In today’s episode we are joined by our CEO and Co-founder, Jody Grunden andour Director of Tax, Dave Danic to talk about the tax lessons we learned this season. Although, there is always something to learn every tax season, this year was especially impactful. We will be having an in-depth discussion about challenges the team faced internally and solutions that helped overcome them.
“Building a team that is eager to dive into some of these multi-state tax issues is one of our lessons”- Dave Danic
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Jamie Nau: Hello and welcome to today's podcast. First, it wouldn't it be a great podcast without starting with Jody’s awesome new microphone. Jody isn't normally on this podcast, so I want to introduce him. He is our founder and Co-Owner. So, Jody, welcome to the show. Let’s talk a little about your microphone.
Jody Grunden: Yeah, thanks. I appreciate that. I got my new my new prized possession here. It's the Yeti Blue. I was getting tired of the headsets. So, I thought I would invest a little and get a podcast microphone. So now I have that and it's working well, at least I hope it is out there. So definitely good investment for sure.
Jamie Nau: So, for those that are listening to audio only, it looks really cool. You can follow us on our YouTube account and check out Jody’s microphone. So now that we got that out of the way. Let's talk about today's topic. We are joined once again by Dave Danic, who is our awesome Director of Tax. We have had him on the podcasts before. He has been pretty busy these last five months we brought him back now that tax season is officially over. We're excited to talk to him about some of the lessons we learned during this tax season. So welcome to the show, Dave.
Dave Danic: Yeah, thanks for having me back, Jamie. And that's the first lesson that you brought up that you couldn't talk to me for five months. I remember when it used to be three and a half months of tax season. Last year it went to July 15. This year, it went to May 15th. And it's been an 18 month stretch for all the tax nerds out there. So, if you're listening and you are one of those tax nerds, I hear you. I feel you. It's been a rough go at it. So, take a break, you know, take a deep breath. People have been relying on us for a lot of these changes. It's been hard. The work will always be here. So, again, take a break and we'll have a busy summer ahead.
Jamie Nau: Doing anything fun for your break Dave?
Dave Danic: Yeah, of course. Well, we've got a company retreat, which is going to be really cool one. That's going to be huge. Other than just a lot of baseball. So that's great for our family and for me. I love Summer. That's why I became a tax accountant, because I love summer. I love being on the lake. But then tax season ends in July.
Jamie Nau: Did you say baseball? You're not playing baseball, right?
Dave Danic: Oh, no. I am the esteemed manager of the of the tee ball and the rookie leaguers. So, it is a little brutal at times. But we're getting to an age where the game is becoming much more exciting.
Jamie Nau: I was going to say it's pretty fun now because I think for the last five years, Dave and I have worked together and I'm constantly talking about my boys’ basketball team. I could see him start to nod off. And now he's a little more interested in those conversations than he used to be. So that's the first lesson learned, take some time off. Relax. I think a lot of tax CPAs know that out there in the world. But let's talk about lessons learned, especially specific for companies that, you know, we're giving guidance to and the ones that are really looking to be more in this VCFO space.
Jody Grunden: Before you do that, can give a recap of how many tax returns we actually do so that can give kind of some color to your answer?
Dave Danic: We are at about 700 returns. The mix is about 250 corporate partnerships, and then the rest are individuals. I would say of that 700 about 65 percent of them are related to our VCFO clients and the other ones are more from the standalone returns from our legacy clients, that we would call them, that we still do their individual.
Jody Grunden: How many multi-state returns do we do roughly?
Dave Danic: I would say about half of them are becoming multi-state, and that certainly is one of the lessons that we're learning is that once the pandemic hit, everyone's remote now and their teams are remote. So, the nexus is becoming so much more important from the staffing side of things. And then also, you know, then our clients’ customers are saying they can grow their net to be more multi-state, even from a sales perspective. So, the nexus is becoming a huge issue on the multi-state side. Jody, you remember when we were just in Indiana, you started becoming pretty good at Indiana business taxes and, you know, the Indiana tax code pretty well, now our clients are all over the US. So, we might now know Oklahoma tax rules as much as we should. So, building a team that is eager to dive into some of these state tax issues is a lesson. Building out a better a bigger tax team. I have to be ready when I'm interviewing people, I have to be candid with them and say you're going to be exposed to some things that might make you feel uncomfortable that you've never had to do before. But you have to be ready to dive in and get their elbows dirty by diving into some of the state tax code. That for tax professionals is going to be a new reality that you're going to be pressed on. Looking at multi-state of the issue.
Jamie Nau: I think on that point, too, I think it's important for our listeners to know how our tax department is set up. To David's point, we do tax returns for our clients if they want us to, as well as for the owners of those clients. But those tax returns are not done by our VCFOs and not done by our accountants anymore. So that's a change we made a couple of years ago. Which I think that's one of the complexities you saw this year, Dave. In the past, you know, we had one accountant working on eight or nine accounts and responsible for their taxes, and they could dig into those things a little bit more. And now, obviously, it's a bigger team on your side, having to dig across states, across borders, doing all that stuff. I think the other important thing to note is, you know, not all accountants understand taxes. You know, even when I was a CFO, my tax experience is very, very limited, as it was in some states. So has a lot more fallen on your team?
Dave Danic: This was a multiyear lesson. But when we first started going into the VCFO level services and expanding our VCFO team, we wanted to educate or have our VCFOs be educated in tax because it just comes up naturally in those conversations. A lot of business decisions need to have the tax ramifications measured. So, we wanted our VCFOs to say, hey, in these meetings where we pivot to taxes, we want you to have some base knowledge. In my opinion, the best way to get some tax knowledge is to make a mistake on the tax return. And when you're preparing it for the first time, then have someone teach you. Well, that was terrible for efficiency. I was spending my time teaching six different people on tax software that they were not used to using tax forms that they were not used. So, we had to pivot to build the tax team out to be the ones preparing the return. And that's our next ship is building out that manager level, that is going to be the assistant to the VCFO from a tax perspective. And they are going to own the relationship. Then as tax director, for more of the strategic thinking, move the director or some other team members on that. A great lesson learned is that we've had to be flexible on how we structure, how we're doing our returns, and it's going to change again this year. So, flexibility is totally a part of our M.O. here.
Jody Grunden: So really quick, you kind of hinted to this a little bit, you mentioned tax manager. What does our tax manager do?
Dave Danic: Our tax manager is going to be the one that owns the relationship from a tax perspective for our VCFO clients. That means meeting with the client on a quarterly basis to ensure that estimated tax payments are made, tax registrations are in order. And then as the tax planning season ramps up, they're going to be the one to work with the VCFO to say this is what's happened this year to ensure that we're ready for any planning scenarios coming up this year. And then they work with our staff tax team members on the preparation side, doing the first level of review, technical review, and then we have the analytical review on top of that from our director level. Then communicate results to the client and then their client.
Jody Grunden: So, it's truly a client facing position. They are meeting with the VCFO, they're also delivering the news with the hard tax planners in the fourth quarter, with the VCFO clients, that type of thing. They're involved in those meetings?
Dave Danic: Yeah, I would like them in those in these meetings. You know, our VCFOs are exposed to a lot of issues that they need to handle with their team. I think it's okay that the client is exposed to one more person on the Summit side that just says, hey, I'm your point of contact for tax matters, because half the time or more than half the time, if a client goes to the VCFO to say hey, I got this tax notice what…is the VCFO going to do? They just pass it off to the tax manager or the tax director. So, let's cut the middle person out.
Jody Grunden: So, do you actually have the tax manager involved in the onboarding then, to get to know the client from the very beginning, or is that not the case?
Dave Danic: So far, they have not been a part of that, but they will be going forward as we grow out. Just we've had capacity issues. We're building the tax manager position right now. That's why we're hiring another tax manager. I want to say we have it all figured out. We are learning.
Jody Grunden: So, we are looking for a tax manager right now?
Dave Danic: Absolutely. Yes, we are. So, if any listeners are out there that are eager to work for us, in my opinion, a really cool company and that is eager to learn check us out.
Jamie Nau: Check out our website. The application process is pretty, pretty thorough. We want to make sure we get the right people in the door. So, it's not just a give me your name, but a lot of other stuff that goes with it. But we are definitely looking for a great tax manager to join Dave’s team. I know from the VCFO side, when we made this first shift that we talked about earlier where our VCFOs are responsible for those relationships and those returns moving. The tax team was a big relief. I think bringing in this additional tax manager who can handle the relationship is a relief for them as well.
Jody Grunden: How many hours does typical tax manager work during the season?
Dave Danic: 55 hours is what we're projecting our managers to work. The one manager we did have was around that time frame. I can't be totally naive and say, hey, we're not like any other accounting firm that has a busy season. No, we have a busy season because we have a set amount of work in a compressed amount of time. So, there is some work, and it's not the easy.
Jody Grunden: Yeah, my wife hated me during tax season.
All: Laughing [in audible]
Jamie Nau: What else led us to the decision to hire a new tax manager other than just capacity? Are there any other things we saw from the people front that we really needed help with?
Dave Danic: On the people front, I think a lot of people listening are going to recognize this. There's so much education that we have to give to our team. Every economic incentive that has gone through over the past 18 months with the CARES Act has been related to taxes. PPP, our VCFO teams did an excellent job on prepping those applications. Then on the forgiveness front, waiting to see how states were going to react on how you tax the forgiveness. That delayed a ton of our returns this year, which created some inefficiencies. We had to educate our team to say hey, this client is in California. How's California dealing with tax forgiveness? Can you look into that for me? Well, I've never been to California. We had to do a little bit of research. So that was a difficulty on just getting the team educated on how everything was going to play in. And then the next element is now with these ERC credits that are coming through. People think tax, it is as a tax credit. Well, no, it's a payroll tax credit. You know, like we don't process payroll tax returns. A payroll provider does. But they're coming back to our team and the VCFO team to say, can you run these calculations? Don’t you file this as a payroll tax return? No, we don’t touch those. So, working out how to most efficiently get those amendments done and then just diving into those regulations to best serve our clients. And it's just a whole new ball game of tax law that we felt like we just finished grasping the concepts of the Tax Cuts and Jobs Act in 2012. Then COVID hit. Then everyone was hit by pandemic a different way. The tax accountants, we got hit in our in our lovely way, so we dealt with it. We served our clients well. But man, it was a lot of education we had to go through.
Jody Grunden: With that ERC credit. Are we doing those in house or farm those out now?
Dave Danic: We're going to refer a lot of the work out. You know, we just spent first half of this podcast saying how we're trying to grow our tax department. Capacity is limited right now. So, we have some partners that are doing the calculations for our team, and we feel that's how our clients are best served on it.
Jamie Nau: I think the other thing I've noticed from the from the VCFO front again, when started offering that service, one of the nice parts of it offering and the reason that a lot of clients end up adding us for tax services because we have so many touches, like we're talking to clients every week for most of our clients, you know, if not every week, every other week. And so, you know, it just makes sense for us to do the taxes. I think not having enough people helps the communication breakdown a little bit there, both to the clients and to our internal team. And so, you know, if I'm going to call the client as a VCFO and one of the things I'm saying is, hey, we're on top of your taxes because we're talking to you every week. So, by adding this extra tax person, it's going to help us be better communicators when it comes to tax, because we're going to have someone to reach out.
Dave Danic: Yeah, I agree. It's a blend of a lot of different tools, people tools. And then also last summer working with our I.T. or when we were building out our reporting tool to say, hey, let's have something flash in front of the client each month that says this is what your projected taxable income is going to be. I think was a really good move on our part. Just to say, hey, even if it's June, it's not perfect. But here's what we're seeing based upon what's happened and what year we're working on your forecast, which is, you know, forecasting is our peak tool. So, if this is how you feel, this is how this year is going to go, here is that tax impact.
Jody Grunden: I think that is huge cause you're really kind of getting the client used to say, yeah, I'm making money. So, here's the tax situation I'm going to be in versus I'm making money and the end of the year no one told me what I would be paying in tax. But were there any surprises from clients this year or did everything pretty much fall in line with how we had forecast to their tax situation?
Dave Danic: Well, there's always surprises, you know, you always want to do things perfectly, I would say we had a lot fewer surprises this year. I think our hustle certainly started in the last two weeks of December. That was where we were working with the VCFOs saying, please tell us if there's any huge deposits coming in. You know, like sometimes you can't help it, you know. A client says I received this big payment from our largest customer on December 28. Well, we can only be flexible from there
All: Laughing [in audible]
Dave Danic: So, with our reporting we're really focusing on saying okay, what do we think the year end income statement is going to look like? But not only that, the balance sheet. I think that's probably one of the reasons we've had less surprises as well as we've really shifted to talking about that plan and telling the client.
Jamie Nau: Yeah, I've certainly seen improvement on our service level, just talking about it, because it's easy to forecast that. So, we're almost at the end of this episode here, so I want to throw our email address out there. We're always looking for topics, and guests, so make sure you email us at: cpa@summitcpa.net. So final thoughts. I'm going to start with you, Dave. Any final thoughts on the lessons from this tax season?
Dave Danic: Well, we survived, and I think we thrived, actually, so I'm excited for the summer to kind of plan for next year's. It sounds like we're going have a new tax code. So, you know, you rinse and repeat. So, if anyone knows what capital gains rates are going to be this year, let me know. It will make our jobs a lot easier. We had a little tax season celebration with our team, and I'm just going to publicly throw it out there, just really appreciate our tax team and for all the hard work.
Jody Grunden: Kudos to the team for sure. I think the big learning lesson that we had is just kind of on what the team can handle and the capacity. What to push hard on, what not to push hard on. And in light of that, we're able to bring another team member on, hopefully here within the next month or so to add to our tax team. So, we would have two tax managers as opposed to just the one at the moment who is doing a phenomenal job. But everybody has their limits. We're going to make sure that we respect that. So, I think that was a huge, huge learn that we had. I think every tax season we're going to learn something new because we're a completely virtual team. A lot of our client’s tax codes are changing all the time in switching to remote, and we just want to make sure ahead of it. One of the big things Dave instituted was the soft tax planner, which we talked about, coupled with a higher tax plan in the quarter. I think it really gives a lot of insight and brings taxes to the forefront. So, people really understand why they're paying something. And that's all people want to, and how they are going to afford it. That's where the forecasting comes into play and setting money aside to pay for it, so they don't spend it, not realizing it. So, I think we've learned a lot of lessons over the years.
Jamie Nau: Definitely agree. So, Jody did 10 tax returns. I did zero. So that's always good news for me, although I think that's a good thing for our clients.
All: Laughing [in audible]
Jamie Nau: Dave, I appreciate you joining the show. Great topic, thanks!