Accountants in Nevada have been busy this tax season. Whether struggling with changes in tax laws or dealing with a shaky economy for their clients, CPA’s are busier than ever keeping up with the changing times. Recently, executives representing various accounting firms throughout the state met at the Las Vegas offices of Snell & Wilmer to discuss these issues and the future of Nevada’s accounting industry.
Connie Brennan, publisher of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.
Do you feel the economy has improved?
Daniel Gerety: Areas of the economy have come back, especially locally, however we’re still not even close with the construction jobs and we’ll probably never recover from that. There are a couple new casinos coming up, and we’ve seen housing come up a little bit, but it’s no where close to where it was. It’s stabilized and stabilization is good. I see us moving forward.
Mike Bosma: It’s the have’s and the have not’s. People that have capital are doing great, they’re growing and acquiring, but without capital they’re languishing.
Curt Anderson: I get the feeling that we’ve bottomed out in Nevada, but where are we on the uptick? I’m cautiously optimistic about the uptick, but it’s spotty. A lot of our clients that were in the real estate industry, particularly, have a lot of loans that were underwater or a lot of renegotiations that were going on and a lot of debt discharges they had to deal with. You can’t be thinking about how to go out and make money to grow when you have a lot of alligators chopping at you that you have to deal with.
Kirk Jacobson: We represent a large number of auto dealers and they’re having a record breaking year. People are back in the market buying cars and there are some signs of good economy. I agree with Dan [Gerety] that construction is going to be a long time coming.
Harry Parsons: What we’re seeing in the North is the investors are coming and buying a lot of the homes. You can’t find a home in the $200,000 range anymore in Reno. When the investors move in and start doing that, it’s a sign that we’ve bottomed out and they’re there, but I don’t know how long it’s going to take to sweep up.
Bob Anderson: We’re seeing more people and companies looking at Nevada and thinking about coming here. They’re kicking the tires and being serious about it. They’re beginning to sense that we’re off the bottom, as Curt [Anderson] said. That’s a good indicator of people wanting to be here and that things nationally, along with Nevada, are coming back.
Leland Pace: We’ve certainly seen a lot of improvement in the amount of consulting services that are being requested. That was the big drop off, when the economy turned and it was an optional activity. Everyone said, “Okay, we’re just going back to strict compliance because we’ve got to have a tax return.” Another thing we’re seeing a lot of pickup in is the merger and acquisition activity. People that are looking for opportunities to exit are wondering, what do I have to do now to exit in the next few years? They’re seeing the economy coming back, and they want to start structuring now. They had planned to retire in 2009 or 2010 and couldn’t. Now, they’re trying to structure things so when they feel the opportunity is right they’ll be ready to sell. There are a lot of consulting activities going on right now with business succession and exit strategies.
What effects of new tax laws are your customers seeing?
Bob Anderson: The wealthy continue to be targeted. There’s a code section that has to do with tax differred exchanges of real property and sections like that are going to be targeted. Since it impacts the wealthy, it’s going to be an easy thing to target. We’ve just got to worry about that.
Curt Anderson: The disposable income is going down, from a standpoint. These tax increases, strictly if you’re an investor, we’re already starting to see. I have a client where the tax for 2012 was $625,000, so it’s obviously not a poor person, but that same income taxed with the ObamaCare add on saw an increase of tax that went to $750,000. It was a $130,000 increase on the same level of income. Right there is a 20 percent increase in tax with no change in income.
Gerety: That’s why we’re setting up meetings with our clients, especially ones that have a lot of their businesses in trusts. Maybe those trusts are paying the taxes, but those trusts hit the top 39.6 rate real quick at $12,000. An individual doesn’t hit it until $500,000 of taxable income. There’s a big gap, whereas before, everyone was at the 35 percent rate and we wanted the money to stay in trusts where they’re asset protected and it’s out of their estates. Now, we need to start planning to distribute that income to play with the tax brackets. It’s a bad business decision. So, we’re not making necessarily the best business decisions to try to lower the overall rate for our clients.
How are your clients keeping up with the tax increases?
Curt Anderson: You have to look at their operating structure. I had a home builder who operates through LLC’s and [with] those LLC’s, the way he structured them, he would be hit with the 3.8 add on for active income. We’re looking at remodifying the whole thing and trying to work them into S Corps in a way that allows him to have the income without the add on tax. There is a lot of reconstructuring.
Gerety: That is exactly right. Now, all of a sudden that’s not necessarily the best choice of entity because LLC’s are more flexible, but there’s a tax difference. We have to go back to what we were doing before LLC’s. You have to weigh how much it’s going to cost you tax wise.
Piercy: It’s not just the federal [increases], but it’s also the states that are going on around you. For example, if you had an LLC in California, [even] if you had no income at all, it’s $800. You have to be looking at where your businesses are operating and what kind of state returns are in place. You can make no money in a state and still end up paying a tax simply because they’re trying to raise revenue too.
Is the accounting industry facing staffing challenges?
Jason Griffith: Finding qualified people [is a challenge]. They’re out there, but most of them already have a job. If you put out an ad for a position, you’ll get 100 resumes, but 50 won’t even be for the correct job or 30 of them will have misspellings on it. You’ll maybe get it down to two or three interviews. It’s [challenging to] find the right people who fit within the culture of your firm and what you do. Someone [who] is ingrained in doing a certain business line may not work well with your existing business line or culture base.
Curt Anderson: It’s one thing to bring in additional owners of the business, but bringing in what I would call, a true partner in a business is a little more difficult. A person that really brings that value added, thinks like an owner and has your back is harder to find. Entrepreneurial spirit in our industry is difficult to find. It takes a while to develop these people and find out what they’re made of. We have a specific process in our firm and we’ve already retired out two partners. We have a pretty well established process of valuing the firm and working new partners in and out, but it’s still hard to find good candidates, it’s not easy.
Piercy: Your employees are your only asset, and there are a lot of ways to invest in them. You can go out and find them and bring them into the firm, or you can development them from entry level on up. There are advantages to both; the reality is, you have to do a little bit of both to prevent all of the inbreeding. Most of our dollars are spent making sure our people are top notch.
Parsons: There’s a thing we implemented in Reno where we go to the University of Nevada and do the internship program. The last four or five CPAs that we’ve had have come up through the intern program. They get a chance to look at us and we get a chance to look at them, so when we make them an offer we know what we’re looking at. It works out really well for everybody. Two [employees] that we just made partners had come through the internship program.
Dianna Russo: Some of our staffing challenges are the environment that we put people in. We lose good people in our profession because they’re worked too hard. A lot of them say they have to travel too much. We really don’t sit down and say, “Okay, is it more important to keep somebody, or is it more important to get 65-hours a week out of them?” As a profession, we haven’t sat down and said, “It’s important to keep these good people because we lose good ones to industries where they don’t have to work that amount of time or they want family or flex time.” We really don’t address that well as a overall profession.
How competitive is the industry?
Piercy: You’re competitive from the standpoint that perspective clients are requesting proposals from multiple firms. You have to be competitive there in terms of price, and you usually win based on your experience and qualifications. From that standpoint, we’re competitive, but I don’t look around the table and think, “Oh, I’m competitive with that guy.” There’s more cooperation amongst the firms.
Nikki Kirkhouse: The firms do work together. There are three firms that do work for us in audit work, specialized compliant and tax work. They don’t necessarily work collaborately within the company, but they all have a very amicable and cooperative relationship.
Bosma: From a client’s perspective, it’s best if [CPA firms] are working collaborately. We have eight or nine other CPA firms that we have a regular billing arrangement with that we do special consulting work with. Working collaborately, you’re creating a joint vision for whatever project needs to be done.
Gerety: There are also certain levels of expertise that we can’t all handle. If it’s an international thing, I’m going to bounce it off an international tax specialist that I don’t have in my office. I’m a client of McGladrey’s and they bill me for their international tax work and vice versa. I’ve actually billed them for work. If it’s an estate tax issue, other CPA’s will bring that to me. We’re working together, but I’m not trying to steal their client. We work together until the client’s needs are met.
Michael Mehr: I don’t do any financial statements, audits, reviews or compilation so I refer all that out. Any larger projects, as well as, an international situation, I referred out. State and local taxation in other states is one of the biggest issues that our clients are facing if they do anything outside the Las Vegas valley. The reverse has also been true for me, as well. I’ve gotten a lot of referrals for the QuickBooks and the consulting side of things that keeps me busy throughout the year when we’re not doing tax returns.
Where do you see the economy headed as we move forward?
Bob Anderson: It’s going to be better, but I don’t think it will be as great as it was. The clients are going to be understanding for the need of fees to go up if that’s what is warranted in the circumstances.
Leland Pace: Things will be better next year. I agree with Bob [Anderson] that we’re not going to get back to where we were very quickly, as far as the energy and growth curb that was going on.
Griffith: It will be better as the clients are starting to be more aggressive and do more investments. They’re going to be growing bigger and they’ll need more services. [We’re] helping them grow by giving them advice and figuring out what they want to do, which is reverse engineering from what they need to do now. Helping them get on track is going to trickle down everywhere.
Gerety: One thing that tells me the economy is starting to bounce back is that the mergers and acquisitions have really picked up in the last 12 months. That’s what’s telling me that everything is starting to click again. We’re doing more transactional work and that transactional work stopped when the recession hit.