Tax & Risk For Financial Services Leaders

David Fuka0:00

Afternoon everybody. This is David Fuka with Cornerstone Licensing and welcome to the tax and operational risk in financial services webinar. Really appreciate you spending the time with us. For those of you who are not able to make it today but did register, you will be getting a copy of this broadcast and also the materials that we'll be showing today. So by all means take copious notes, but you don't need to. As well, these are a great slide deck that Mitch and Jennifer put together. And on that note, I just want to call your attention to see if you're looking very closely at it and see that this is two years in the future. Today, February 18th, 2028 is when we're actually doing this. So, welcome back to the blast of back to the future. So, hopefully that'll put the appropriate spin on this. You can see the title. I know that you've read it in your registration, so we won't go too much into that. Let me just shift over and introduce you to it. I'm super excited and grateful to have both Mitch Petracca, founder and managing partner with Forward Firm, and Jennifer Stubaus, their tax director from Forward Firm. You're going to hear their voice more than mine. That's a really good thing for you. And their insight as well into the specifics of, you know, addressing, you know, what's going on today, particularly with the big beautiful bill act, as it turns to financing. So, one last kind of detail to take care of. I apologize.

David Fuka1:27

Adults hate being read to, but I must read this to you. So, and I know you can read better than me, but this information is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up to date. It is not intended to be a full and exhaustive explanation of the law in any area. However, nor should it be used to replace the advice of your own legal counsel. Sounds like it was written by a lawyer for a lawyer by a lawyer. It's either way, but thank you for bearing with that. So, a lot of great information, tons of stuff along the way. I love my voice, but I love Jennifer and Mitch's more. So, I just want to kick it, throw it to you guys. That first question is, okay, so 100 plus tax code changes, no big deal, one big beautiful bill act.

Mitch Petracca2:20

Can you guys take us from the high level and we'll work down from there. Thanks. Yeah, absolutely. Would love to. Thank you for the kind introduction, Dave. Just a quick background on myself and I'll let Jennifer do the same before we truly dive in, but really excited to chat with everyone today. You know, we are both CPAs. We work on a number of different types of engagements at Forward Firm. So myself I have more of a transaction advisory and M&A background and work as our managing partner. We also have a line of service for accounting, bookkeeping, and fractional CFO. And Jennifer leads our tax department, which obviously is the most relevant for today's discussion. And one of the most talked about of the three just given, as you mentioned, Dave, all the wonderful changes we have this year that make us even more valuable when we think about, you know, how to offer advice and you know, how to save you more money on your taxes. So, excited today to chat about some of those changes and to get everyone up to speed and answer any questions. So, would love any interaction from the entire group. So, please don't hesitate to ask questions as we go along here. Otherwise, we'll just continue on a roll and keep chatting about, you know, the things that we do best. So, with that, Jennifer would love if you could give a quick introduction and then we can really dive into the meat.

Jennifer Moody Stubaus3:42

You got it. Thanks, Mitch. So, again, Jennifer Stubaus. As Mitch said, we're both CPAs. I've been a CPA for about 25 years. Licensed both in Florida as well as California. I am also an EA. I kind of cheated. Did the EA first before I got my masters and went back and did the CPA. I sold my previous firm in 2022. I had an exit. My mother was my business partner. And the easy way to let her go was to just sell so that she could retire. I was in no way ready for retirement. I'm calling this chapter 2. I've got way too much energy just to have the word retirement in my name in the same sentence. So, I'm happy to be here and happy to talk about at minimum the 100 plus tax code changes from the one big beautiful bill, right? So, we'll stay pretty high level here, pretty broad scheme and happy to take any one-off questions if they do arise. But basically there's no way for any one individual to know 75,000 pages of tax code and then to add a 100 plus tax code changes to our previously existing 75,000 pages makes things quite complicated, right? But we're here to simplify that for you. So as you can see some of the high level big popular topics that would relate to anybody who works in the finance industry you can find here on our screen. Right? So these are some really talkable topics that should have some interest in your line of work here. So you know we're looking at some changes on the interest deduction, right? So they made it a bit broader. So more people can have a larger deduction. Now we can now calculate this, you know, using different calculations. And so we no longer have to deduct depreciation and amortization before we calculate interest. We can now add those back before we calculate it. So we have a much larger interest deduction. So for those of you in the lending world that's a selling point, right? So interest is now a larger interest deduction is now available for us. Same holds true for that R&D, right? That research and experimental credits. So previously we had to capitalize those and there was a lot of restrictions and guard rails around actually getting to those credits. Now they've loosened it up quite a bit and we can take those credits immediately. We no longer have to go back and capitalize. So for any manufacturing or anybody in that digital asset or that tech world, this is key for you, right? Big tax savings, big credits here available to you. Some of the other things that are on this slide that we can talk about just, you know, delicately is the 1099 changes. So they've kind of opened that up a bit. We used to have a $600 minimum filing requirement, which they've now broadened up to about a $2,000 limit. So, giving us some more runway there before those kinds of forms have to be issued.

Jennifer Moody Stubaus6:37

Although, they did add a new 1099 to us, the 1099DA, which we'll talk about ever so briefly as we progress through this webinar. And then just some of the other topics here that we'll cover is there's really kind of a difference now, not so much a timing difference, but a law difference in the way that the feds handle some of these tax law changes versus the states. Right? So before we used to have what I would call a simple reconciliation for some timing differences where that got a lot more complicated now where states are not following the feds or cotailing the feds specifically in the same language that the fed wrote the tax law right pulling back and not as freely giving the same deductions there.

7:27

If Mitch if you want to add anything here otherwise I'm happy to move on. I think we've got some really good pieces coming behind these front slides. Yeah, I think just the one thing to add in here and just the motivation for you know the one big beautiful bill changes and when we think about the tax code broadly and how we got to where we are today. You want to think about the kind of motivations behind what they are trying to accomplish with the tax law. And so the way our tax law comes into existence in the US is really continual iteration through the congressional process and the reason for that is really to stimulate the economy at the end of the day. And so most of these provisions are very pro business, pro- real estate, right?

Mitch Petracca8:12

Especially when we think about one big beautiful bill. These are all things that really are helpful to us as business owners and real estate investors and they really represent opportunity for us. So, I think they're all things to be excited about. There's obviously a lot here as we're, you know, going to cover today. But really just, you know, that's where it becomes exciting for us is just being able to navigate and add more value through some of these changes here.

Jennifer Moody Stubaus8:39

Yeah. And I just as we transition, thanks so much for in, you know, kicking it off. These six categories, I love this. My left brain loves these things. I can put them in buckets and I know that all hundred whatever 37 of them are not in here but you had to prioritize in some way and typically as a project manager I'm like well give me your levels of priority well they're all important they're all most important so it's like you really there's no deviation you can't like not do one. So having said that it's always difficult to go next but maybe the state conformity divergence and we'll you know as just as grab one we'll go from there or something does that make sense.

Mitch Petracca9:13

Sure does. So, here's a great example of the states and the feds pulling apart and driving in different directions here. So, all of these can actually be stacked even found within the same industries. So, focusing there back on the interest deduction again that's been expanded giving us a larger deduction. The timing of that bonus depreciation, right? 50 states, 50 rules, one Fed. The Fed is the one who gave us the bonus depreciation, but 50 states are not following that. In fact, there's a very small number of states who actually follow the bonus depreciation with the feds. So, in a situation where we're recognizing bonus depreciation on the Fed federal return, you might have, for instance, 5 years, 7 years, 15 years, 10 years, whatever the life of that asset is left for depreciation on your state return. So again, there's timing differences, different law changes there. The R&D we delicately touched on that briefly, right? So no longer have to capitalize that. We can now expense that. So encouraging that R&D, those R&D exercises and projects. And then lastly, the state specific ads, right? So although the feds might give us a deduction for one type of expense, the state may not.

10:32

And so on the state return, we're having to add back to the taxable income, increasing taxable income on the state side, but decreasing it on the federal side here. So four broadly used topics here where we can see drastic differences between both the fed and the state. Absolutely. And I think the theme for what we're going to talk about today is all about jurisdictions in taxes. And so many people underestimate the effect of the different jurisdictions especially in the United States and as they continue to operate in more and more states. And I think that's really applicable to, you know, the individuals who are working with Cornerstone, you know, generally they're getting more and more complex and into more and more jurisdictions. And you know that's really where the complexity of your tax situation really starts to compound pretty quickly because of a lot of these changes across the different jurisdictions. So in many ways in the US it's almost like we're operating as, you know, 50 different countries in many ways with different tax codes. And obviously there's alignment in many of the categories but in many of the things there is not and so that's, you know, really where there's 51 different jurisdictions and it's important to keep that in mind at a high level. Yeah, and I know you're going to touch on that as well, you know, cheating, looking ahead along the way.

11:54

So, I'm excited about that. And I love that you're bringing it up already now because it's bringing up, you know, tell them what you're going to tell them, and then tell them what you told them. I mean, I always love that, you know, overall. And I think that's just a great point that cannot be overstated. So, absolutely, we try to make taxes fairly approachable, which is not always the easiest given all that compounding noise on top of everything, but you know, that's really a big part of our job. And when you're able to really do that, you'll be in doing something else because that you will be the only human on the face of the earth that's able to do that. So, but thank you for helping us as much as you can. Great stuff. So, I love this next thought of the overlooked, you know, the overlooked tax trigger, you know. This sits with us as well here at Cornerstone, but you know, COAs. So, yeah, I'm really excited to hear you talk about this. Probably might want to spend. This seems to be some of the meat as well. So, I would agree with you, Dave. Yep. So, this and specifically in the finance world, right? So, you're licensed and one of your clients moves to another state, so you quickly register in that state so you can continue writing for that client. Or maybe you've got a new book of business and they're expanding.

13:08

And so before you know it, you start registering yourself in all these different states without really knowing whether or not you triggered Nexus or triggered a tax filing or triggered a reporting filing. Like you could just be having a filing requirement, not necessarily a tax burden because of it. Right? So there is a difference here. So when we talk about licensing versus your certificate of authority, right? So that certificate of authority is actually authorization to conduct business. So the state is going to deem that you are, you know, you have filed and requested your certificate of authority because you are going to be doing business in that state. So that's usually an automatic trigger, right? You've got some filing responsibility to that state whether or not there's tax due there's at least at minimum some kind of filing requirement. Now does a lency registering there trigger the same event? Maybe not. Right? 50 states, 50 rules. So different states have different thresholds before you actually have to do any kind of filing or reporting. Then they could have a secondary threshold for when tax is actually triggered, right? So you may just be registered and not doing any business there. You may be registered and writing a lot of business there.

14:27

Okay? So depending on the volume of transactions, the amount of transactions, and what kind of activity is actually happening within those state lines will determine whether or not you have a filing requirement. And so it does get a bit muddy. It can get a bit gray. So always seek professional advice as to whether or not what the activity that you're actually engaging in is a trigger for a filing requirement.

David Fuka14:53

Mitch, I'm sure you can attest to this in your M&A world, right? So, when you get down the pipeline and you found out that, you know, this company's been doing business in several states and you're not properly registered and now we've got, you know, hidden penalties and oops, now we've got to hold back in escrow and it's caused all kinds of other problems and I'm sure you can divulge a lot more in this arena here, Mitch.

Mitch Petracca15:16

Absolutely. So we do a lot of financial due diligence with the transaction advisory arm of our practice and within that we do a lot of tax diligence as well. I would estimate 80% of businesses you know are not properly reporting in terms of their nexus requirements. And you know they often don't understand really what it means to create that nexus. And that nexus is just a fancy word of saying you owe taxes in a specific state or jurisdiction. And so you know most of the time we will discover this and it becomes a key deal issue. And so you know it's not just the lack of kind of professionalism when you go to you know sell a business that this affects but also just the ability to really you know hand over liabilities or fewer liabilities rather to the buyer. And so they're essentially you know selling their exposure to the buyer of all these tax issues that they've created. So on the buy side, obviously you have to be very aware of what you're purchasing and you know what liabilities may be there that you're not necessarily seeing. And I would say this is culprit number one for small and medium-sized businesses of where there's kind of hidden liabilities that most people aren't aware of when they purchase a company.

16:37

Yeah, absolutely. I love your discussion prompts as a takeaway. So for the audience, you know, if you're instructor in these like, you know, take that focus on those, right? You know how many states you registered in versus do you actively operate. You really want to know that and don't come to the table alone. Just don't get her done by yourself. You know, make sure legal and finances align with that understatements, right? So just because you think maybe you are quote unquote getting away with it, right? It's sooner or later it is going to catch up to you and that's not anything that you want. Such great advice. Yeah, absolutely. And we see a lot of clients that get those notices five years later, right? And you just think logically about how tax issues are caught, right? It's really mostly due to conflicting information. And so, for example, you could see, you know, if you're New Jersey, if you registered in New Jersey, and then, you know, you take a look at the records of the New Jersey Tax Department, which is separate than the registration department, right? And then they talk to each other five years later and say, "Hey, wait a second. They haven't paid taxes for 5 years." And so, that sort of thing happens all the time.

17:39

And you know, we'll really see that across the board within taxes where you know, for example, if you purchased a company again and you know, you filed something differently than the seller, now you've got conflicting information. Or if you failed to report a 1099 and someone else reported that for you, now you've got conflicting information. And so that's a lot of kind of how these tax issues are discovered and created and where they'll kind of catch up to you later on. So this is a prime example of that kind of once you create that certificate of authority and you know don't file any taxes in that jurisdiction.

Mitch Petracca18:15

Yeah, good stuff. Good stuff. Well, you brought up nexus. I love that word nexus, right? Economic nexus, you know, along the way. So, you know, really let's go ahead and simplify that for Dave, you know, along the way. What do we really want to take away? What do we mean by all these movements? We go to expand. Expansion is good, right? I mean, we want our business to grow. We want to go in other states. You know, depending on who you talk to, we either have 49 or 53. I don't, you know, so it depends on who, you know, whichever point of view you have, but nonetheless, we know there's a lot. So help us make sense out of that portion. Thanks. Yeah, absolutely. Nexus just means are you doing business in the state, right?

Mitch Petracca18:56

And you think about all these jurisdictions and different tax departments. You know, what does everyone want? They want their fair share of the pie. So if you're doing business in their state, they're going to want to collect on the business that you're doing in their state, right? And they don't care if you know, state X, you know, got that allocation. They believe it should be in their state and state Y and should contribute to their budget. And so really, this is, you know, kind of the push pull. And you see the same thing with international tax law as well. And so really where your footprint is the most important thing from a tax perspective to kind of keep in mind and to fully understand is when all these kind of various you know pieces are applicable to you. And so the nexus is just the fancy word that us tax folks use to basically say are you doing business in this state and have you met the requirements to need to file taxes in that state? And literally this state have you filed are you doing business in this you know I mean this literal in this sense because yeah well I'm filed in you know 36 of them they some of them show there's got to be reciprocity somewhere and I know that's probably basic along the way but yeah and I would tell you anybody who's experienced living in California they claw back hard and fast right so they want a piece if you've touched their borders in any fashion California seems to get a way of getting a piece of that pie. But just to add to that the apportionment here that has to get laid out in a tax return can get quite complicated also. So if you are earning revenue in Dave 30 states right or some large number of states right recordkeeping becomes so key here right because will your tax preparer needs to know how much revenue are you earning in each state did you reach that filing requirement right so it's one thing to register and to be producing in a state but their recordkeeping of how much revenue did you actually earn in that state will determine whether or not you do have filing requirement. So separate from Nexus, the next question becomes, do you have a filing requirement? And does that filing requirement come with tax? So there's stages and steps along the way once you make that initial step to register in a secondary state or third, fourth, 30th state. There's further questioning that goes behind that to really understand what your responsibility is as a taxpayer to each of these states as well as the feds.

Mitch Petracca21:31

Yeah. And I love your call out on the scenario. It's not a danger Will Robinson or gloom and doom, but it's just a you know just well we did it. We expanded eight states. Good job. Congratulations. Somebody got a bonus probably some award or whatever. But then bingo boom six months later we have you know, half a dozen or so unfiled state returns and that becomes extremely problematic as an understatement. So, yeah, a good heads up. You had talked about or you called out section 163J in your summary in your initial summary. So, I'm curious to hear, you know, I you must have done it for a reason. I mean, you that touched a chord with you. So, I'd love to hear some insight.

David Fuka22:13

Thanks. Yeah, sure. So, if I may, we like to use leverage. We like to use debt, right? So, if we can use debt instead of our own money, we like to do that, especially when we're, you know, have acquisitions in play. And so now it makes it a bit more enticing that we can deduct larger amounts of interest from leveraging any of those assets that we're acquiring, right? And specifically inside of our firm, we like we use a lot of debt for some of our tax strategies. And so in doing so, we now have big large interest deductions or bigger interest deductions that we can now use as far as tax planning is concerned. So being that it's early enough in the year, right? It's still February, plenty of time for us to be borrowing throughout the rest of 2026 and forecasting, right? So what does that look like if I leverage this? If I finance this, what does my interest deduction now look like post one big beautiful bill? Much larger than it was pre one big beautiful bill.

David Fuka23:16

Absolutely. And again this goes to stimulating the economy and you know what we want to really get out of these changes you know it is to grow the economy and you do that by you know enticing people to make acquisitions right of real estate and businesses. And how do you do that? By you know increasing the appeal of debt and the easiest way to do that is by you know giving you a discount on your taxes for doing so. So, a lot of these changes again, you know, come back to what are they trying to drive, you know, value-wise. And as Jennifer mentioned, there's a lot of advanced tax strategies we do. And a lot of them come down to this debt component and how do we shift revenue or taxes due right from year 1 to year five. And it a lot of this comes down to the time value of money. You know taxes are impactful not just on what can you save period but when can you kind of defer and shift the liability to the future right and so that's a really important thing to understand about taxes too is it's not just an exercise of lowering your bill as much as possible but also lowering you know the amount due this year compared to future years and so that really can benefit you especially as you're starting to make more investments and you're really creating kind of that compound effect of building wealth.

Mitch Petracca24:31

Yeah, great call outs and something certainly I think would be easily overlooked as you know for advantageous for businesses just like your I know in your summaries again it seems not micro but I mean as far as very specific the research and experimental expenses you talked about or called out so and I'm really more focused on that and then in addition to that audit risk you know with you know how can you keep me out of the audit danger area thanks.

25:00

Yeah, definitely. So, documentation is key, right? The devil's in the details, as they say. So, documentation. No different than what I just said on you might have registered in eight different states, but we need to know how much revenue you had in those states. Same holds true with R&D, right? So, where are you spending money? Is it in labor? Is it in supplies? How are you spending it? What is it that you're modifying? Right? What is it that you're creating, developing? And so all of these costs that are tagged to these types of activities can be allocated into this research and development bucket. And so the larger this bucket gets, the larger your credits get and we no longer have to capitalize them and advertise them over some length of time. We can now take these credits as they're as the expenses are happening, which is tremendous for somebody in tech, right? Or somebody in manufacturing. Huge immediate benefits now. No longer no timing delay anymore on the R&D. This is an exciting one for us. You feel the same way, Mitch?

Mitch Petracca26:06

Oh, absolutely. Anyway, again, these are all levers we can pull as tax professionals. And you know, which levers make the most sense depend on your unique footprint. Jener likes to remind me that every tax return is a you know unique kind of digital fingerprint of kind of what's due and so no tax situations are exactly alike and these are all levers that a good tax professional can pull to really improve your individual situation and kind of which ones we pull depend on you know which ones we think will make the biggest difference and you know sometimes some of these will or won't make a difference and you know also when you think about tax strategies if you're kind of scrolling, you know, Instagram or TikToker and seeing some of the strategies there, right? You also, Dave, I loved what you said when we transitioned to this slide, you have to think about the risk of each of these strategies, too. And so, you know, we don't like the ultra risky strategies that certain people like, and it goes back to what I was saying earlier of, you know, when do people get into hot water with the IRS. It's, you know, when they're using specific strategies that are clearly blacklisted or kind of under the microscope. And so, you know, you have to think about everything not just as you know, is this or is this not allowed for from a tax perspective. It's not black and white. It's really a scale and spectrum of risk. And so, you know, is what I'm doing from a strategic perspective a seven and therefore it's probably okay out of 10 on the risk scale or am I you know 10 out of 10 in terms of what I'm doing and obviously we never recommend anything in that bucket as we know you know it's just going to come back and not worth the effort there. So, really important to think about that with your tax professional as you think about which levers to pull as well.

Jennifer Moody Stubaus27:50

Exactly. And I didn't mean to jump. Did I just interrupt you, Jennifer? I thought Okay.

27:55

Yeah. No, you said digital. And I don't know, my brain goes to, you know, kind of thinking along the way. AI, right? I mean, digital, of course, you have to talk presence, right? So, I was a little shocked to see like, are you mean the government is use IRS is using AI, too? I mean, I thought that was just for us. I mean that they're we brought we let them come in and use it as well. And wow. Ouch. Scary is my first thought, but nonetheless I think this is a great one to come up and I love that data profile. We can't do that, right? I thought that was illegal. I thought we weren't allowed to profile. I mean, so but maybe data profiling is a little something different. I can't wait to hear your chat about this.

28:36

Yeah. So I would tell you back in what I would say the old day the when the IRS is computer profiled individuals. So every tax return is given a score, right? So every tax form you have as a taxpayer. So does the IRS. That's always been the case. And so they match them up. So they know what to kind of expect on your return because they have those same information forms, but they don't what they don't have are those subjective items, right? Those charitable donation amounts, the amounts that you deduct from your rental property, those business expenses you have against the revenue that you've earned. So those are all subjective and they don't have transparency or visibility into those specific types of expenses or deductions. And so you are given a score on a tax return and if you do fall out of a score, as Mitch said, seven out of 10, that warrants whether or not you move into the next stage of scrutiny, right? So yes, the world is getting very smart, very fast. So is the IRS, right?

29:34

They do in fact profile based on your zip code. They know that if you need a certain income level to be able to live in specific zip codes throughout the country. They know if you're married filing a joint and you have two children and you live in a specific zip code that you've got to have some baseline of cost of living reporting on your tax return. And so there are ways for them to profile a return to know whether or not there's some audit risk there. Again, they know that they can't put a ton of resources after something that they're not going to gain much from, but they do have ways of profiling and understanding what they should be seeing inside your return. That does hold true with the cross referencing. And I'll let Mitch take some of this here, but yeah. So no different than the IRS knows based on the tax forms. The states and the IRS talk just the same.

Mitch Petracca30:28

Gotcha. Absolutely. And again it comes down to, you know, is your data matching the expectation and they have so many algorithms to catch this. So really easy way of doing it is for example if your employer sends you a W2, right? That big form that most people are familiar with on the tax side that says how much money you made this year. If your employer sends you that, right? And then you didn't, you know, file taxes in that state, that's immediately going to be triggered, right? That's a very easy thing to catch. And so there are so many of these different checks that they're, you know, automating more and more. And Dave, yeah, you're spot on. They're using AI to really be able to, you know, capture the patterns between all of these types of things that get reported to the IRS. And you know, they're probably one of the more sophisticated entities when it comes to data analysis. Which is, you know, on the converse side, it's very interesting because, you know, they have fewer and fewer kind of individuals working on, you know, tax issues and so it still takes us a long time when we call them to try to resolve issues. But, you know, the ability for them to flag things, you know, on the upfront piece has really developed, whereas the ability to resolve things, I would say, is probably getting worse. Jennifer, I don't know if you feel the same.

Jennifer Moody Stubaus31:44

No, I agree with you. Agree with you. It's an interesting duality of kind of how our specific, you know, tax agency is developing over time. Yeah. Nothing is specific or guaranteed, but I'm just thinking of you. There's my tax experts and I'm like, hey, I want to walk the straight and narrow. Can you keep me on a semi? Can you give me a sense if I'm a two or a nine, you know, on a 10 risk? I mean, you know, I mean, can it be reverse engineered? I know the answer is impossible because we don't know this unless you work for the IRS or have family members or something or we're able to, you know, break into it or something, but is there has to be some things you are learning as well, right? I mean, you must have some algorithms and as well, right, to be helpful.

Mitch Petracca32:27

Oh, absolutely. There's patterns all over the place, right? There's patterns down to if our firm kept getting issues assigned to it that we're signing off on, they're going to put our firm more under the microscope as well. So they'll go to that level of pattern recognition as well. And conversely, right, if you have fewer issues, right, you know, they're probably not going to dig in quite as much, you know, as they maybe otherwise would. And so it all comes back to risk based approach. And, you know, Dave, we can generally see, you know, where you are on that spectrum kind of within, you know, two digits. So, you know, we can get pretty close to understanding exactly what your tax risk is. And you know, the IRS is pretty transparent with what it doesn't like. It's just whether or not you have the time to kind of file follow along. And so taxes work a lot like the legal system where there are public rulings and their precedents set. And you know, a good tax practitioner will be able to do their research if they're not sure about a specific tax position and look it up. Very similar to again legal cases to be able to determine well how is the IRS treating this how risky is this tax position that maybe I've never come across before. So you start to see a lot of the patterns and it's really important, you know, to understand where you are in that risk spectrum.

33:48

Gotcha. Thanks. That's good to know for people like me. So, and following this line of digitality, I don't even know if that's a word. However, can we have that? You know, so Bitcoin, cryptocurrency, now the new 1099DA or 1099DA in general, the impacts of that. This is, you know, a world beyond my world. I don't, you know, I don't dwell in it. I don't play it on TV. So, I'm fascinated by and I would not know how to even start, you know, to be doing the reporting for it. So, thanks for your insight. Yeah. So, this is one of the newbies, the 1099 DA, right? So, we've had a question for the last I think I if I had to guess four or five years now. We're on the front page of the 1040. We actually have to check the box. Yes or no that you've bartered, exchanged, sold, or did some kind of used some kind of virtual currency. It was originally cryptocurrency. It's now they've now changed the term to be digital asset just to capture more of these different tokens and EFTs and this world has it in itself has expanded quite a bit, right? And so with that the government wants to know who's moving digital assets and who's moving them who's paying with them who's receiving them because otherwise they don't have visibility of this.

35:05

So, as Mitch mentioned before, that W2 that we're all so familiar with, and most often in the finance world, that 1099 that we're so familiar with, that tells the government the amounts of money that we should be, at least our starting point of reporting on our tax return. But what they don't have visibility of is all of the digital assets and their movement. And so they've now enforced the policing of this or the reporting of this onto the taxpayer to voluntarily disclose that you are transacting in these digital assets, cryptocurrencies, EFTs, coin tokens, stable coins. I know there's a lot of new trendy words in this arena. Some people don't aren't even familiar with how to acquire or exchange these. Some people only conduct business using these kinds of digital assets. So now the government wants some knowledge as to who has it, how are you using it, and this is just again checks and balances for ways for them to validate that revenue is being reported correctly and that they know where the money movement happens, right? As they always say, follow the money, right? And so that's kind of what they're doing. They're adding another form to the compliance side of things. So no different than you had to issue a 1099 to all of your contractors who work for you. We now have to issue 1099s for any currency or crypto or digital asset exchanges that we've done.

36:30

Now, the one big one in this down on the bottom of this slide, that payment processor. So, this is where it gets pretty tricky, right? That merchant service. So, when we go to the store and we swipe our credit card or our debit card, there's a third party merchant service or payment processor in the middle there who has to actually facilitate collecting from one bank and remitting to another. Well, in that same transaction that who the decision has to be made who is responsible for issuing these 1099DA forms, right? So there is a bit of uncertainty a bit there's a learning curve here with this one. Again, it's the newbie. So whenever we have a newbie, there's always a lot of questions surrounding it. But yeah, starting in 2026, especially in the finance world, this is one of the new players here, this 1099 digital asset. And again, it's to capture all of the activity happening that the IRS and the government doesn't have visibility of basically. Absolutely. And I would say too, you know, I invest in cryptocurrencies myself and I under, you know, I've made it a mission to understand that as you know, part of being an accountant. And, you know, it's something that most people haven't really thought about, when it comes to accounting. So there's, you know, not a lot of exposure in the accounting industry to digital assets.

37:49

So you know, it's something that we've worked with a lot of software on. And really, you need a specific set of software to track digital assets. And so I would say that's the number one thing that people get wrong is just their ability to track it. And really all you need is the right software synced up appropriately to whatever you're doing. And that is essentially how you can, you know, make the most of your digital assets and, you know, still comply with the tax perspective. And, you know, no matter what, I think the tracking of what you're doing digitally with these assets is extremely important. And it's another area that's under the microscope increasingly, and it's changing all the time in terms of the treatment. I can tell you know, within the past four years, we've gotten about three or four different changes both from the bookkeeping standpoint and tax standpoint. And so, you know, it's a new industry and anytime you have a new industry, there's going to be these evolutions of how to treat it and how they're appropriately going to, you know, think about it, especially as more and more institutions get involved as well.

Mitch Petracca38:56

Yeah, I when I love that you called out checks and balances, right, Jennifer? But, you know, so when I think of self-reporting, hold myself accountable, and you know, I have this golf addiction. So, I think like, okay, I'll call the two-stroke penalty on myself. So, hopefully, you know, those dealing with Bitcoin and cryptocurrency are golfers or feel that as way. So, right now, it really is not so much about the I don't want to say lack or absence of enforceability, but it certainly hasn't been remote, you know, solidified in my mind, you know, that it's really enforceable, but it's like it's coming. It's coming. Like it this is for real, you know, and now we got a form for it and it's going to go. So, is that fair or am I, you know, way off on base on just kind of how I you read that? Again, I don't deal in that world along the way, but I love to want to understand it.

Jennifer Moody Stubaus39:44

Yeah, sure. Whenever they want to whenever there's a new forum, they want information and if we don't give it to them, it comes with a penalty. Simply said. Yeah. And speaking of penalties, they're going on that track. I love I love the subline on our next topic here. You know, where audits and transactions break, right? And I don't want to think negative like audits always mean penalty, but I mean holding you accountable, right? Like you said, documentation. But I love that line. They're predictable and preventable. Predict. I mean, I so believe that. I'm a big advocate on the way, right? If you fail to plan, you plan to fail, right? Blah. So I'm so excited to hear your insight.

Mitch Petracca40:26

Yeah, sure. So, as you said, these are predictable and preventable, which means if you take the time on the front side of things and document your recordkeeping properly, reporting saves us a whole lot of headache, extra time, and penalties on the back side of things. Right? So, these topics that you're looking at on the screen have all been touched on during this webinar here. Right? So, we know that if you've got a certificate of authority in a state, you've got to understand what does that mean to you in your tax return, right? Do you have a filing requirement? Mitch covered nexus really well, right? You might be doing business in a state. Did you trigger a filing requirement? That interest expense, right? Is you were in the middle of a due diligence when the law changed? Do we have to remodel and represent to show you what and reforecast so that you know really what that interest deduction is going to look like? It's going to change the dynamics of your financial statements when you have a larger tax deduction versus a smaller one. Right? Those missed state returns. That's an easy oversight. It's a very easy oversight.

Jennifer Moody Stubaus41:32

In fact, I find that as a preparer, as a professional, if we don't ask the right questions, we don't get the right answers. And so we might be asking the same question six different ways and it's so that we can try and get that information from you so that we know what we have to do on our side to keep you compliant. Right? Those payroll footprints, those remote employees, that's a very common work model these days, right? If you've got remote employees, did that trigger nexus? Did that trigger a filing requirement? Besides the payroll taxes, do you have income tax? Are those employees generating revenue for the firm there? And then lastly the R&D again easy enough right so documentation recordkeeping that is your friend that is your best friend when you are in business if your records are in shambles if someone comes knocking on your door and you can't validate or provide the substance behind the deduction it's going to cost you unnecessary money in penalties and fines.

42:35

Yeah, absolutely. And Mitch, I know you have some comments, but Jennifer, just as you said that, you know, I think of like garbage in, garbage out, right? Asking the right questions, you know, prompts with AI, you know. Hey, Claude, tell me X, you know, whatever. Or co-pilot, give me, you know. So, yeah, how good is your prompt? How good are your questions? Are accurate, right? And getting the correct response back. But yeah, absolutely. Yeah. And I would just mention here, I mean, I would just re-emphasize and I'll always re-emphasize to every client the importance of the accurate recordkeeping. And of course, the accountants are telling you to keep your books in order and to have your records be clean, but you know, really it is a compounding issue. So, you know, it's kind of pennywise, pound foolish, you know, so to speak, and that you're going to spend twice as much time in the future trying to figure out what happened, you know, than you were if you were to just keep up with it on a regular basis. And, you know, the compounding effects of penalties and you know, interest charged on the tax side and you know, the lack of visibility from your business side that you have when you don't have accurate financials.

43:45

I mean it is just the root cause of so many issues that we see on a daily basis and it is the number one thing that you know in many different ways we're just pleading to people to fix because really it just you know has such a great effect on everything else downstream right if we don't have good visibility we're not going to be able to help you save taxes because we don't know what's going on. So, it's, you know, really important to everything about your business to have that foundational importance. Even though I know it's not revenue in your bank account, it is something that's going to save you money down the road and probably lead to better visibility, which really will kind of improve your business. And hey by the way when you go to exit your opportunity you know having that clean you know ability to say exactly what's going on and prof you know show the professionalism I can tell you're going to get a much better multiple when you go to sell that asset just from seeing it that professionalism and the ability to really give confidence in what the buyer is acquiring is absolutely paramount.

44:52

So you'll think yourself later there's a reason why every two three-time entrepreneur gets really good at all these things behind the scenes because they realize the importance of it from having learned a bad lesson about this in the past right and so usually it takes people you know a slap on the wrist from the IRS or you know something bad to happen for them to really understand the importance of it. So I would just emphasize that to every single client get ahead of it get your stuff in order and it's only going to help you super. And I just want to say I'm just popping up I'm selfishly, you know, time is whatever. Time is time, right? So, we're going I know we have a couple summary slides. I can't wait for you guys to kind of to go to wrap up, but I don't want to wrap it up. I want to just keep hearing on this because I'm learning so much and there and while there are no specific questions in the Q&A, we have a bunch of, you know, thumbs up and a bunch of clapping hands. So, I know folks are you're crushing it. So, you're crushing on the content side. And I guess I scared everybody off and said, "You're going to get this. You're going to get the handout anyway, but obviously they'll have your contact information as well. So hopefully you'll get some of those directly, but super job. So and on that I love the way you guys kind of did the high, medium, low, you know, on this.

46:10

There's no one perfect thing. Again, I kind of alluded to it when we kicked off like everything's important, but again, you know, we have to be able to prioritize some way. So, I really appreciated why you put this together and I'd love you to spend a couple minutes walking us through maybe to understand why perhaps you prioritize it accordingly. Yeah, sure. So, the one big beautiful bill is the elephant in the room this year, right? So, this is the one with that got everyone's attention, all the new deductions. We should see some nice, you know, tax savings really come forth and as Mitch said, stimulate the economy starting, you know, soon enough here once the traction picks up and the returns start flowing. So yeah, big changes there. Documentation is going to be key. So with any change, documentation, we can't stress that enough. Garbage in, garbage out, and due diligence is critical with documentation. The differences between the state and the federal. Again, if federal is one thing, states is a different. You may live in one state but do business in eight states.

47:17

You've got to know what's going on the federal level and all states that you're operating in. It's not just the feds or the one state that you're living in. And if you're fortunate enough to live in one of the seven states that don't have an individual income tax return, it doesn't preclude you from any filing requirements if you're doing business in a state that does have income. Right? So that federal and state divergence big deal the workforce mobility payroll again work remote workforce ties next we've got nexus now we've got a aortionment issues here that we have to spread across multiple states triggering tax. So yes those three high top ones could imp have major tax implications and or penalties for not complying correctly. That medium level doesn't have doesn't hit as many taxpayers. So that corporate AMT, you know, billion dollars in revenue. So it's really targeting or I that target audience is fairly small in the scheme of things. Same thing on the OC OECD pillar 2 exposure. Again, multinational group, so a very narrow group of people who that's going to be affecting. So the risk isn't so large. It's a little bit isolated and more identifiable if you're in that bucket. Expiring energy incentives. So, if that was a really big deal from the last administration, that's kind of sunsetting pretty quickly here at the end of the year.

48:41

So, if you missed out on those energy incentives, there's not much left going forward for you. That kind of is sunsetting at this point. And then obviously the IRS delays, as Mitch said. Yeah. So, they're getting much smarter on the computer side of things, but on the human side of things, much slower. So yes, those are how we feel that they should be ranked in order of priority just by who the target audience is and who they're hitting there. But again, it depends on your individual footprint, right? Depends on your individual tax, you know, perspective and what you're doing, right? Are you more real estate focused? Are you more business focused? Are you high net worth? Are you lower? Like there are ways that this bill affects everyone and it just depends exactly how we can, you know, which levers to pull and you know what your exposure is in terms of risk and you know where to pay more attention to depends on your unique situation. Outstanding. Yeah. I am convinced the IRS is plugged right into my phone and is listening to me right now. So I only say nice wonderful things about the fantastic people and all their brilliant policies at the IRS. Thank you. Please do not audit me. So, that's just my paranoia, not yours. But, nonetheless, that's good. Yeah. Nonetheless, yeah, I know, you know, again, adults don't like to be read to.

50:00

I know folks will be able to read on this, but I love this. You took something extremely complex to this pointy head. I'm not in this realm. I appreciate it. I work, you know, our clients certainly do are in the realm for it, so to speak, but me personally. And I always find that is the biggest, the best compliment to give when you can kind of teach somebody new or create the awareness. It's really it wasn't so much you taught me something new or taught us, but you heightened my awareness to know like if I were in that shoe, you know, their shoes, this is what I really should be paying attention to. And you gave me some really good questions to ask, specific ones, making it sound that I didn't even have to go to chat GBT for, you know, because I got them from Mitch and Jennifer. So, that's even better. But I just wanted to give you my comments on that and just see if there's any of the one of these that you wanted to call out. And I hate to say it, but I mean, you know, I'll wrap up along the way. This is our time, but kind of the kind of closure type of thing. Parting thoughts? No, I guess no one wanted free tax advice. No questions. I'm surprised. I mean, you know, it's pretty that's pretty good. We've got a decent billable rate. So, you know, if anyone wants to take advantage last second, let us know. But, you know, happy to help.

51:16

And obviously look at anyone's individual tax situation. That's really what we're here for is to, you know, work with you across growing your portfolio. And, you know, we really pride ourselves in having the continuity amongst our team to be able to help with all these things, right? Whether it's getting your books in order, which helps tax, which helps your sales, you know, of your business and, you know, acquiring more, it all works together and it's really important to have that under one roof. And, you know, we can help with all of that. If not, we're kind of back office quarterbacks and we know who to give you off to. So, you know, we really pride ourselves in just adding value to all our clients. And you know really excited to just continue to add value to the network and support people as they grow so that they can do what they do best and not have to think about, you know, this stuff that they don't want to think about.

Mitch Petracca52:05

Yeah, thank you so much. And Jennifer, I think I maybe have stepped in you, but again, I, you know, as head of partnerships, you know, and on behalf of Cornerstone Licensing, I just can't thank you enough for being such a steward to us. And I know that reciprocity along the way, but it's fun having that connection, but doing this and even getting the detail of it, which takes time, which means you prepared before this, so you took a lot of time to get together. We are so grateful for benefit from it and so thank you everyone. And I, you know, obviously we're on the finish slide with it. They'll know how to get in touch with you. We know how to get them in touch with you. We will be blatantly, you know, resending this throughout the LinkedIn social media world because we just believe it so much. So great, thank you. Thank you both. So nice to meet you. I look forward to, again, I know we haven't met in person yet, but I will say yet. But thank you so much for your time and it's been a pleasure working with you.

Jennifer Moody Stubaus53:01

Enjoyed it. Our pleasure. Thank you very much for having us. All right. Thanks everybody. Your day. Thank you. Take care. Bye.