C (4:37)

Yeah. You're going to give us a history lesson here, Mark. Going back to 1976, just.

D (4:42)

I know, I know. You know, a lot of these shutdowns would occur over weekends. Sometimes it was because they had to get the, you know, the, you know, the bill done literally when they were working off of paper. They had to get. They just needed to buy some time to consummate the deal. The average is 21 days, although most of these have been very, very short shutdowns. The last one was the longest. I believe it was about 35 days. Now, what's the impact on U.S. significant impact on treasury and the IRS, potentially, the work that we do with the Department of Labor, with the sec. You know, for those of you that are working with clients that are government contractors, there's an issue there. There's an impact just on taxpayer services like getting your passport and national parks. Having said that, what we're trying to determine, and we're having constant conversations with the tax preparer community because we're really focused on the IRS with the fall deadlines and implementation of the big bill about what is this going to look like? And one of the key words in these shutdowns is essential. And so if you're deemed essential, then you are actually they keep you from the furlough and you stay on the job. Now, your payment might be deferred, your salary may be deferred, but they keep you on the job. And as a matter of fact, the last time we were close to this, the contingency plan at the IRS was to deem all of the employees essential to keep them on the job in order to continue to process. So although it's a lot of uncertainty and a lot of questions about whether the government will shut down again, I put it slightly more likely than not. There's questions around what's the real impact? Again, probably the first impact on the profession would be around the irs, taxpayer tax preparer services, and then what's the length look like? Because it doesn't take a vote to shut it down. We just got to get past Tuesday night. But it does take a vote to open it up. The other new thing that has kind of hit and is in the mix that you're probably reading about, Eric, is this idea of if agencies put together their essential employee lists, then those OMB has said those employees will be subject to potential RIF beyond a furlough, but actually a reduction in force. And so it's really kind of elevating the temperature around the consequences for this. There's a lot of political theater. You know, you kind of hate to be cynical around these things, but it's all about the politics and who takes the blame for the shutdown and who gets credit for their base for advancing their priorities.

C (7:26)

And Mark, there's a question coming in and you kind of answered this a little bit, but just regarding the 1015 tax deadline, what do you think? You know, how will this be impacted by a potential shutdown?

D (7:38)

We're again, we're discussing contingencies. We're very vocal about the need for contingencies. We always have been related to 10:15 and the fall deadlines. And so, you know, our hope is that the IRS will make the decision and treasury will make the decision to deem those that are necessary to deal with those deadlines essential. And they'll be there to do the job. Still, you know, it's been, there's been a lot of stress on all the agencies as they've kind of gone through this right. Sizing exercise. We had anticipated a lot more problems that we had during the filing season at the beginning of the year. We'll see how this goes. But be rest assured, we're being very vocal that they're prepared for us. So. And then here, Eric, this is, why do we keep getting into this, these shutdowns? And what this is, is a graph. Again, gives you a little history, but it shows the number of these continuing resolutions in a year. And so what happens, and this could happen this time is sometimes they get very close to a deal, but they need a little more time. But they're at the shutdown, so they extended a week to keep negotiated or two weeks. Sometimes the best decision, they believe from a political perspective is to do a long term extension. And you can see that the regular order process of passing those appropriations bills, sending them to the President, we haven't seen those because if you look at the circles, those are the length of times of these continuing resolutions, which again are not regular order. And so I think it's the narrowness of the majorities that we've been seeing and it's also the challenge in actually getting these appropriations bills done and signed. And then what happens is we run into this potential for a government shutdown, which is, which is, you know, could be a real challenge for the profession.

C (9:26)

Okay, well, we'll see. And you said more likely than not, we'll see how it all turns out. We'll all be watching. There's a number of other big, you know, not big, but just developments as usual coming out of, you know, the regulatory agencies.

D (9:39)

Yeah, we've heard, you know, the chair of the sec, Atkins has talked about the concept of ending the quarterly reporting requirements. This is not new. There were conversations going in 2018 from the president. The president has jumped in concept is, you know, to lower burdens or perceived burdens on by these reporting requirements to incentivize long termism and, you know, kind of get away from the focus on the quarterly reports. You know, Europe has moved forward with this going back to, I believe it's 2013, although there are some inconsistencies of requirements in between countries. So, you know, where we are is, you know, we want quality, we want comparability, we want transparency, and we want things that, you know, it's easy for investors to understand. And, you know, the goal here is that they have a really thoughtful process to make sure there aren't any unintended consequences as we move forward. You know, there's been some support from Congress about this concept. Atkins has talked about maybe moving forward with the rulemaking. There's been some challenge to this concept from Congress. So it's kind of a mixed reaction out there, but it's definitely getting a little press and the President's pushing it as well. Another one, we're getting a lot of questions on this one. So this came out recently, proposed legislation that would put a 25% tax on outsourcing on payments to basically doing outsourcing work outside of the US Legislation was proposed. This concept has actually been out there in the past. It's been really focused on call centers. 70% of the impact on. Well, a huge part of the impact of the call center issue would be related to India and a handful of countries. But this, this is written much more broadly than that. And so we have seen previous legislation that was kind of narrow related to putting some basic tax on this outsourcing payments in order to incentivize coming back home with those jobs. This is much broader than just the call centers. Right now. I don't see a legislative path for it. But I will tell you that because of observing some history, we have seen both sides of the aisle interested in this. And as we've seen kind of the populist grow in both the Republicans and the Democrats, this is the kind of thing that will get some level of support. But with the time left and what they have in front of them, it's hard to see that legislative route. Although there is a possibility the administration could try and do something administratively.

C (12:18)

And interesting, there's people on both sides of this issue as well as this issue here, Mark. So this is a little bit different.

D (12:23)

That's another one.

C (12:25)

And this is about bringing individuals from abroad into the US through the H1B visa program.

D (12:31)

Yep. High skilled. So this is another one that kind of surprised the business community came out of the administration with a proclamation. President Trump's using his executive powers very, very aggressively. And the concept is putting a $100,000 fee on the companies that are sponsoring these H1B candidates to come over to the US to do these roles. Significantly, what was a couple grand for an employer and a couple hundred dollars for the employee up until this proclamation. Lots of questions erupted after the proclamation was made. You had people scrambling to whether they should be leaving the country or not. This is not related to current H1BS, but you know potential H1B candidates. A lot of this is going to hit India. 70% is focused on the H1BS that are coming over there. Certain sectors of the economy, clients of town hallers here as well as some of the town hall firms, I would anticipate because of the broad impact on the business community, there's definitely going to be legal challenges to this. So we're going to see kind of watch how it plays out.

C (13:42)

Yeah, it's like a tariff on labor here, Mark.

D (13:45)

It is. Exactly.

C (13:46)

Great update, Mark. A lot of questions coming in. We'll tackle some of them during open forum. So see you in a little bit.

D (13:54)

Sounds good.

C (13:56)

Well, I'd like to bring up Marcy Russell, who this town hall community knows very well. Great to have you with us today. You see Marcy's bio. We're going to kick things off with a poll to the audience. But welcome, Marcy. How are you doing?

A (14:12)

I'm doing great today. It's lovely to be here.

C (14:16)

So just we're going to be hitting the items highlighted in this poll. We're asking you which economic factor so you can push the poll. Now if the studio could do that. Which economic. Thank you. Which economic factor is having the greatest impact on your organization or your clients? Right now we've got five inflation, interest rates, hiring challenges, regulatory or tax changes and tariffs. We're only letting you choose one and we'll see see the results. But as these results are coming in, we'll share the results with the town hall community. Marcy, I thought we could just kick things off. Well, I'll let you. We can drop the slides here for a second. Just kick things off with you talking about the recent Fed announcement.

A (15:08)

Sure. Well, I do sometimes wonder if maybe you should have had an all of the above. Right, right. Because when I look at the economy right now, it's kind of an all of the above sort of thing. But let's start with sort of the most recent piece of economic news and that was that last week the Federal Reserve lowered the fed funds target rate by 25 basis points, basically loosening monetary policy for the first time this year. Now, I want to be clear because sort of the headlines are all talking about for the first time this year is it this is some kind of new change in policy. But the reality is the last few changes in monetary policy have been cuts for to rates. And so in order to put those into perspective, I just wanted to sort of pop up a chart and let's do a quick sort of rundown to get everybody on the same page around where is monetary policy right now and why is the Federal Reserve changing rate shifting policy around? And I'm going to sort of start with my basic premise, which is that we are moving back to some post Covid final normalization. So I want you to think about it in terms of that and in order to understand sort of kind of post Covid normal, I've taken this chart all the way back to 2008 to illustrate a couple of things. Number one, the Federal Reserve usually cuts rates aggressively, meaning every single meeting big rate cuts 50 basis points, 100 basis points in the midst of a crisis. So we can see obviously 2008, 2009, most of us remember that was an enormous crisis. Federal Reserve cut rates from over 5% all the way down to zero. And they economists call the lower bound, right, which of course is zero. And because they couldn't lower policy, they couldn't cut rates any more. They had to turn to extraordinary measures in the form of quantitative easing to further stimulate the economy. Now we're going to talk about that in a minute. Not yet, don't bring that chart up yet. But I just want to remind everyone that quantitative easing as a policy began because there was nothing else they could do on the traditional interest rate front. The fed funds target rate, that short term interest rate, it's just an overnight rate on a very small portion of the economy. Quite frankly, it's just an overnight rate. And it's the traditional lever of monetary policy. It's what they typically use. But if it goes to zero, they don't have anything left. And so that's why they shifted to quantitative easing. And you can see from this chart that from 2009 to 2016, for seven years interest rates were essentially zero because the economy was so weak during that period of time. Now they began to very slowly and steadily raise rates in the late 2010s as a reflection of the fact that that crisis had gone away. And they were normalizing policy until the next crisis came along. And that was COVID 19. Now you can see on this chart there's a little color line that's the very short severe COVID 19 recession. And again, the Federal Reserve in the midst of a crisis, dropped rates significantly. See how they cut them from about 2% again to zero, left them there for two years. And at that point, inflation had come back around and reared its ugly head. Now, we really hadn't had any significant inflation since the 1990s, quite frankly, but they cut rates aggressively. A series of things happened that we've talked about in this town hall before, and I don't have time to go over them right now, but inflation hit about 8%. So this sort of forced the Fed to deal with the other part of their mandate, right? So they have a mandate to maximize employment, but also to maintain low inflation. So they've got these two things going on, right? They've got to keep employment high, but they also have to keep inflation low. So inflation became the major risk. They hiked rates aggressively. Inflation went from 8% down to 3%. So it's not at their 2% target rate, but it has coming down in a way that made them comfortable last year to begin to lower rates. Now, the funny thing is, Eric, nobody really knows what's the right interest rate for the economy. You basically can't look at anything for a direct answer. You have to look at sort of signals from other things, right? And so one of the signals that maybe policy is a little too tight, interest rates a little high, is weakness in the labor market. And we have certainly seen hiring slow down. We have certainly seen weak job growth. Now. We haven't seen the massive layoffs that tend to accompany a recession. So if you look at this chart, right, you can see that we all remember in 2008, we remember during COVID that the Federal Reserve is lowering rates aggressively and there are billions of jobs that are being lost. That is not the world that we're living in right now. We are seeing employment weakness. It could be because interest rates, monetary policy is a little tight, but it could also be the case that there's all this uncertainty around tariffs, government policy. We just heard a nice lovely discussion about the potential for another government shutdown. All of this uncertainty makes business people a little more reticent to invest, expand, hire more people. And then later on top of that, the uncertainty around what's AI going to do to employment markets, and you have this recipe for really weak labor markets.

C (20:58)

We've got some questions and comments coming in. And one comment, just as you look at the last 15 years, you know, unnaturally comment was unnaturally low interest rates. I mean, and we know the real estate industry really enjoyed the mortgage rates that we had for most of the past 15 years, except for the past couple of years, which kind of shocked the real estate industry.

A (21:20)

Yeah, yeah. And it's Absolutely true that most Americans, if they do have a mortgage, right now that mortgage is at less than 4%. So if you are a mortgage holder in America, one of the differences between the US markets and other markets is that we have these really long term mortgages. Most countries have mortgages where the interest rate fluctuates, you know, sometimes five years out, sometimes yearly. And so we have this remarkable stability for mortgage holders built into the market. Unless of course, you were someone who didn't buy. Right. Like all of my kids, quite frankly. And now if they do want a mortgage, they're looking at more than 6%. So there's this sort of interesting phenomenon where if you did take out a mortgage, one of the things that I believe is supporting consumer spending is that most people have these long, cheap, stable mortgages that they took out over the last 15 years.

C (22:17)

Well, Marc, there are questions coming in about the Fed's balance sheet. And you've got a slide highlighting it.

A (22:22)

Sure, sure. So I just wanted to remind everyone that as the Federal Reserve sort of shifts around these short term interest rates and we really focus on that, we make a big deal out of their meetings. And there's also what's going on behind the scenes with their balance sheet that I would argue has just as large an effect on the economy. So as I pointed out and we saw in the last chart, when they took the fed funds target rate to zero, they were sort of out of options in the midst of continuing weakness in 2009-2010-2011-2012. So one of the things that they did was they intervened aggressively in treasury markets and in mortgage backed securities in an effort to push down long term rates. It was extremely effective, but what it meant was that suddenly their holdings of Treasuries doubled, tripled, quadrupled. Now they were in the process of beginning to draw that down just a little bit when COVID 19 hit again. So in the face of COVID 19 and all of that turmoil in financial market, they went on another bond buying spree so that their balance sheet topped out at $9 trillion. Right. So for a $33 trillion economy, that's really probably too big. I mean, I just, you know, right now, again, it's one of those things where we don't know exactly the right size, what's appropriate for their balance sheet. So we have to look to other indicators as they begin to roll down and normalize the balance sheet. Basically when those Treasuries and those mortgage backed securities when they expire, they're not buying new ones that's essentially what it means. And so suddenly we see that their balance sheet and their holdings are trickling down and basically they won't know when to stop until basically something bad happens. I mean, that's just the easy way to sort of put it. So they're in this sort of tricky spot of waiting to see how much do they need to taper off their holdings before their stress in markets. Now, probably because the economy is much larger today than it was in 2008, you're not going to see them go back to a trillion dollars in holdings, but somewhere between a trillion and eight will settle down into the right space. But that's one of the things, one of the reasons why as they've lowered short term rates, long term rates have stayed elevated, you haven't seen this corresponding decline in all interest rates. And one of the reasons is that they are quantitatively tightening in the background even though they're lowering short term interest rates.

C (25:07)

Well, thank you. Great kind of background on kind of where we're at, where we've been and where we're going related to the Fed. Let's now just bring up, we have two polls here. Let's first bring up the results. This is results from the last town hall. We're going to talk about in a minute. But let's see the, the poll that we just, we just did here, the results, if you could bring that up. Okay, so then you're not, you're not pushing it live. They just told me so I will. No, I can, I can, I can, I'll let people know what it is. I do have it here in front of me. The, the number one item, and we've had a number of questions come in on this is inflation. So inflation 30% said that's the top issue. The number two issue is the topic we're going to touch on now is hiring challenges at 25%. Number three, the regulatory and tax.

D (26:09)

Four.

C (26:10)

Interest rates at 14%, then tariffs at 13%. So once again, interesting. Inflation number number one followed by hiring challenges. So wow.

A (26:24)

So, you know, according to the response from these polls. Right. It would suggest that the Federal Reserve probably doesn't need to lower short term rates aggressively. If indeed inflation is still the problem that everyone is seeing out there, then if I was just taking this poll into account. Now granted the economy is much bigger than this poll, but there's information here, right. You're representing industries across the economy and if higher prices and inflation are really the problem, then don't expect that the Federal Reserve is going to continue at every single meeting to cut rates. And they're certainly not going to take them down to 2% or 1% because this would push inflation back up into those worrisome levels like we saw two years ago.

C (27:15)

Well, so many of these individuals in the call, they're in businesses that might be mid sized or they're supporting midsize and small businesses. So clearly tariffs, not tariffs. The inflation is a big factor for them. This was the results, Marcy, and we were going to talk to you a little bit about the labor market. This was the result from the last town hall. And you and I talked about this yesterday where we asked them, are you having more challenges filling your role? Where are they at right now? 43% not hiring, 25% said the challenges are the same as last year, more challenging, had it at 21% and not an issue at 11%. I know you commented when you looked at this, I mean, you felt like we're back in 2019.

A (28:05)

Yeah, that's exactly what I would say that back sort of we've become so myopic in sort of how Covid affected labor markets. So for three, four years it just felt like, you know, if you had a pulse, get in the door and do the job right, because labor was so hard to find, that market is done and over with. And so I look at this and say this is what I would kind of expect from a normal economy, a pre Covid economy where people, you know, basically it should not be the case that it's hard to find workers or impossible to fill a position in a thriving normal economy. That shouldn't be hard. And so in some ways I look at this and say that's actually good news rather than bad news because it suggests that the world is sort of getting back to some normal now. I would also say too that this might be the result of people sort of waiting to see how does the economy perform over the next year before I sort of go on a hiring spree. Are tariffs going to be permanent or are they temporary? Does the government shut down? And most importantly, where are we with artificial intelligence? Am I going to be hiring someone that might be unnecessary in two years because the technology is going to change? So all of these things sort of wrap up into a real wait and see kind of environment right now.

C (29:36)

Well, Marc, you got a lot of fans here on the town hall, but we have to go to lightning round because we do have some other segments coming up and just this kind of final kind of topics to hit. You did hit tariffs A little bit. We also, we've been hearing from a lot of business leaders on both sides about deregulation and how that's having a positive impact on the economy. And then just a little bit about AI investments.

A (30:01)

Well, I'll tell you, I want to say that all of those are long term things. So one of the things you and I tend to do is we talk about sort of what's short term, what's happening right now. But it takes time for deregulation to sort of roll out and affect people's investment decisions. It takes time for AI to sort of roll out and make its sort of real potential known to us. So I think you're looking at one of these years where the economy grows 2 to 2.5%. But as the long term changes and we get more clarity, I think 2026 sort of stacks up to be a really good year for the economy overall.

C (30:41)

Well, thank you. We had over 100 questions come in. I think some very interesting ones. We're going to share some of them with you. Look forward to having you back on another town hall sometime soon. Thanks for being with us today, Marcy, and all of your insights.

A (30:56)

Bye, everybody.

C (31:00)

Okay, let's bring up Melanie Laritsyn and that poll that we just took. You know, a lot of good information. I think Marcy Russell found it very informative that the town hall community felt inflation was the number one issue. And I know you have a question to kick off your segment with, so welcome.

B (31:21)

We sure do. Thanks for having me back. So we are wondering how the filing season is going for you. And a lot of these questions that I know you've been asked before, they really are to help establish a benchmark to see what the progress and what the IRS is doing and how they're working with us. So let's go ahead and take a look at that poll or answer it when you can. And that would be fantastic.

C (31:44)

Okay, Melanie, the poll is pushed out, so the community answer that question as Melanie's reviewing some additional information.

B (31:54)

Perfect. So let's go ahead and dive in. I already saw lots of questions regarding the mandatory E payments. And finally this Tuesday, the IRS did provide some guidance on it. Now, step one for the IRS, which does take effect on September 30th, is the paper tax refund checks for individuals. So it means checks from the IRS to individuals, that is step one or phase one that will be phased out to the extent, of course, that the law permits it. So it means that they're going to deliver the majority of the refunds to individuals by direct deposit and that accounts for about 93%. Now they are going to use other options such as prepaid debit cards, digital wallets and in limited circumstances, paper checks. And I've seen questions coming in about 10, 10, 40 ones or people who just don't have the bank and how do they make the payments? Payments are going to come later. Right now it's just payments from the IRS to the individual taxpayer, which is phase one. So they also made it clear that the payments to the IRS should continue to file their returns as normally would. And yes, that does include paper checks. And on the slide under the resources, there is a link to IRS payment options which covers all the various types, types of payments that they are accepting, which for right now it is status quo. And they also said that detailed guidance so addressing electronic payments and refunds for other types of entities and businesses that should be coming out for the 2025 tax year before the start of the 2026 filing season. So before January ish timeframe. So for now, again, we have to maintain the status quo. And again, our resources there have been been updated to adjustment a. And on September 8th, the IRS released the draft of the Schedule 1A which is called additional deductions. And this is the form that will allow taxpayers to and also the new deductions for seniors. The new deductions for seniors. So instructions weren't included with the draft. So again, we don't have all the information we would like, but we do see something. So for example, at the top of the form we do say that you need they need to calculate your modified adjusted gross income. It also touches base like if you for the car loans, it's mandatory loan payments or the VIN numbers that need to be put in. So and then also like what interest has already been deducted on schedule C, E and F. So again, we also have a receipt to the new Schedule 1A and we also have a link to the form if you want to take a closer look at it. Okay, let's move on to no tax on tips because proposed regulations did come out and this past Friday. Okay, so that's the draft 1A is what I see on the slides. Okay, perfect. So no tax on tips. This past Friday, the irs, they issued the proposed regulations where again they identified the occupations that are customarily and regularly received through December, December 31st of 2024. Now we've already seen the unofficial list, but the new proposed regulations actually provides a definition for qualified tips for eligible taxpayers. So they go through this and a couple of things that should be noticed. Now the first thing is that deduction limit is 25,000 a year and that is regardless of your filing status. So if you're single you get up to 25,000. If you're married, filing joint you get up to 25,000. They also that qualified tips has to be cash or a cash equivalent. So it can be a debit card, credit card. So if you get paid with like a meal or with tickets or digital assets, not going to qualify for you. They also said it had to come directly from the customer and it has to be voluntary and determined by the payer. That's really key there. And the payer has to be able to have a choice. Why is that key? So if you go to a restaurant and you see on the menu, you know, like for groups of eight or more people, there's a mandatory tip of eight, 18%. That 18% tip is not a qualified tip because it's mandatory, it's going to automatically apply and show up on your receipt. Now we know SSTB's are excluded, but it also should be noted that those who work for a business at an sstb, those tips also don't qualify. And for self employed individuals, again it really comes down to that tip deduction can't push that net income below zero. And also the IRS clarifies that certain illegal activities and they actually spell it out in the proposed regs are in there as they don't qualify. Now the proposed regs are something one pages long and they actually have some really good examples. So please take a look at those when you have the time to do that. And we also updated some resources for that. So we will be providing more guidance as it comes along. So moving on to secure 2.0.

A (37:13)

On.

B (37:13)

September 15 again treasury proposed or didn't propose, they issued final regulations which addresses several of the secure two point acts related to catch up contributions. And so they really are talking about, you know, for example the catch up contributions made by certain high income participants that needs to be designated as an after tax Roth contribution. They also provide guidance for administrators to implement implement the Roth catch up rules. And they also provide guidance for those particular employees between the ages of 60 to 63 or those that are newly established with simple plans. Now it has to be noted that the final regulations are different than the proposed regulations. And the key that has to be said is that compliance for 2026 is mandatory by statute with good faith latitude on the mechanics until the regulations are locked in for the 2027. So there are planning opportunities for both businesses and individuals. And for two weeks we have some PFP resources, a summary and also a client advisory letter that are open. Moving on to disaster relief on this next slide, Wisconsin. Those who suffered severe weather, they now have through February 2nd to be able to get relief or to file and pay taxes. But we also have some new resources. So two separate things. And those resources aren't related to Wisconsin, but just disaster relief. And we have a list of all the comprehensive qualified disasters that were applicable or have were under HR1 that it applies to. And then we also have some FAQs on there. So please take a look at that. Let's hit up this round robin real quickly here because we have lots of information that I want to make you guys aware of. We don't have time for Deep Dive, but just to put it on your radar so that you can look into it later. So AICPA provided a new resource on meals and entertainment because that is something that we found in HR1. The IRS also released a new form 706. However you can use the old version of the Form 706 until vendor software supports can come through. Also the National Taxpayer Advocate, she issued a new blog regarding the struggles that people have to obtain an employer identification number, an ein. And so she walks people through those struggles and also makes recommendations on how the IRS can modernize that system. Now regarding the IRS modernization, the Government Accountability Office actually released a report on how the IRS was doing and they actually were on schedule through 2024 through various programs. But with the modernized programs there was a pause in that. Treasury put a pause, but they will be re establishing and we will see a strategic plan in February. Also social media scams, nothing new with those. However they become more prominent and the IRS is actually issuing penalties and they've issued so far 32,000 penalties and it's taxpayers over $162 million. So please keep informed and pay attention. It's true. And they can deduct all sorts of things. Eric, did you have a question?

C (40:29)

We've got a lot of questions every now and then it's been a little choppy sometimes coming in. So that's something we're trying to address with the audio.

B (40:41)

So last thing, National Tax Conference. I just want to push that there. It's coming out together and we're looking at soon we'll be able to give some details. We are going to have a resolution center by the IRS at the conference. So soon we'll be releasing details on that and with that, I turn it over to you, Eric.

C (40:56)

Yeah. Yeah. So we got some good questions. We'll be following up with you during the round robin. Great update today, Melanie. So now we're going to pivot and move to the final section of today's town hall with Lisa Simpson and Aaron. And they're going to be they're in our Durham studio again. It looks like it's a beautiful day there and Durham. So welcome and look forward to hearing the map results.

E (41:25)

Thanks, Eric. We've always got beautiful weather down here in North Carolina, so come on down. I am happy to have Erin Hartman in the studio with me. And Erin has done great work leading the pcpcpa.com map benchmarking survey. So today we're going to jump into some of the results and show you how you can dig in and get even more value out of the survey. So, Erin, tell us a little bit about the survey. How do you feel that who participates? And then we'll get into some of the findings.

F (41:55)

Yeah. So just to give you an overview, we do the survey every two years. We've been doing it since 19 in the 90s. We call this this year, we call it the 2025 survey, but it is of fiscal year 2024. So I just want to make that clear. We had a little over 1400 firms participate and 1,073 completed the survey. So my point in tell is if you participated at all, your results are in the survey, but you might not necessarily get your firm results if you didn't complete particular questions in the survey. The part over to the right or maybe to your left is showing participation by net client fees and also by region. And I just want to point out there that 81% of our participants are over or under $5 million in revenue. And why that's important is, well, we appreciate you doing the survey to start with, but we also report on the median value. We found that that is better than using averages because it keeps outliers from skewing the results as much.

E (43:04)

And on the next slide, we've got some of the key insights that came out of the results, and I think it's pretty good news. Erin, what do you think?

F (43:13)

Yeah, I think so. We had pretty solid steady growth last year. I do want to point out the median year over year increase in net total fees. Again, this is overall 6.7%, and that is compared to 2023. Most of what we talk about in the survey is comparing to the last survey. So it would be 2022 to 2024. But for this question we ask last year information. So we've had an increase of 6.7% overall. And that's pretty representative of each area, each revenue band.

E (43:44)

That's great. And we in the prior survey firms reported a median growth rate of 9.1%. So we've seen a lower growth rate. But we know that in 21, 22, 23 during those Covid years on high growth years, firms were reporting some very strong growth rates. So 7% almost for this survey seems pretty reasonable to me.

A (44:10)

Yep, yep.

F (44:11)

And I know we talk about it a lot. We talk about beginning salary salaries altogether, but especially, especially beginning salaries. And we've made tremendous progress this survey. As you can see, the median average growth for bachelor's degree is up 11% to $60,834 and master's up to 17% and $67,750.

E (44:36)

And this is such an important data point because as we've talked about with the results of the National Pipeline Report, that one of the knocks against accounting as a professional career option is that it's perceived as having low starting salaries. We are seeing improvement. We've seen improvement, substantial improvement over the past four or five years. Unfortunately, we're still below some of the other business related starting salaries. But again, this is good growth. It's a good story for us to tell as we're going out into colleges and universities and recruiting for talent. And Erin, I think you mentioned that even the smaller firms in our survey were showing good growth in starting salaries.

F (45:21)

Yeah, I would say the smallest firms under $5 million showed the highest increases over the last two years. So great job. Take a look at those results.

E (45:29)

Yeah. And another good point is that we look at various positions within the survey and you were showing that they've all increased over the two year period, but you've highlighted that manager.

F (45:42)

Yeah. Managers and senior associates, those like 4 to 7 year range have really increased this period more than any of the other brackets, which is good because last survey they were lagging a little. So we've kind of caught up to get everyone paid.

E (45:57)

That's great. Evenly again, listening to the data from the National Pipeline Advisory Group, those were a particular inflection point. And as you all know, that's typically when a lot of folks might leave public accounting. So seeing that those positions are being really challenged from a compensation standpoint, again, another good, a good approach. But always got to keep our eye on that and always got to make sure that we're being competitive.

F (46:25)

Yeah. And the last thing we really want to point out now is compensation per partner that's increased around 10% net remaining per partner, which is profit per partner before compensation, that increased about 12%. On average, about $253,000. But on the next slide, we'll show you how important it is to really look at all of these data points and especially this net remaining per partner, where you fall, where your revenue falls. And if you take a look at this, you can see both the net remaining per partner per revenue band, and then also top performers. And our top performers are those, we define that for this survey as those that are in the top 25% of firms that responded on net remaining per partner. So if you've got your median, you've got your upper quartile, your lower quartile, 25%, you're in the top 25%. And 75% of the firms in that revenue band responded below that. So, you know, we kind of look at those as like, you know, that's a point of a success of a firm is, you know, they're, they're making the most money.

E (47:36)

So what are you seeing them do differently?

F (47:38)

Yeah, so what we're seeing them do, a lot of them are leveraging technology more. They're, they're tracking efficiencies more. They're a little more leveraged compared to more employees than, than partners. They're doing more. Right. Sizing of their client base. They're saying no to clients. That's part of it. They're doing a little more cash advisory services and they're just doing things faster and newer and, you know, some of the talent augmentation strategies they're utilizing, all.

E (48:08)

Of that is music to my ears. And because, you know, we've spent a lot of time talking over the past few years about identifying your ideal client and calling out those that don't fit so that you can run your firm more efficiently, more effectively, more profitably. And along with that, you get the work life balance benefits of having a more manageable workload. So technology, moving into advisory services, scaling through employee leverage, all of that is great news. And then we've also got some new questions that you asked this year, which I think are really interesting.

F (48:48)

Yep, for the first time, we did, we asked some questions about attitude and action related to AI. 88% of you feel pretty confident or not very concerned about what that's going to look like over the next three years. You feel like it'll happen naturally and you're, you know, excited about it. 65% of you are being proactive and open a few of your cautious but you know, basically everybody's pretty much on board just trying to figure out how to use it to their best advantages. You'll see also firms, we asked how they're planning to use their freed up capacity. A lot of them plan to focus on reducing hours to improve work life balance and also being able to offer more consulting and advisory services.

E (49:31)

Yeah. Again, things that we talk about in our business model transformation initiative. I know when I talk to practitioners about why they maybe haven't moved into using AI yet, it's almost like analysis paralysis. There's so many great and exciting options out there. They're trying to figure out where should I start. So, you know, I know that Eric and the CPA.com team spend a lot of time trying to distill the key insights and looking into ways that you can really leverage AI effectively. And I think we've got some closing resources to tell you about and I.

F (50:05)

Want to comment on that too. Like we have seen our top performers who are making those decisions. Like AI is changing quickly. And you know, we hear a lot of people say, well, I'm going to wait because there's going to be so many developments, developments. But we'll see a lot of these more profitable firms are making some of those decisions and just making a decision and trying it and seeing what happens.

E (50:23)

Yeah, that's good. All right, so Erin, let's talk about what's in the survey really quickly.

F (50:30)

Okay, so yeah, we just wanted to give you a list. This is not all encompassing. I could only fit so much on the, on the chart. But we just wanted, you know, different firms are going to want to look at different things. We have billing rates, chargeable hours, utilization realization. If you think your expenses are too high and area or maybe not high enough, that can cause problems too. Take a look at what we've got. We've also got some new metrics this year. We've mentioned technology, but we also have just future trends with global teams and other types of staffing augmentation policies. And so just take a look at that and see what makes sense, what you want to look at for your firm.

E (51:09)

All right, so they've gotten their results, They've gotten access to the MAP dynamic platform. Now what, what do they do with the results?

F (51:17)

It can be overwhelming. It can be overwhelming for sure. But what we think you should do is just take a couple of those, take two or three of those metrics, take a look at them, decide what you want to focus on. This year we do have resources transforming your business model, resources that can help you with some of those things. Compare yourselves to firms of your size. Also compare yourself to top performers that can help you come up with goals. We'll also have the executive summary coming out the end of October and that will give you advice as to, okay, this is an issue for me. What should I do about it?

E (51:55)

Yeah. So a lot of great stuff is.

F (51:57)

Going to come out next.

E (51:59)

What I love most is getting access to that platform. But let's start with if you're not a PCPS member, how do you get the results?

F (52:05)

Yeah. So if you are an AICPA member, you can download the results. We have links on the slide to the national summary and then also the firm size and region results. If you did complete the survey, you have access to the MAP platform. If you are a PCPS member, which is the greatest benefit you can look at so much information. I mean, you can look at, I want to see all the CPAs in Raleigh, North Carolina. I want to see what all the firms are doing in Houston, Texas. You can drill down that, that deeply. So if you aren't a PCPS member, but you're interested, interested in doing that, it's not too late, email us@pcpsicpa.org and we can get you set up and you can still take advantage of that this year. And I do want to mention you should have gotten your results on September 8th from PCPS, but if you didn't at 4:00 today, so seven minutes from now, 4:00 clock Eastern Time, you should get those results again in your inbo. So please take a look at.

E (53:08)

Yeah, and the real value is using those results and digging in and thinking about the metrics that you want to focus in on for the next year. Hey Eric.

C (53:17)

Well, Lisa and Aaron, that's very nice of you to release this to the town hall community before you push that email at 4 o'.

E (53:23)

Clock.

C (53:25)

Thank you. That was a great update. A lot of valuable information and benchmarking is so important. You know, this is a high level benchmarking and then we're doing a lot of benchmarking in areas like client accounting services and audit and tax as well. So thanks for that update. And we're going to now move into Open Forum. And Lisa, since you've been busy doing that update, I'll start off with the first question. Melanie, a lot of questions that came in related to your very informative tax and other technical update. One question that came in was related to the secure A couple times came into The Secure Act 2.0 was what is the effective date for the high income earners that required them to have to move into using the Roth for catch up.

B (54:21)

For catch up. So all the details, it's complicated. It's not as simple and straightforward as it was and keep in mind it was meant for those that were 60 to 63 years old. Eric, I didn't catch the exact question.

C (54:33)

That you asked for the effective date. What's the effective date for the requirement that you have to be doing the catch up contributions via Roth.

B (54:46)

Via Roth. Okay. So it does kick off in 2026 and then it becomes even more firm in 2027 as far as how you have to follow through the implementation for but it does kick off in 2026. All right.

C (54:59)

And that's something we can give more information on the newsletter. One other question and then Lisa, I'll let you hop in. Was related to the qualifying for the tips. Someone said they heard you say only cash qualify for tips. I think what you were stating was so just maybe clarify that because I know you made the point about if it was a required tip on a credit card bill that didn't qualify but is it only cash?

B (55:32)

So cash and cash equivalent cash. So like a credit card, a debit card. There are some tokens that work for it. Those would work, yeah.

E (55:44)

The thing I thought was interesting about the TIPS definition is like I was at a group dinner last night and there were eight of us so there was a mandatory 20% charge and that doesn't qualify as a tip according to this new definition. I just thought that was really an interesting carve out. And Aaron or Melanie, I know you mentioned that because it's the customer didn't have a choice.

B (56:06)

Right. So if they were given a choice of 18 or 20% and there was an option then it would have become a qualified deductible.

F (56:15)

Yeah.

E (56:16)

Yeah.

C (56:17)

And other questions are just about overtime and how that will comments here of how is that going to be managed via the software. It's not going to be on the W2. What will be the documentation process for highlighting the overtime?

B (56:33)

So the W2 and I did see the question come in for 2025 is not changing. Let me be very clear on that. But moving forward they are looking at other agend adjustments and that becomes more of a payroll question and how do you adjust and account for that? And we haven't seen the guidance on that.

E (56:53)

And again a lot of nuances in that definition of what overtime wages are eligible for this carve out. So I think that the payroll companies are going to have a lot of reporting work that they need to be doing between now and issuing W2s next year. Even though it's not going to be a separate box on the W2s, reporting is still going to need to be factored in.

C (57:21)

Well, I mean, this is Mark, a lot of questions on your segment. I guess one broad question. I mean, you know, filing season is still a ways off, but for 2025, what's your thoughts on this government potential shutdown and what that would do for the start of filing season?

D (57:42)

Well, as we mentioned that, you know, the questions are, you know, when they come back, how long is it for? So they, you know, they could do a short termer that is, you know, in the middle of this fall or they could get us into next spring where you hit both filing seasons, which is just kind of the way that things have been working. So it's yet to be determined. I think the good news on this is, although I do think it's more likely than not it's possible they could get a deal. But it's hard to see where they come together at the moment. Moment could be a short shutdown, could be a longer one. The conversations we're having is how important it is that there's contingency planning going on at the IRS and they're ready to take care of taxpayers and preparers and we'll keep that up. So, you know, we know that's a pinch point and creates anxiety. But we're on it.

C (58:31)

Thanks, Mark. Well, a great town hall today. I just want to thank the town hall community. You know, over 500 hundred questions came in today. They're very helpful. Lots of questions we need to get Dan Snyder maybe up here. A lot of questions related to secure Act 2.0, the implementation of the Triple B bill and tips and overtime. So a lot for us to talk about on upcoming town halls. But thanks to the community here, Lisa, for how they just engage with us. Why don't you and I now just take them through some of these closing slides which has some additional resources. So thanks Mark and Melanie and Aaron. And as we look here, Lisa already mentioned this, we've got a number of AI resources, a toolkit, we've got a monthly newsletter that we're putting out. You can learn more about both of these@the cpa.comaiurl we also have a number of different tools to help you grow and expand your client advisory services area. This area is being highly impacted by AI more and more automation going into the accounting work that's utilized when you're doing outsourced accounting services or client accounting services, as well as helping with the advisory elements, the FP and A and the analysis.

E (59:53)

Lisa we're approaching the deadline for members to volunteer to serve on an AICPA committee or a technical resource panel. So it's October 1st. We've given you a QR code and a link to apply. We would really encourage you to apply for committees and make sure that your voice is being heard. Lots of different opportunities. If you have any questions, you can email pcpsicpa.org, and we'll help you find a committee.

C (60:26)

Here's outline. Go ahead.

E (60:28)

Oh, sorry, yeah, Erin and I talked a little bit about our transferring your business model and these are the upcoming webcasts that we have to focus in on each of the five core pillars.

C (60:39)

And digital cpa. You're all well aware of that information on how to register and here's the next town halls for the remainder of the year. We'll be back together on October 9th. Great being with you today, Lisa. Great being with you.

E (60:55)

Thanks everyone.

B (60:57)

Thank you for your participation.

A (60:59)

You can also subscribe to the AICPA Town hall series on your favorite podcast.

B (61:04)

Platform, as well as watch archives on.

A (61:06)

YouTube and find resources@cpa.com Townhall Tune in for live broadcasts Thursdays at 3pm Eastern Time.

D (61:19)

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