As tax season ramps ups, accountants will work overtime to ensure complex tax documents – which the Internal Revenue Service claims can be filed by anyone with an 8th-grade reading level – are properly filed.
This special report looks at up-and-comers in the industry: those who chose the partner track and broadened the client base for firms with deep roots in the area.
Los Angeles-based accounting workloads may also overflow from steep budgetary demands as the city’s entertainment industry digs out of last year’s prolonged strikes. Coupled with the broader economic headwinds of tighter capital costs and rapid inflation, those crunching the numbers for blockbusters slated for 2025 or the updated residual payouts have their work cut out for them.
Dealing With Skepticism
Matt Segal is a business manager with more than 15 years of experience in the entertainment industry working with athletes, entertainers and high-net-worth individuals at the Westwood-based NKSFB, the largest independent accounting firm headquartered in Los Angeles and one of the most prominent Hollywood firms. Responsibilities under his purview include budgeting and projecting expenses, tax planning, estate planning and insurance reviews. Segal was also a part of the group of principals who sued the firm’s parent company, Focus Financial Partners, last year, challenging a noncompete clause in their contracts.
Pressure to reduce costs amid stubborn inflation and rising interest rates was high last year. As macroeconomic conditions teeter towards recovery this year, how are clients pivoting priorities?
Most clients are still very skeptical of the economy and the markets. Very conservative investment processes are in place for most clients as they watch the performance of the economy and wait to see interest rates drop.
Clients’ primary source of income can be impacted significantly and quickly amid a market downturn. How have you seen clients diversify their revenue streams?
Our clients were directly impacted by the entertainment industry strikes, as well as rising interest rates. We continue to advise clients to be diligent on their spending and always ask the question, ‘Do I need to spend these funds for this item?’ Clients in cash-flowing investments have generally not seen any material change in that cash so far to date.
What do you tell your clients to pass on in terms of investments right now?
We are advising clients to be very careful and selective in the venture capital space and the private equity space. With interest rates so high and the cost of capital so expensive, we believe growing businesses that will need to borrow will be challenged for sure.
As we enter tax season, what are the notable new tax provisions businesses should consider before filing in April?
2024 business tax provisions hold some significant changes and some other possible significant changes. The most notable is a possible increase in the maximum tax rate from 21% to 28%. Also, for special bonus-depreciation allowance, this benefit has dropped from 100% to 60% in year one. Another area that seems to be heavily supported by the government is Solar Tax Credits. It’s very clear now that the government is encouraging this kind of energy use and will be doing this in the future, too, due to its low cost to provide. We spend a great deal of time informing our clients of these kinds of changes and adjusting planning to be tax efficient with these changes.
How are you finding and retaining new talent as the number of U.S. accounting grads continues to drop?
Actually, for our business, the employment market has substantially improved. With the decrease in complete remote working opportunities, more employees are in the marketplace, and it has become easier over the last 12 months to hire talented people.
An Emphasis on Using AI
Ryan Richter is a managing director in KPMG’s business tax and credit services for Los Angeles. He has extensive experience with research and development tax credits at both the state and federal level and serves as a tax technical expert in the incentives space within KPMG’s auditing practice. From Fortune 500 clients to startups, Richter has achieved high qualified research expense claim rates.
Pressure to reduce costs amid stubborn inflation and rising interest rates was high last year. As macroeconomic conditions teeter towards recovery this year, how are clients pivoting priorities?
Clients are navigating a U.S. economy that has entered a time of compound volatility: the combination of disruptive risks to growth and structural changes, from inflation to a shifting labor market, raise the cost of doing business with little margin for error on strategy development and execution. Each client has its own unique goals and objectives, and we’re helping our clients achieve their long-term growth ambitions in this challenging environment.
How are you finding and retaining new talent as the number of U.S. accounting grads continues to drop?
Building the talent pipeline is our top priority and we are spearheading a number of initiatives across the firm to address this challenge. Efforts include removing barriers to passing the CPA exam; incorporating AI to enable focusing on more interesting and challenging work; and expanding the pipeline of diverse talent entering the profession. In addition, KPMG is working with many others in the profession to develop programs to build a larger and more diverse pipeline of future accounting professionals.
Are you exploring how generative AI could impact auditing or financial advisory at scale? Why or why not?
AI offers tremendous opportunities and is fundamentally transforming business models as we know them today. In May 2023, KPMG announced a new initiative to deploy a series of generative AI investments to reimagine how we work, to create value for our clients and mitigate risks. At KPMG, we consider ourselves to be “client zero” and are deploying AI capabilities to both client-facing and business-support teams, with security and responsibility at the forefront of our efforts. For example, in audit, we have deployed AI solutions across more than 3,000 audits globally to improve risk assessments. In tax we continue to leverage IBM Watson and other AI tools to accelerate historically time-consuming value-add workflows. For clients across all pillars of our business, we are helping to create and deploy solution-oriented strategies grounded in accountability and transparency.
As we enter tax season, what are the notable new tax provisions businesses should consider before filing in April?
Businesses will have to consider the increasingly complex tax legislative and regulatory environment, including the compliance burden of new ESG transparency requirements and compliance with the Inflation Reduction Act and additional potential changes on the horizon with the Tax Relief for American Families and Workers Act of 2024 legislative proposal. What’s more, Pillar Two – also known as the global minimum tax – went into effect at the start of 2024 and has already started to impact many in-scope companies. Looking ahead beyond the filing deadline and to the end of 2024-beginning of 2025, the soon-expiring tax provisions from the Tax Cuts and Jobs Act are also expected to have sweeping impacts on individuals and corporations alike.
A Network of New Talent
Annette Hovsepian works as a tax principal for Sawtelle-based Holthouse Carlin & Van Trigt, dealing with tax deductions for high-net-worth clients, private companies, private equity investors and portfolio companies. She also sits on the firm’s merger and acquisition tax advisory service, ensuring deals’ follow federal, state, local and international rules. Hovsepian is a Deloitte alumna, where she served as the individual income tax competency lead for Los Angeles.
Pressure to reduce costs amid stubborn inflation and rising interest rates was high last year. As macroeconomic conditions teeter towards recovery this year, how are clients pivoting priorities?
Many of my clients are starting to consider asset acquisitions and how to structure them. Some are also thinking about tax deferral/minimization strategies upon exit like Qualified Opportunity Zone Funds and solar energy projects and the related tax credits available.
Are you exploring how generative AI could impact auditing or financial advisory at scale? Why or why not?
Yes, because many of my clients are. To stay relevant, public accounting firms need to be as well. It is part of the accounting and tax narrative now.
How are you finding and retaining new talent as the number of U.S. accounting grads continues to drop?
Retaining and finding new talent is always a top priority. Coming from one of the Big Four accounting firms, I participate and have a strong alumni network that has been beneficial in introducing HCVT to many professionals who are seeking a boutique firm public accounting experience but still want the opportunity to work on diverse, interesting, and professionally challenging client work. In addition, I am active at my alma mater and start the conversation about the robust career opportunities in public accounting with students at the freshman level.
Clients’ primary source of income can be impacted significantly and quickly amid a market downturn. How have you seen clients diversify their revenue streams?
I haven’t necessarily seen clients diversify their revenue streams as much as I have seen them change and tighten variable spending behaviors. In addition, due to the higher interest rate environment we have been in, many clients pushed off on material capital expenditure spending and significant real-estate acquisitions.
As we enter tax season, what are the notable new tax provisions businesses should consider before filing in April?
The 2023 tax year is the first year that the bonus depreciation phase-out begins and businesses can now write-off up to 80% vs. 100% of the purchase price of a qualifying assets.
‘Splurging’ For Success
Tasos Yiangou heads the audit services division for the Southern California technology, media and entertainment industry practice as partner. RSM is a professional services network focused on the middle market with a global reach of more than 120 countries. Yiangou also oversees the Southern California United Kingdom desk, which facilitates communication between the U.S. firms and RSM UK outlets.
What is a business splurge that you support with a return that may not be immediately obvious for businesses?
As a partner with a focus on the tech sector, I advocate for strategic investments that may initially appear as a ‘splurge’ but yield substantial returns, not immediately apparent. A key splurge I endorse is investing in cutting-edge technology. This perspective aligns with insights from our 2023 Middle Market Business Index Digital Transformation Special Report, which surveyed 404 executives between April 3-24, 2023.
While the upfront cost may seem substantial, the survey underscores the significance of digital transformation, with 77% planning increased information technology budgets in 2024. This strategic investment positions businesses to thrive in the digital era, encompassing enhancements to IT infrastructure, fortification of cybersecurity and embracing emerging technologies.
This apparent splurge ensures long-term resilience, efficiency and a competitive edge. In the tech sector, especially for mature companies, achieving operational maturity necessitates a focused approach. Defined business policies, strategic automation and streamlined customer processes become pivotal factors. Implementing cross-functional processes becomes imperative for ensuring a seamless customer journey.
Are you exploring how generative AI could impact auditing or financial advisory at scale? Why or why not?
RSM closely monitors the transformative potential of generative AI and its implications, guided by insights from our experts. We have begun the process of using AI in several applications and audits specifically. It has shown great success in our preliminary stage of application, and we look to gain further success as we roll it out in further applications. Our emphasis is on ease of use for our people and improved client service, underscoring the importance of developing a framework for the digital transformation journey to avoid wasted effort.
As we enter tax season, what are the notable new tax provisions businesses should consider before filing in April?
As we dive into tax season, it’s essential for businesses to stay informed about key tax provisions proposed in the Tax Relief for American Families and Workers Act of 2024. These cover crucial areas like research and development expensing, business interest deduction, bonus depreciation extension, increased expensing of depreciable assets, child tax credit expansion, global competitiveness measures, disaster relief and affordable-housing initiatives.
Our team of tax experts provides tailored guidance, ensuring businesses navigate the complexities of tax season with clarity and strategic foresight … Our Washington national tax team actively monitors these developments, offering in-depth analyses and expert perspectives.
While these proposed changes could influence tax strategies, it’s crucial to acknowledge the dynamic nature of legislative processes, with potential adjustments as negotiations unfold. RSM remains committed to keeping businesses well informed and prepared during this tax season through several webcasts and thought leadership pieces.
Guiding Clients With Care
Jonathan Wang has spent more than a decade at Holthouse Carlin & Van Trigt, one of the largest accounting outfits in the city. It is headquartered in Sawtelle. As an audit principal, Wang works primarily across sectors like manufacturing, retail and technology. His firm employs 417 accounting professionals and draws in more than $200 million in revenue annually.
Pressure to reduce costs amid stubborn inflation and rising interest rates was high last year. As macroeconomic conditions teeter towards recovery this year, how are clients pivoting priorities?
Clients appear to be approaching the recovery cautiously. Many deferred expansion due to inflation and interest rate hikes until the economy ‘normalized,’ and now that it seems to be heading in that direction they are optimistic and prepared, but in no rush to dive in head first. On the transaction advisory services side, most of 2023 was working to close in-process deals or prepping to go to market in Q1 2024. Deals that closed often had re-trades (which primarily consisted of deferring purchase price through earn-outs or seller notes) due to the difficulty of financing for the buyer because of the high interest rates.
How are you finding and retaining new talent as the number of U.S. accounting grads continues to drop?
The recruiting process has changed significantly from a seasonal process to now being year-round – from hiring a quarter or year in advance to having a multi-year pipeline of potential recruits; from local candidates based on office locations to nationwide with remote working. For retaining talent, the focus has been on managing workloads where there is more of a balance between billable work and personal/non-billable work, as well as tailoring career paths to fit each individual as opposed to a one size fits all.
Are you exploring how generative AI could impact auditing or financial advisory at scale? Why or why not?
Yes. We are looking for efficiencies and automation in order to improve client service and our professionals’ workloads. We often explore new technology in an effort to be ahead of the times (at best) or keep up with the times (at worst), hopefully never behind.
Clients’ primary source of income can be impacted significantly and quickly amid a market downturn. How have you seen clients diversify their revenue streams?
With a focus on efficiency, clients now often look to strategic hires with experience and an established network in the potential stream/market, as well as strategic acquisitions of companies/divisions in new streams/markets or even vertically along their supply/distribution chain. This reduces risk and ramp-up time.
