How Bob Dylan avoided the tax man using a loophole for musicians, and other news you may have missed

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Welcome to my bimonthly news roundup at the intersection of accounting and technology. Subscribe here so you never miss an issue!

Highlights:

  • A subtle-ish campaign of hiring bookkeepers, tax associates and Intuit employees leads us to believe that LegalZoom is planning to launch a QuickBooks Live competitor.

  • BeachFleishman named Chief Strategy Officer Eric Majchrzak as its next CEO, becoming the latest CPA firm to promote a non-CPA to the top.

  • Slack is finally getting the criticism it deserves, thanks to a piece in the New Yorker outlining the ways it enables the worst part of work. Elsewhere in app outcry, a startup wants to help the government track and tax your car. 

  • Selling his catalogue may have helped Bob Dylan reap the financial benefits of being a musical genius while saving him a chunk of tax. 

  • The American public is waking up to the benefits of fintech. But most still don’t know that they could face tax repercussions over their remote work situation.

For this and more of my top stories you may have missed, keep on reading. Also, thanks to my sponsor, Freshbooks, for making this newsletter possible! Please check out their new accountant partner program to learn how you can work better together with clients.

🎸 How Bob Dylan’s catalogue sale will help him avoid the Tax Man

Could Bob Dylan, the one-time anti-establishment folk-singing Beatnik, have based his decision to sell off his entire catalogue on cold hard tax loopholes? Probably not, but he still stands to benefit from them, the Wall Street Journal reports

Dylan sold his catalogue to Universal Music Publishing Group in December 2020 for between $300 million and $400 million. Unlike other creators, musicians are allowed to classify the sale of their copyrights as capital gains, and to be taxed accordingly. As such, he’ll only be paying a 20% capital gains tax instead of a 37% income tax. California resident Dylan can also save on state taxes if he puts the money in a holding company in a more tax-friendly state.

The bottom line: By selling his catalogue in one go, Dylan sacrifices a steady stream of royalty checks for a big payout upfront with a sweet tax break. Meanwhile, Universal can amortize their huge bill over the next 10 to 15 years, offsetting it with said steady stream of royalties. Times they are a-changin’ but Dylan is still a pioneer.

🔍 LegalZoom is launching an accounting and tax service

Coming in a few rungs below a Woodward and Bernstein-level of journalistic sleuthing, the Cloud Accounting Podcast’s own David Leary has uncovered a not-quite-secret plot involving LegalZoom. 

A listener alerted David to an exodus of high-level Intuit employees who have moved to LegalZoom, starting with CEO Dan Wernikoff in 2019 and including a former senior engineer, the director of partnerships, and Rich Preece, who had been running the QuickBooks Live division. 

The LegalZoom careers page recently showed that the company is hiring bookkeepers and tax associates to work directly with small business clients. And sometime in 2020, LegalZoom purchased Purely Solutions, a cloud accounting firm that offers tax preparation, bookkeeping and payroll services.

The bottom line: It appears that LegalZoom is making moves to kick off an online accounting assistance service to rival QuickBooks Live and TurboTax Live. At the moment, LegalZoom appears to still be relatively small — judging by the company photograph on their website, at any rate. However, they already have a strong reputation thanks to their legal services, so this could be the start of a major competitor for those established companies. It’s also bad news for accounting firms watching potential hires — and even existing employees — jump ship for LegalZoom.

👖 Slack is promoting the worst part of office culture

Calling out the various drawbacks of Zoom has become a pandemic era pastime, but the New Yorker recently turned its monocled ire towards another online office technology: Slack. The communications tool has become the virtual center of remote workplaces, but not everyone is a fan.

As the New Yorker’s Cal Newport put it, far from improving the way we work, Slack is exacerbating our already bad approach. Specifically, it makes it even easier to bombard each other with messages, when we should be asking why we need to send so many messages in the first place. On top of that, Slack infuses the frantic FOMO of Twitter into work. Unlike email, minimizing Slack feels like walking away from a conversation only to return 20 minutes later and realize you’re hopelessly behind and will never catch up.

The bottom line: Slack’s big selling point is that it’s a better, easier, more effective messaging tool than email. But maybe that’s not the point: maybe instead of making it easier to send messages, we should be making it easier to do the same amount of work with fewer messages. And if Slack can’t do that, do we even need it? 

💼 CPA firm CMO Eric Majchrzak named next CEO of BeachFleischman 

Eric Majchrzak has been with BeachFleischman since 2012, when he was hired as Chief Marketing Officer. He was promoted to Chief Strategy Officer in 2018. On January 1, 2022, Majchrazak will take over as CEO of Arizona’s largest CPA firm.

The bottom line: There’s an emerging trend for hiring non-CPAs to head CPA firms. Being good with the hands-on number crunching and client service doesn’t necessarily mean you’ll be the best at the business of growing an accounting firm. And it’s good to have a diversity of talents and thinking in the partner ranks and firm leadership. Hopefully this is a trend that will continue in the accounting profession.

 

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😱 People still don’t know that working remotely may have tax repercussions 

The remote work tax train is still barreling down the tracks, on schedule to bring chaos to tax season. A reminder: anyone who worked from home in 2020 for a company that is based in a different state from where they live may be subject to multiple state taxes.

However, a survey for the AICPA found that the majority of respondents didn’t know that they should change their tax withholding to reflect where they worked instead of where their office is, and less than half knew that working a certain number of days in a different state than their primary workplace could affect their taxes.

The bottom line: There’s still time to move off the tracks, and more outlets have picked up on this impending tax disaster, including the Wall Street Journal and CNBC. The major takeaway is that the time to act on this is right now. 

For accounting firms, that means advising clients on how to get everything lined up so there are no nasty surprises in tax season. And since frantic Google searches on this subject are only going to multiply, it’s a good idea to incorporate this message into your marketing. This will help clients find you, plus reassure them that they’re in good hands.

🚗 This startup wants to track and tax you wherever you go

For decades, the gas tax seemed like a fair and efficient way for the government to make the money it needed to fund things like road maintenance. At least in theory, drivers who got the most use out of the roads also paid the most. But the rise of electric cars means more people are powering their vehicles with electricity instead of gas, and therefore avoiding paying the tax that covers road upkeep. 

In an interview with Bloomberg’s Talking Tax podcast, Sahas Katta, CEO of startup Smartcar, outlined his company’s plan to help the government track and tax drivers using an app. Drivers sign up for the app, which tracks their driving habits and taxes them by the mile. 

The bottom line: An app is a nifty solution, except for one major issue: the American public at large is very resistant to government-run tracking apps. (See also: COVID-19 track-and-trace efforts.) Cars with internet connections are already sending their drivers’ data to various car companies’ servers. But once users know it’s the government at the other end instead of Elon Musk, the app shifts in their minds from useful tool to spyware operation.

That said, cryptocurrency tools have already started to embrace automated driving payments. As you drive, tiny amounts of money can be siphoned off to the Department of Transport, the insurance company etc. This real-time approach has a potential carrot to lure irate Libertarians — if the app detects that you’ve been delayed by roadworks or rocked by a pothole, perhaps you could instantly get a rebate?

💱 The pandemic is a boon for fintech

It took a while, but more Americans than ever appear to have accepted that the internet is good for more than buying cheap books and watching cat videos. Surveys conducted by McKinsey between March and November 2020 found that 42% of people making financial decisions have at least one fintech account. And 6% of them said that they had signed up since the start of the pandemic.

What’s more, over 24% use a fintech banking app. Other fintech services that saw traffic increase during those months include investment platforms, which grew 23%, and lending platforms, which grew 25%.

The bottom line: Now that going to a physical bank has evolved from a chore to a chance to catch a potentially life-threatening virus, more Americans are embracing fintech as an alternative. However, uptake is still divided by generations. 

Unsurprisingly, internet-normalizing Gen Z is most likely to have a fintech account, although at 66%, there’s room for growth. Millennials are next, at 56%, followed by Gen X at 44%. Boomers are trailing, with just 25% signing up for fintech. You might not want to teach your parents what PayPal is, but the market opportunity is there for the brave soul/bank that does.

🎁 How a Microsoft employee stole $10 million in two years

A Microsoft employee charged with quality testing the company’s online store did his job so well he uncovered a fatal flaw — which he then used to his advantage. Ars Technica reports that Volodymyr Kvashuk, who is based in Ukraine, realized that although Microsoft’s ecommerce website testing environment wouldn’t allow him to ship physical goods, it would deliver virtual goods, including gift cards. Between late 2017 and early 2018, he ordered and resold $10 million worth of store credit.

The bottom line: My question is, how did Microsoft miss that much fraudulent activity for so long? Especially since Kvashuk was exchanging the gift cards for Bitcoin and cashing out using Coinbase, making the transactions relatively easy to trace — especially when cross-referenced with people working as testers. 

The explanation may be the definition of a champagne problem. Microsoft reported an annual revenue of $110.36 billion for 2018, the period when Kvashuk was active. That makes $10 million look like the equivalent of a quarter lost down the back of the sofa. However, that doesn’t mean he’s being treated lightly: Kvashuk was sentenced to nine years in prison and $8.3 million in restitution payments.

🧾🧾 Hubdoc will help you identify duplicate documents

Xero-owned document management software Hubdoc recently added duplicate document detection. If a user uploads a receipt or invoice that has the same supplier name, amount and date as one that already exists in the system, Hubdoc will flag it. No more heart-lurching moments when you’ve realized you’ve paid twice. 

The bottom line: Hubdoc users prone to losing track of invoices will be pleased to know that the software will now help them avoid future headaches. But competitors like Expensify and AutoEntry have been offering this function for a while. Still, better late than never, Hubdoc.

👩‍🎓 Gusto adds CPE credits incentive to its People Advisory Certification

After devoting the first few decades of your life to learning things (only some of which were useful), finding the motivation to pursue professional training as a fully functioning adult can be an uphill battle. Thankfully, Gusto is adding a new motivator to tempt CPAs to take its People Advisory Certification. The course helps CPAs learn how to incorporate human resources and payroll services — Gusto’s specialties — into their small accounting businesses. And now, Gusto has partnered with CPA Academy to offer four CPE credits to any CPA who completes the four-hour certification.

The bottom line: CPE credits are a necessary evil, so checking them off while also learning a new skill that could help your business reach more clients feels like a victory. And it’s a win for Gusto: showing that the company understands your time is valuable might just increase their base of accounting firms, too.

 

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How Bob Dylan avoided the tax man using a loophole for musicians, and other news you may have missed