non-NJ headquartered firms that are looking for a foundational firm to expand their foot-print into NJ. If your revenues exceed 2.55MM annually then we should talk today! To confidentially discuss this opportunity, please email us at pw@whitmanbiz.com.

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.

TO SEE ADDITIONAL CLASSIFIED LISTINGS OR TO PLACE AN AD, VISIT NJCPA.ORG/CLASSIFIEDS.

ADVERTISERS INDEX 27 ACCOUNTING PRACTICE SALES

aps.net

3

CAMICO/GALLAGHER AFFINITY

njcpa.org/marketplace

25 CAPSTAN TAX STRATEGIES

Matthews, Panariello P.C., a well established full service Bergen County firm located in Paramus, is looking to acquire firms, sole practitioners, or accounts (audits, reviews, and tax preparation) ranging in size from $100,000 to $750,000. We are a peer reviewed firm with a strong track record of client satisfaction and retention.

We have been successful in prior acquisitions; let's talk. Please visit our website at www.mpcpas.com. To confidentially discuss this opportunity, email Peter at pmanetta@mpcpas.com.

New Jersey practices for sale: gross revenues shown: Middlesex Co. tax $130K; Salem Co. tax and accounting $500K; Essex Co. CPA $500K; far south Middlesex Co. CPA $492K; Passaic/Sussex Co. CPA $518K; Bergen Co. CPA $500K; Toms River metro area CPA $750K; Gloucester Co./Atlantic Co. CPA $615K; Morris Co. partnership interest. For more information call 800-397-0249 or visit www.aps.net.

capstantax.com

C2 EFILE4BIZ

efile4biz.com

C3 CORVEE

corvee.com/NJCPA

15 GUARANTEED RATE

rate.com/NJCPA

21 PAYCHEX

paychex.com

17 PROVIDENT BANK

provident.bank

NEW JERSEY CPA | WINTER 2021/22

31

MEMBER STORY

footprint and sell CytoSorb all over the world, we have five foreign subsidiaries. We have to deal with five different currencies in preparing our consolidated financial statements,” she says. When Kathy started with the company over eight years ago, there were 15 employees. Now, the company has more than 220 employees worldwide and subsidiaries in Germany, Poland, Switzerland and the U.K. The finance and accounting team has grown to 12 professionals.

When Analytics, Finance and Blood Purification Combine

BY KATHLEEN HOFFELDER, NJCPA SENIOR CONTENT EDITOR

Chief financial officers are historically known for preparing budgets and analyzing costs, but Kathleen P. Bloch, CPA, MBA, CFO of CytoSorbents Corporation in Monmouth Junction, also fills her days discussing things like immune responses and blood filtration. That’s because CytoSorbents, which has been marketing its flagship blood purification device CytoSorb® in Europe since 2011, received U.S. FDA Emergency Use Authorization (EUA) in April 2020 to make CytoSorb available in the U.S. amid the COVID-19 pandemic. The device is used in the treatment of deadly conditions resulting from critical illnesses, including COVID-19, where in many cases the immune response is too strong and starts to shut down vital organs.

“It was so rewarding to help save patients’ lives here in the U.S. since we manufacture the device in Monmouth Junction. In addition, after all these years of only selling outside of the U.S., it’s great to finally have some sales in the U.S,” she explains.

32

WINTER 2021/22 | NEW JERSEY CPA

Following its U.S. EUA, the company completed a public offering of its stock (NASDAQ: CTSO) in July 2020, to raise funds to support its global clinical development program. For a CFO like Kathy, that meant in addition to overseeing all Securities and Exchange Commission (SEC) reporting and compliance activities, she had to speak with investors, and along with her CEO, give presentations to help raise money. “During the COVID-19 pandemic, we raised $57.5 million in the public offering, which provided the capital needed for our clinical trial activities,” she explains. “The company’s key development focus in the U.S. is funding clinical trials evaluating the removal of certain commonly used blood thinners during urgent cardiothoracic surgery to reduce bleeding risk and complications. If U.S. FDA marketing approval is obtained, it should significantly add to the company’s future growth.”

Contributing to the company’s international growth has always been exciting to Kathy. “Because we have an international

OTHER ROLES Prior to joining CytoSorbents, Kathy wore many manufacturing CFO hats. Her cost accounting background and manufacturing knowledge allowed her to move from one industry to another. Kathy’s CFO roles have included Silver Line Windows, a window manufacturer in North Brunswick; Laureate Biopharma, a contract manufacturer of biologic drugs in Princeton; and PC Group, Inc., a manufacturer of bar soap and other personal care products headquartered in Manhattan. While every CFO job has been fulfilling, she notes that working in a company that manufactures a life-saving device has been particularly rewarding. “Leading the finance team at CytoSorbents, we’re not just crunching the numbers — our product is actually saving lives. When you hear that a tiny baby was hospitalized and hooked up to life support machines and then our device was used and the baby survived, there’s not much better than that.”

Kathy, who is now vice president of the NJCPA Mercer Chapter, favored applying her accounting skills to private industry over public accounting, but both career routes had their benefits. Having started out as an auditor in public accounting, she acknowledged the advantages of working with a broad array of companies, but she prefers the ability to gain in-depth knowledge in a single company. “When you work in private industry, you really learn the business. You know the business model inside and out. And that makes it possible to identify areas where a slight adjustment in operating practices can make a big difference in cashflow or profitability — and significant improvements to the bottom line,” she says.

Tax Preparation

Tax Planning Save your clients money in taxes with Corvee Tax Planning software.

Request Your Demo at corvee.com/NJCPA Inc. 5000 is a registered trademark of Mansueto Ventures LLC

THE WAY FORWARD: TRANSFORM, INNOVATE, GROW

JUNE 14-17, 2022 BORGATA, ATLANTIC CITY

Mark your calendar with the NJCPA's signature event that provides the knowledge, guidance and connections to peers you need to thrive in your career.

Details available soon at njcpa.org/convention.