Latest / The Accounting Podcast / One Big Beautiful Podcast Episode: Taxes, QuickBooks, & Tesla

Transcript

One Big Beautiful Podcast Episode: Taxes, QuickBooks, & Tesla · The Accounting Podcast

• Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Blake Oliver: [00:00:05] That is really the shameful part about this bill. It was an opportunity to actually do something about the national debt, and Congress and the administration have done nothing, nothing to improve it. David Leary: [00:00:18] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:25] Hello and welcome back to the show. This is your weekly roundup of news in the accounting profession. I'm Blake Oliver. David Leary: [00:00:32] I'm David Leary Blake. We're recording. What is today? Tuesday. Long, long weekend. It was a long weekend. Blake Oliver: [00:00:39] One big, beautiful weekend. That's what it was for me. How about you, David? David Leary: [00:00:42] About the same. About the same? Blake Oliver: [00:00:44] Yeah. We are here to talk about the big beautiful Bill act, but I don't want to get into details about what's actually like in the legislation when it comes to tax. And the reason for that is one of the biggest complaints from tax pros, especially on tax Twitter is when we discuss pending legislation in continuing education courses because it inevitably changes and it becomes confusing. And it's like a waste of time to learn about the details of what is the standard deduction going to be, or what is the tax credit for this going to be, because it may or may not come to pass. David Leary: [00:01:19] So and it could change again and again and again. Blake Oliver: [00:01:23] Exactly. Which will likely happen because the one big beautiful Bill act made it through the House, but by an incredibly narrow margin, one vote, 215 to 214, with one abstaining, which is the narrowest possible margin. And of course, the Senate then has to reconcile. They have to do their version, and then the House has to accept that or not. So this could take months, right? Maybe not until the end of the year. David Leary: [00:01:52] Can I ask you to go detailed on one thing though, when you get to it? Blake Oliver: [00:01:56] Sure. David Leary: [00:01:57] Explain the salt cap and why accounting firms feel like that's a personal attack on accountants. Blake Oliver: [00:02:02] And why the AICPA is encouraging accountants to contact their local congressperson and their senators to talk about this, because, yeah, it really screws over those high earning partners at accounting firms in blue states because they can no longer deduct state and local taxes at the partnership level. Anthony, welcome. Anthony is in the live stream. First to hit the like button today. Great to see you Anthony. If you are listening to this on the podcast feed and you haven't joined us on YouTube yet, please do go like subscribe, hit that notification button and join us when we go live. Normally we're on Fridays today. We are on a Tuesday because we took Friday off and we had our big, beautiful weekend. David, let's thank our sponsors. David Leary: [00:02:49] Yeah. Sponsors. This week we have relay team up reframe and Pay Hawk. Blake Oliver: [00:02:55] All right. Thank you to our sponsors. And you'll hear from them later in the episode. So let's talk about the big beautiful Bill. Like I said, I don't want to talk about the specific stuff, but I want to talk about who benefits the high level meta analysis of who benefits from this bill, and also the public perception of it, because I saw a survey that I don't know, was was kind of interesting here. Um, I spotted this in CPA Practice Advisor. It's from a YouGov economist survey. And it says this survey says that 43% of Americans oppose the budget package. The bill, um, like 43% at the most, the largest percentage. Only 36% of Americans support this bill, and 21%, though, have no opinion. Um, as you might expect, 76% of Republicans. So three quarters of Republicans support it 80%. 4/5 of Democrats oppose it, and independents it's 41% oppose and 27% support. So the independents are leaning against this bill. And what's interesting is that a good chunk of people are saying that the middle class will pay more in taxes, the poor will pay more in taxes, the wealthy will pay more in taxes. Right. Everybody seems to have different opinions on who will actually pay more in taxes. The answer is actually that very few people will pay more in taxes, but it is really interesting who will pay more in taxes. And actually a good chunk of our audience, a good chunk of accountants, high earners in public accounting firms in blue states could end up paying a lot more because of this elimination of the of the pass through entity, the ability of pass through entities to deduct state and local taxes, which was specifically a shot down in this version of the bill. Blake Oliver: [00:04:51] So what's in the bill? It's mainly an extension of the 2017 Tax Cuts and Jobs Act provisions, the tax cuts that were set to expire. It also eliminates federal taxes on tips and overtime pay. That's going to be really interesting to see how we game the system. Now that you don't have to pay tax on tips. There's a there's limitations, though that make this really not that useful. Um, but like the overtime pay would be interesting, right? Like, like if accounting firms started paying overtime to their staff, that could be exempt from taxes. Maybe that'll get accounting firms to actually start paying overtime, I don't know. That'd be interesting. Uh, big increases for the Defense Department. $150 billion more for the Defense Department, bringing the total to $1 trillion. Border security funding gets increased. Uh, but there are cuts of hundreds of billions from Medicaid and food assistance. The Snap program, um, and the part that is really depressing to me, it's going to increase the federal deficit by $3.8 trillion over the next decade. That is per the Congressional Budget Office analysis. So does not do anything about our horrible budget deficit that is becoming unsustainable. Moody's downgraded the US credit rating from like our perfect rating down a notch. That is not good. So we'll talk about that as well. And then I'm curious. Go ahead David. David Leary: [00:06:19] Us. Right. The they want to the PCAOB is on the chopping block in this bill. Blake Oliver: [00:06:25] That's right. David Leary: [00:06:26] Irs funding is $8.5 billion over the next five years. Is on the chopping block. Irs direct file, which we covered a little bit last week. So there's just real cuts happening in things we care about in our audience might care about in this bill. Blake Oliver: [00:06:42] Right. But like, not where it really needs to happen if we want to tackle the budget deficit. This does not help the budget deficit in any way. It makes it worse. Um, and we'll get to that. David Leary: [00:06:55] Which I think if I go back to the election, the reason why, like all those guys in the almond pod and some of these rich people, billionaires are concerned about our deficit rallied behind Trump is because they thought he would be the answer to reducing the deficit. And obviously he's turning into a normal politician and just keep keep going up. Blake Oliver: [00:07:13] Yeah, I was hopeful. Um, well, not really not not that like I mean, I didn't I knew this would happen, but there was a part of me that was hoping it wouldn't happen. Do you know what I mean? David Leary: [00:07:26] Yeah. Blake Oliver: [00:07:27] Because this is how every economic empire ends is the power. The global superpower becomes dominant, which the United States is in a completely dominant military position. Don't let anyone tell you otherwise. Uh, you know, like China and Russia are, are their their military power is nothing compared to ours. We are the global hegemon, right? We are, uh, we we we control the seas. We control the air. And what inevitably happens, you know, like when you when you have that power is you overspend, right? You become the reserve currency. And so there's, there's like, no, there's nothing stopping from politicians, from deficit spending that inevitably goes over 100% of GDP and then to about 200% of GDP. And once it gets to that level, then you have a financial crisis. And the result is either you have to do like massive austerity, which nobody likes, or you just inflate your way out of the problem, print money, cause massive inflation until your debt is, uh, you know, less of a problem because you've just printed the money to pay for it, right? But that also has massive consequences. The consequence, ultimately, is that eventually, Eventually you can lose your status as the superpower, which is, you know, that happened to Britain, happened to the Netherlands, happened to Spain. What was the other one? I happened to Rome. But they they actually had a massive inflation problem toward the end. Blake Oliver: [00:08:58] So, um, but I'm kind of getting ahead of myself with that. I wanted to talk about, uh, who is going to benefit from this bill and who is going to be hurt by this bill? So, like I said before, everybody gets a tax cut in this bill, essentially, except for about 17% of the top 1% of households, they will actually see higher tax bills. And what is that? It's those earning at least 1.1 million annually. So they're high earners, but they are in blue states with high state and local taxes due to the new or tighten limits on state and local tax deductions and other deduction phase outs for very high earners. Those folks are going to pay more. And it also restricts Salt deductions for professions such as health law, accounting and consulting. So that can increase the tax liability for high earning individuals in those fields. Um, but if you're not one of those people, right. If you're not a partner at an accounting firm in like New York City, um, then you're going to see a big tax cut the top. Uh, let's see, the top 1% are going to receive an average net tax cut of nearly $69,000 in 2026. The top 20% will see an average income rise of $9,700 in 2027. So, hey, that's not a small amount of money, right? David Leary: [00:10:29] And you notice it in your bank account for sure. Blake Oliver: [00:10:31] And my guess is if you're not hit by these salt, uh, caps, then, you know, state and local tax deduction issue then and you're listening to this podcast, you're probably going to see your income, you know, rise or your tax rate or your your tax liability decline, because you're probably in the top 20% is my guess. Um, 68% of the bill's tax cuts go to the richest fifth of Americans. So like 68%, right? Like two thirds of the benefit goes to the richest 20%. Top 5% alone gets 43% of the next net tax cuts. So top 5%, 43% of the net tax cuts, um, now middle income households. So if you're making 51,000 to $93,000 a year, you are going to save about $840 a year. That's like a 1.1% income boost. So one 1% income boost. It's a tax cut. But are you really going to feel it? Probably not. Probably not that much. Low income households, the let's say the bottom 20%, they're going to see a tax cut, but 90 bucks a year on average. Okay. That's like 0.6% increase in after tax income. David Leary: [00:11:53] Yeah. Like that's. Blake Oliver: [00:11:54] But but here's the thing. Due to the cuts. Okay. Due to the cuts to Medicaid and Snap and other safety net programs, the bottom 40% of households will actually lose income. They'll see their incomes fall in effect by about 2% to 4% after accounting for both tax and spending changes. David Leary: [00:12:19] And then I obviously don't want to project. But my understanding even the the no tax on tips is a bit of a game, because now you have to report tips that maybe you weren't reporting before, but there's like a window between the 25,000 and the 50,000. And you don't get it if you hit the 50. And if they make your report, you might hit the 50. It's a little bit of a game to some extent. Uh, the lowest income brackets are probably getting played with the most. Blake Oliver: [00:12:46] Sorry, were you talking about the tax on tips thing? David Leary: [00:12:48] The no tax on tips. Yeah. Blake Oliver: [00:12:49] Yeah. Yeah. So it's it's only for cash tips. But most of those cash tips weren't reported before. That's my understanding of it. Right. So so like unless you're just reporting your cash tips like it's not going to have a real effect. It was. It was I think it looks like it was to, you know, honor this campaign promise. But in effect, it's not going to do anything. Yeah. Um, a long story short says, I thought they were raising the salt limit. I thought they were going from 10 to 40. Yes, but there is a phase out. So if you earn, I think it's over a half $1 million a year. It phases out and it goes back down to 10,000. So that's how you get that situation where, like the very high earners and professional service firms are not going to see the benefit. So that's the 17% of the 1% that are going to end up paying more in taxes. So that's why the AICPA is not too happy about this bill. They called out this elimination of the Salt deduction for pass through entities. And they're also worried about contingent fees. The bill includes a section that prohibits the Treasury from regulating, prohibiting or restricting the use of contingent fees in connection with tax returns, claims for refunds or related documents. And the AICPA says this is going to open the door to unscrupulous tax preparers who could be incentivized to file questionable or fraudulent returns to maximize their own fees, ultimately harming both taxpayers and the tax system. Contingent fees are one of those things CPAs are not ethically allowed to, um, accept in in most circumstances. So this would actually eliminate that from tax preparers in general. There's like a rule currently that you can't take a contingent fee for preparing a tax return, although like there's so many unscrupulous tax preparers already and we have no regulation of them. It's like, is this really going to change things? I don't know. David Leary: [00:14:47] A whole industry of those R&D credit companies popped up that take a percentage of whatever refund you get for the R&D credit. That's not your whole return. It's not your whole refund. But they take a it's. Blake Oliver: [00:14:58] Just that, that that filing. Yeah. Um, boring. Accountant says does earmark allow a cash tip payment option for discounted annual subscription. You know what I think we need to add that we'll add a big, beautiful bill. Um, tip option. David Leary: [00:15:14] I think I saw QuickBooks when you go to pay. Now there's a tips box on QuickBooks. When you pay pay your somebody invoice. So we could do all our invoices for $1 now. And somebody could just put the we. Blake Oliver: [00:15:24] Have to really look in the details of this is like you know are the do the tips have to be optional and but it doesn't matter anyway because like, there's there's limits on this. We'll have to dig into it. This could be a great CPE course. Right. How do you take advantage of this. David Leary: [00:15:37] So there's some other winners Blake obviously big tax prep one because they killed direct file. Um and basically said they want the bill indicates that they should use private private enterprise to help with taxes. Um I companies one and the bitcoin and crypto companies one. So the AI companies one because they basically if there's a stipulation in here that states are banned from regulating AI for the next ten years, it can only be done by the federal level. So that that got snuck in there. So all the AI companies and then the bitcoin and crypto people, like you said, because the overspend is happening at the government and the deficits going up, people want to hedge that against that. It could help sell more crypto. And then on top of that, the um, just the fact that there's some tax cuts could actually increase people buying crypto. But I just did a quick research quickly because you already mentioned how much was set up for the military, right? Military industrial complex. Blake Oliver: [00:16:43] Military got. Yeah. The Defense Department gets another 150 billion. David Leary: [00:16:47] Okay. Blake Oliver: [00:16:48] It's a lot more. David Leary: [00:16:49] That doesn't seem like much, considering. So I just did some research on the lobbying spend. So the tax prep, crypto and AI companies together spent about $100 million on lobbying. And the military industrial complex spent 884 billion on lobbying. So they didn't get much of a bump for the amount of lobbying they spent. But it also makes it seem like nothing that, you know, when people bag on into it in the big tax prep companies from lobbying, they're barely spending anything in comparison. Blake Oliver: [00:17:18] Well, I think you might be the only one who complains about it, David. But with that said, I think we should thank our first sponsor, which is relay, and I'll be happy to read this one. Between David and myself, we now have three, four or maybe five business entities, 20 or so checking accounts, dozens and dozens of virtual cards. It would be impossible to manage all of this if we weren't using relay as our small business bank. Relay is truly a part of the tech stack we use to run our businesses. Relay allows David and me to each have our own logins. We can grant access to our team and even to our CPA without sharing passwords or two factor authentication codes. Relay allows us to grow and scale our banking needs without ever going into a physical branch. I recently added an account to receive inbound merchant services with just a few clicks, and then I had to create a payroll checking account and that only took a few clicks. And now we instantly have access to give ACH info to the payroll provider. With relays virtual cards, we can issue debit cards to our team around the world for needed business expenses. That also now includes credit cards. We can spin up, uh, credit cards and set daily and monthly spending limits. And then when a team member doesn't need their card, we can freeze it until they need to use it again. Relay also has automation features, such as sweeping money automatically from one account to another based on dates, amount or target balances or percentages. For example, we can split our inbound payments automatically on a daily basis to payroll, sales, tax payable, operating and savings accounts based on predefined percentages. To learn more about using relay for your firm and clients, head over to The Accounting Podcast. Blake Oliver: [00:18:56] That's The Accounting Podcast. And welcome, Heather. Hello, Heather. Hello from Brisbane. Great to see you. Um. Sarah says, I wonder how much long and friends made in contingent fees for Irtc. We'll talk about Billy Long, the future, potential future IRS commissioner who's going through his confirmation hearings right now. But before we do that, I want to talk a little bit about the national debt, because that is really the shameful part about this bill. It was an opportunity to actually do something about the national debt. And Congress and the administration have done nothing, nothing to improve it. They're making it worse. They are making it worse, and it's going to cause a financial crisis. Um, sooner than I had thought. If we don't do something about it. National debt is now over 100% of GDP. I see numbers like 108%, 124%. I don't know exactly what it is right now, but we are over 100% of GDP. And based on CBO projections, our debt could reach 200% of GDP gross domestic product by the late 2040s. That's under moderate assumptions. More aggressive scenarios show debt exceeding 250% of GDP by 2054. So it is 2025 right now. In less than 30 years, we could be at 250% debt to GDP. What does that mean, David? If GDP is the amount that the United States makes every year, we could think of that as our salary if we were a worker. That would be the value. That would be our paycheck. Right? Our W-2. So imagine if you're making $100,000 a year as a worker, and you have debt of 100% of that, so you have $100,000 of debt. Now, that's not a great situation to be in, but it's something you could possibly see yourself paying off someday, right, David? David Leary: [00:21:17] Yeah. The 30 year mortgage at a great interest rate. Blake Oliver: [00:21:20] Maybe so. David Leary: [00:21:22] But if it's bad debt, like credit card debt, yeah, you're in trouble. Blake Oliver: [00:21:25] Right. Well, luckily, you know, we have fairly low interest rates now on our debt. 5%. Right. But what happens if that debt grows and we're making $100,000 a year, and now we have 200,000 or $250,000 of debt. Are we ever going to pay that off? Um, it's very challenging. So what happens? What's the risk? Well, the risk now is that our credit rating has been downgraded. And so investors in the United States, people buying our bonds are going to ask for more money. And that's what's starting to happen. And then that increases the amount that you have to spend every year on interest payments, which then reduces the money available to fund government services to fund the military. Right. Increases the amount of taxes we potentially have to pay. So you know what will happen. Basically, if we don't do something about this, we're going to have we're going to reach a financial crisis type of situation. So basically in the next. In the medium term, right, we've we've basically had ten years. And then we could see when when is it going to cross over. Yeah. Over 30 years. It'll cross over to like over 200% probably between 2047 and 2050 depending on economic conditions and policy choices. So what's that? Yeah, 2030 years. David Leary: [00:23:09] So that doesn't sound very beautiful. Like what's the solution? Like. Blake Oliver: [00:23:13] I don't know if there is one. I mean, this is nobody. No, no, um, no country in our situation has ever managed to avoid this outcome. It's like history repeats itself, right? And there have been a handful of really good examples in the last 500 years. David Leary: [00:23:31] It's just a human nature thing. It's just. It's just what we do as humans. Blake Oliver: [00:23:35] Ray Dalio wrote a great book about it. I'm pulling it off my shelf right now. If you really like nerding out about economics, uh, check out principles for dealing with the Changing World Order, Why Nations Succeed and Fall by Ray Dalio. He basically lays it all out gives all the examples. So okay if the politicians aren't going to do anything about it then the question is like what do you do about it. Right. What can what can we do as individuals, as investors to hedge against our risk. What do you invest in over the next 2030 years? Commodities. Gold. I'm not going to say Bitcoin. Commodities are good, but also real estate. Because people always need a place to leave. Leave. People always need a place to live. And the income streams are often inflation linked. So as inflation goes up, you can charge more in rent. Right. So real estate's a good place to be. Infrastructure as well. Utilities, energy grids, transportation systems. I would say energy because especially with all this AI stuff, we're going to need more and more energy every year. Just massive amounts of energy. So if you can invest in energy stocks, I think nuclear is going to become a big thing again because we're finally going to get over this environmental concern about nuclear. It's actually clean. It's better for the environment than anything else we've got. And it produces massive amounts of energy that we need to power all these systems, these chips. Global diversification you know, international equities. Only problem with that is other countries may also like be in this kind of situation overspending right. So you know that's why this could continue for a while. Because even if our economy is messed up and our debts messed up, where investors going to go, what's the alternative. Right. Another possibility is, you know, consumer staples healthcare. People are going to get older. They're going to need healthcare. That's not going to change. That's a good place to be. That's all I got. David Leary: [00:26:01] Just become a CPA. I don't know if you. Blake Oliver: [00:26:06] Become a CPA. David Leary: [00:26:07] Or become a CPA. I don't know if you saw the Tesla CFO. He's a CPA. He got a $139 million pay package. David Leary: [00:26:17] 139 million. David Leary: [00:26:19] Pay package. I mean, it's mostly comprised of stock options and equity grants that he got granted. Blake Oliver: [00:26:25] Is that is that over multiple years or is that like a year? David Leary: [00:26:30] Basically, it's his package in 2024. So he got promoted to CFO in August of 2023 and then obviously probably had to vest for a year or something to exercise those options. Um, so he is a CPA. He worked he was at PwC for almost 16 years. Then he moved on to Elon Musk's owned SolarCity for a year. And then from there he spent the last eight at Tesla, and he moved up from different controller type roles to now becoming the CFO. He's been the CFO for one year and ten months. But believe it or not, like this is not unheard of for CFOs to get this kind of these packages. Now, this broke the record from 2020, where, uh, Kim Brady of Nikola got $86 million compensation for one year. But that company has since filed for bankruptcy. So I don't know if this is like, I don't know if paying your a CPA CFO that much money is obviously the a good good for the business if you think about it that way. Um, Twitter, Apple, chewy, alphabet, DraftKings. They've all paid huge salaries to their accountants in the past or their CFOs in the past. Um, 56, 60 million, 68 million. These are pretty big, significant numbers. But this just I mean, this is 5 million or 50 million more than the previous biggest, which is. Blake Oliver: [00:27:48] That's amazing. Well, you know, Tesla loves that. Elon Musk loves incentive based compensation, right? He himself famously takes a $1 salary and receives the rest of it in stock in equity incentive. So it makes sense that they would do that for their CFO. David Leary: [00:28:04] And you could argue that the CFO has had a very tough year managing Tesla. It's just been the numbers have not been great. They've probably had a lot of extra work. So. Blake Oliver: [00:28:15] All right David, let's thank our next sponsor. It is team up. I will put up the banner if you read the ad okay. David Leary: [00:28:23] If you're a growing firm struggling to scale or if turning away clients because you can't find the accounting talent you need, listen up. You probably want to hire a person, not a company. You've heard about hiring in the Philippines, but using outsourcing companies comes with endless turnover and mediocre talent. Introducing team up. Team up helps accounting firms hire top Filipino talent directly. No middleman, no corporate policies getting in the way. And when you hire direct, you own the relationship completely, training them your way and building your own culture. And think about it from the accountant's perspective. They'd rather work directly with you than sit in a corporate cubicle. And these are accountants. They do the math, and they know that they're getting a fraction of what you might be paying the outsourcing company. If you're ready to see what hiring a person in the Philippines could cost, Team Up just released their 2025 Salary Guide for Accounting Talent in the Philippines, and it's completely free for our listeners. You'll get current market rates for various roles, real candidate profiles, and everything you need to hire confidently. To download your free copy today, head over to The Accounting Podcast. That is The Accounting Podcast. You forgot how to spell there. Thank you. Tema. Blake Oliver: [00:29:35] Let's talk about QuickBooks. Price increases are coming to QuickBooks. I got an email. Uh was it this morning yesterday about that. And I agents are coming. So these price increases might be warranted if the agents live up to the hype. Um, they're coming in July as well. So this is right around the corner. There are four specialized AI agents that QuickBooks is going to incorporate into the product. And then we'll talk about the price increases. So the first is the accounting agent which automatically categorizes transactions, detects anomalies and reconciles accounts. David Leary: [00:30:18] Number two bank feeds. Okay. We already have that. David Leary: [00:30:23] We have bank rules. David Leary: [00:30:24] Okay. Blake Oliver: [00:30:25] Well in the demo video it looked kind of cool. But we'll actually, you know we'll see what it actually looks like. But the example was you upload a receipt for a meal at a restaurant and a chat bot then asks you, okay, who was there? And you type in the names and then it asks, you, all right, what did you talk about? So it's documenting the business purpose of the meal, and then it suggests to categorize it as meals with clients as opposed to team meals. So that's better than a bank feed rule, right? Yes. Us. Um, so the accounting agent will automatically categorize transactions in that way, detect anomalies and reconcile accounts. Number two, the payments agent, it will monitor cash flow, optimize invoicing, and help businesses get paid faster. Number three is the customer agent, which will source leads from emails, draft personalized responses, and track sales opportunities. And four is the finance agent which will analyze financial data, create forecasts, and identify variances. And when the AI automation reaches its limits, users can instantly connect with a trusted human expert for guidance on complex issues, compliance questions, and strategic decisions. That is interesting to me. Are they linking this into the QuickBooks Live live service? David Leary: [00:31:49] Like first you get an AI agent first, and then if the AI agent can't do it, you go to the human and then ultimately the humans training the AI because we're going to record that interaction right now. Blake Oliver: [00:32:04] How much time is this going to save? Intuit is saying that 45% of their customers, nearly half, are saving 12 hours a month on bookkeeping tasks using the new AI powered bank feed feature. 12 hours a month. Nearly half of their customers that are using this in beta. I find that. David Leary: [00:32:25] Hard to believe. David Leary: [00:32:26] This with people with huge bank feeds or something like that. Like only the the severe end of the bell curve of QuickBooks customers, because the average QuickBooks customer doesn't have any transactions. They just the math doesn't make sense for it to save that much. So this this beta test they're doing, they must have only invited people that are really suffering pain of tens of thousands of transactions in their bank feeds. Maybe, I don't know. Blake Oliver: [00:32:54] I don't know. But what's interesting about this is that it sounds a lot like the work that accountants or bookkeepers are QuickBooks Proadvisors do for their customers. So. If if you're doing this kind of work, if this is like your bread and butter, I would figure out how to get away from charging for that because it's clear that Intuit is working on automating it with agents. And these AI tools just get better and better. Claude came out with Claude for. We upgraded to it at earmark instantly, and the quality is another step up improvement, just getting better and better. David Leary: [00:33:37] In a frame that it's not. Intuit's working on this. Lots of companies are working this to try to disrupt Intuit, so Intuit has no choice but to work on the same thing, right? Ultimately, they don't have a choice. Intuit will be gone if they don't start implementing these types of things. So this really goes back to their earnings call and in their earnings announcement last week. So this was brought up in the earnings call. They talked about how they're going to start charging for AI features and their agents, and how these agents they're going to charge for them, possibly individually or as a bundle, and that these agents talk to each other. So they work together as well. So which is going to encourage you? Why would you just buy this agent and this agent when you could buy all four? Because they're going to work together in theory, giving you that extra productivity boost. And obviously the street loves this because in the last week, Intuit's stock has gone from about $650 a share to 750 ish. Maybe. I don't know what it is today, but it's it's just boomed because of the the last quarter. And they beat all the earnings announcements. They all the projected earnings they were going to have. They beat all those earnings. Surprise, revenue surprise. Um, the QuickBooks online ecosystem revenue is up another 20%. I feel like every year it's another 20% the online revenue. Well. Blake Oliver: [00:34:54] And that's that's because the price increases are nearly that simple. Start is going to go to $38 a month. That's an almost 9% increase. Essentials is going to go to $75 a month, $10 increase from 65. That's a 15% increase. Plus, QuickBooks Online Plus is going to go from $99 to $115 a month. That's a 16% increase. And advanced is going to go from a I can't even believe it's this high. It's going to go from $235 a month to $275 a month. That's a 17% increase. There is a version of QuickBooks online that people are paying $275 a month for. I remember when that was the license fee for QuickBooks desktop forever. David Leary: [00:35:41] Right? Three. That's a three year product. Yeah, a $299. Blake Oliver: [00:35:45] They're also raising the price of payroll, a variety of different increases. Uses. Quickbooks desktop is also getting increases. The accountant desktop accountant version is getting a 50% price increase and the ProAdvisor Premier bundle another 50% increase there. The enterprise bundle also gets a 50% increase. So it seems to me that Intuit is just saying like accountants, if you're still on desktop, we're just going to raise this price until you stop using it. Yeah, it's now, if you want the ProAdvisor enterprise bundle, it's now $2,400 a year. David Leary: [00:36:22] So that bundle is basically if you only want if you want desktop, because I think you don't pay at all. If you're an online QuickBooks online advisor, it's if you want to still do a QuickBooks desktop, correct? Proadvisor. Blake Oliver: [00:36:33] Exactly. David Leary: [00:36:34] That's a lot. Blake Oliver: [00:36:35] I know it's a lot, but here's how I think about this. Um, you know, into its main customer has always been the small business, right. And if they can actually deliver substantial value with these AI agents. Small businesses will be happy to pay $115 a month for the plus plan. And this is important. The AI agents are only going to be available on certain plans, so simple start will not include access to any AI agents. You have to be on essentials to get the accounting and payments agents you have to be on. Plus to get the customer agent, the one that's going to help automate your leads and your follow up, the CRM type features. And then advanced is going to get the finance agent. So that's how they're going to push people up these tiers to is they're going to say okay you're on plus and you're paying $115 a year or a month, I should say $150 a month. You want to go to you want to get the finance agent, okay. We're going to we're going to up you by, you know, another 120, 150 bucks a month for that. But if it really works, that's a small price to pay for an agent that helps you out with finance stuff where you can't even get an accountant to give you that advice for less than $250 an hour. David Leary: [00:37:53] Yeah, because because that's an email to an accountant where it's, hey, I had this dinner. Then it's three emails back and forth. Well, who's at the dinner? These people. All right then book it to this or put categorize under that. And if and if I is doing these functions prematurely, helping people categorize stuff that's going to hurt some of these apps like Uncat and etc., because there's going to be less stuff in the ask accountant bucket anymore. Blake Oliver: [00:38:17] Well, maybe this is tied to that. Maybe this is tied to that new app partner program with the pricing for the API that we talked about last episode, where based on the pricing that we see, tools like Uncat Keeper, all these apps that like suck data out and push data back into QuickBooks to automate stuff, they're going to become a lot more expensive, possibly unsustainably expensive. So that'll drive people to use the automation features and. David Leary: [00:38:47] Built in features. Blake Oliver: [00:38:48] Maybe that's tied to it. Maybe that's part of the strategy. David Leary: [00:38:51] Unfortunately, Intuit still doesn't have a lot of news on the price of Intuit enterprise solutions. But they did say in the conference call that accounting partners accountants are driving 15% of Intuit enterprise system sales right now. That's pretty significant considering we thought went after QuickBooks or Intuit Connect last year. This is like a $4 billion launch for Intuit this product. So what's 15% of $4 billion? That's significant impact accountants are making on into its bottom line. And I understand why accountants would be upset. Right. If you're getting charged more on this other side, if you feel like they're stealing your business, etc.. Blake Oliver: [00:39:29] Let's think our third sponsor reframe. Are you an accountant? Feeling threatened by AI? Overseas outsourcing and tech companies muscling into your territory. Here's a sobering truth the narrative that AI and automation can replace. What you do is gaining momentum, making clients question your value. But what if accounting could be seen as the most creative and innovative field in a post AI world? Introducing Reframe 2025, the transformational conference themed pricing with confidence, created by industry leader and CPA Hector Garcia, Reframe teaches accounting professionals to think beyond spreadsheets and reposition themselves as irreplaceable and deep thinking human advisors. This isn't your typical accounting conference. You'll learn a new approach to confidence based pricing strategies inspired by best selling authors like Ron Baker and Blair Ends. Master client conversations that command premium fees and join a supportive community of forward thinking professionals who refuse to be replaced by algorithms. Reframe is an annual event, but it is also a permanent movement to make accounting the most human of all professions. Get your ticket before the 2025 event sells out. Head over to The Accounting Podcast E20-e25 The Accounting Podcast. Reframe2025. David Leary: [00:40:45] Just one last thing from the earnings call from Intuit that reinforces what you basically said, that maybe this is on purpose for these apps so they can get more people to use the product. So Zynga emphasized that AI features consolidate multiple third party apps, making the overall platform the more cost effective for customers. They're actually paying less because now they have the option to stop using other applications. So yeah, you could argue Intuit's declaring war on the between the with the action we saw last week, and now they're declaring war on the third party app ecosystem. Just want to build it. This is very like. Net Oracle NetSuite build it in the suite. It's in the suite. We don't need that partner anymore which is I don't love because I feel like personally I came from the point of view of open APIs, build the ecosystem. There's value in it for everybody. And like, yeah, I don't like yeah. Blake Oliver: [00:41:35] Well if I was zero, if I was leading their product strategy, I would say let's go the other direction. Let's not copy into it. Let's open it up and have as many partners as possible and not charge them a bunch of money for it and give our customers choice. If I was zero, I would be allowing third party apps to embed widgets on the Xero dashboard. Let me have a widget for gusto on my Xero dashboard that has all the information from gusto about the next pay run. The employees. I click the button, it opens up in a new tab. Let me have that for Bill. Let me have that for name an app that's popular with with zero. Let me let me see my hubdoc stuff inside of Xero. They own Hubdoc. Um, you know, let let. David Leary: [00:42:24] Me doesn't exist. Blake Oliver: [00:42:25] I know, like, let the apps truly integrate into your platform. I think it's a winning strategy. Okay, let's talk about Some data from Big Four transparency. I saw an email from Big Four transparency that reveals a troubling pattern in public accounting careers. While job satisfaction gradually improves after the senior level, the average weekly hours worked continues increasing throughout one's entire career progression. Partners report working the most hours of any level, while achieving only a 6.9 out of ten job satisfaction rating. This is, I think, the number one problem with the current model in accounting firms is that you just end up like the more successful you are, the more you end up working. Um, it's not sustainable. I want to show you this chart, but my, uh, my link is just, like, not opening. David Leary: [00:43:30] Basically, you're clicking on the link. I have a related story I saw. So there's a survey that was done by reclaim I, which essentially like as a calendar meeting management API thing, that's not the point, but the work, the average corporate work week now stretches to 46.6 hours. That's up from 48 45.8 hours in 2022. So it's just keeps growing. And towards longer weeks, the work week just keeps getting longer. Even with all these efficiencies we're supposedly gaining with AI, everybody's working more than they ever have every single week, not just accountants. This is all professionals. Blake Oliver: [00:44:07] Yep, I can't pull up the chart so I can't share it on the screen, but I'll just describe it for you. Basically, um, interns have the highest satisfaction and work the lowest hours of anyone in the firm. David Leary: [00:44:18] That's because they're tricking you. Hello? They're tricking you. Blake Oliver: [00:44:21] And then as soon as they join the firm, they're hours go way up and their satisfaction goes way down. And if you look at, like, the hours plotted against job satisfaction, the hours just basically continue to increase. Job satisfaction goes down after you're a after you're a intern, and then the seniors are the least happy, which makes a lot of sense because they have the biggest workload dumped on them and they get paid less than managers, directors and partners. Then your job satisfaction gradually increases, but only to 6.9 out of ten as you become a partner and your hours worked actually continuously increases the whole time. So, um, we have to get away from this hours mindset. I was actually thinking like I had I had one of those deep thoughts when I was swimming in the pool this weekend, and I thought, what is the most valuable resource that we have in life? What is what is it? Time, David? Time. Right. Time. Right. Because it's it's something that you can't get back. Nobody can give you more time yet. We can't buy more time. You can, you can. You can pay to, like, not have to do things that take up time. Right. But you can't get more time in life. Um, and so if time is this precious resource that you're running out of constantly, why would you sell it? Why would you choose to build a business that's based on selling your own time? It's the most valuable thing you have. Would you not rather sell something else? If you could sell something else, you should, because then you can keep your time. If you sell time, the only way to make more money is to have less time. That is why these firms have these workloads that increase as you become partner, because even the partners are selling their time. David Leary: [00:46:22] Because you can't grow the business unless you sell more time. There's just no other business model built. Blake Oliver: [00:46:27] The only people in the firm that aren't selling their time are the managing partners, the people? Or if it's private equity owned, it's the executive team that is not working on clients. So anyway, I don't know. That's just like the thing in my head that I wish our profession could understand is that as long as we sell our time, we cannot advance, we cannot move forward. Where do you want to go from here, David? Should we read one more ad because we're running? David Leary: [00:47:00] Don't forget. Yes, let's do that. So we. Blake Oliver: [00:47:02] Okay. David Leary: [00:47:02] Fiscally responsible behavior here. Blake Oliver: [00:47:04] This is our last sponsor. Thank you. To pay Hawk, are you still drowning in month end expense chaos? Imagine getting multiple days back each month that you're currently losing to manual accounting processes. That's why I'm excited to tell you about Pay Hawk, a leading spend management solution that can automate your financial processes while giving you total control and instant visibility over all your company spending. Pay Hawk unifies your corporate cards, expense management, accounts payable, and procurement into a single platform. The best part? It works with your existing credit cards and tracks transactions as they happen, giving you real time insights into your spend. No more chasing receipts. Pay hacks. Automation handles that. No more end of month surprises. See exactly where your money is going, the moment it's spent, and with real time integrations to systems like NetSuite, QuickBooks, and Sage Intacct, reconciling expenses is faster than ever. Finance teams using Pathok are saving days of work each month while gaining better cost control, real time visibility, and the ability to focus on strategic priorities instead of expense reports. Ready to transform how your company manages spending and see how Pathok can work for your business? Head over to The Accounting Podcast. That's The Accounting Podcast. David Leary: [00:48:18] I have an accounting related tariff or accounting story that's related to tariffs and the hikes and tariffs. Blake Oliver: [00:48:24] All right let's do it. David Leary: [00:48:24] And I didn't know that this was a strategy, but apparently rejecting invoices is a way to defer paying for the tariff hikes. So you have invoices that have gone up because of tariffs. You probably don't want to pay those until you sell your goods, right. So people are just rejecting invoices. And the rejection rates have quadrupled in Q1 of 2025, according to a company based called Basware. And they can map it directly to the US trade war. Blake Oliver: [00:48:53] Okay, so wait, tell me how this works. So I am an importer. David Leary: [00:48:58] You're an importer. You send me an invoice for whatever amount, but there's tariff stuff in it and I'm not prepared to pay that extra money. So I'm just going to reject your invoice. So you have to go through this whole dance to resubmit the invoice to me. Oh, God. Blake Oliver: [00:49:13] I'm trying to pass on the cost of the tariffs to my customers. As a company that's been hit by these tariffs. And so my, my, my customers are just rejecting the invoices that that doesn't help me. That makes it worse for me. David Leary: [00:49:26] It makes it worse for you. But but the customers rejecting it, they get a little elbow room of buffer there. Blake Oliver: [00:49:31] They get some cash flow. David Leary: [00:49:33] And it's up. Yeah. So it's up about, um, 6.95%. So almost 7% invoice rejections are happening. Um, and it spikes with the February 2025 launch of the trade war. Um, and most are rejecting because of price changes. But really, it's just a delay tactic to conserve cash until you get that cash in. Why do you want to have increased expenses? You had that illustration a couple episodes ago. If the if somebody has to now spend this extra money, their cost of goods just shot their margins. Yeah. Blake Oliver: [00:50:05] This is why the, the, the big tariffs hurt so much more than the small tariffs. So if you just do a 10% tariff it's possible to pass on a little bit of that cost to customers to pass on or to pass back a little bit of that cost to the Chinese factory and to absorb a little bit of it yourself. But if you're looking at 30% tariffs or 50% tariffs based on your cost of goods, that might be more than your entire profit margin. David Leary: [00:50:33] It's a cash crunch. Blake Oliver: [00:50:34] It's simply. Yeah. Even if you can pass on some of the costs, it may cost more cash than you have to pay that tariff. I you know, the stories that I'm hearing about, like these small businesses that are suddenly having to come up with, like, tens of thousands of dollars to pay a tariff to release goods from customs. I mean, or they have to, like, give up the goods. You know what? What a terrible choice. David Leary: [00:51:00] And and you saw this during Covid as well. But it was the opposite. It was. People were afraid they weren't going to have revenue. So they're rejecting invoices so they could defer paying those until the revenue came in. So it's kind of that same thing now. Now they're rejecting because the invoices are too much money for the revenue that may or may not come in. But this happened during Covid as well. Blake Oliver: [00:51:19] And that's the thing about like the economic fallout from these tariffs, is that it's all getting kind of delayed because it takes a while for the cash crunch in bigger companies to become an issue. We've seen this with like very small businesses. There there are already plenty of stories about businesses that are like shutting down because they can't pay the additional tariff costs. They're just going to go into hibernation until this is all resolved. That's bad for the economy. But then there's these bigger businesses where, you know, like you said, delaying invoice payments. It's a way to keep going. But how long can they keep going? And all this uncertainty is a problem for the accountants and the finance people who work in these companies. And it's another. David Leary: [00:52:00] Delay that companies doing this to small businesses. If you're a small company manufacturer, you bring your goods in, you sell it to target. Yeah. These people that where there's it's just a cold blind. It's easier just to not pay any of our vendors for an extra month. The CFO feels good, but it's the small business owner that's going to suffer ultimately. That's right. The smaller entrepreneurs. Blake Oliver: [00:52:21] That's why we're not seeing massive layoffs either, because the layoffs that are happening are happening under the radar. Trump has delayed the tariffs on the European Union at the last minute. Now they're delayed until July 9th. He had threatened a 50% tariff starting June 1st. Catching European officials off guard. Now that is delayed until July 9th. If you add up all the countries in the European Union, if you look at them as a bloc, they are our largest trading partner. Bigger than Mexico, bigger than Canada, bigger than China. We imported $606 billion of goods from the EU in 2024. So a 50% tariff would be like a $300 billion tax. Now, let's put that in context. How much more did we just give to the US military annually $150 billion. So this would be twice the increase for the Defense Department. That would be paid by importers if they continued to be able to even import at those levels. We exported $370 billion of goods to the EU. So tariffs on our goods at the EU countries would really hurt our exporters as well. Pharmaceuticals are the largest EU export to the US at $127 billion. So if the Trump administration wants to bring down the cost of pharmaceuticals, which they keep talking about, like putting 50% tariffs on EU imports isn't going to help with that. So we've got until now, July 9th to reach an agreement. God, all these delays. I don't know if like if any of this stuff's ever going to happen. I was wondering what was going on with TikTok. Remember we the TikTok band. David Leary: [00:54:16] Is it back or not? Blake Oliver: [00:54:17] It's. No, it's still delayed. But apparently that's going to happen. Has to happen next month too. Tiktok has to get. David Leary: [00:54:24] The problem like of Trump's problem, right? He just changes the focus and people forgot TikTok the TikTok band even existed because of the. And then what will happen a month from now? He's going to do something else and then people are going to forget the tariffs exist. It's just that's that's what he does and I'm sure he does it on purpose. I just think it's squirrel. It's like the whatever the week news of the week is he focuses on. I saw an article from, uh, Ed Mendelowitz in Accounting today. He's comparing the top 100 accounting firms today versus ten years ago. And what caught my eye, I found interesting in his breakdown of this is this concept of like right now, basically we have the big four. Then you have the other 96 firms. And he's kind of seeing a new division line. He's calling the next 12. So what are we? We just went from was it big nine? Big seven? What did it used to be? Blake Oliver: [00:55:19] Eight. There was a big well yeah. It keeps shrinking. David Leary: [00:55:24] Then it went to the big four. And now he's saying there's kind of like this. He's calling it the next eight. And it's kind of like you're seeing a division in those top or the next 12. Sorry. The top 12 firms are just completely separating themselves from the other 84 now. Blake Oliver: [00:55:38] And so how are they separating themselves? What are they doing that's different? David Leary: [00:55:43] It's really the revenue per employee is increasing. The, uh the flat revenue per employee is increasing the amount of offices they have, the personnel, they're all just growing. Blake Oliver: [00:55:56] Right. David Leary: [00:55:56] Much differently than the big four. Blake Oliver: [00:55:59] So that's really interesting. Revenue per employee. How is that different? Does he quantify it? David Leary: [00:56:03] Um, there's a graph in there. Hold on. Let me click on the article here. Blake Oliver: [00:56:07] Because what's interesting about big accounting firms is you actually look at like the big four versus all the other ones. Their revenue per employee is not. That much bigger than other firms in the top 25. And actually there are many small firms that have higher revenue per employee than, say, EA. Um, I think which has the lowest of the big four, if I'm not mistaken. But they're just big, right? They just have lots of people, but they're not necessarily any more efficient. But there is a big difference in the employees per partner at the big firms versus at the small ones. They have a lot more leverage. And that's why the partners make so much more money. That's really the key difference. But I'm curious, David, are you able to figure out what the difference is between. Yeah. David Leary: [00:56:59] So a couple of things that are I can easily extract from this big chart here. Um, revenue. So the big 4 in 2025 had about 43 million or 43 billion in revenue. So the revenue is doubled. Now the big four is about 91 billion, right? The next 12 they almost went up. Which which 24 divided by eight. That's a math on the show. Here we go. Blake Oliver: [00:57:23] Three times. David Leary: [00:57:24] Three times. So. So the next 12 have increased three times the number of offices in 2015. The next 12 had 491 offices. And now they have 718. And the big four move from 360 to 289. So you're seeing this big drastic jump, right. So the next tier. Blake Oliver: [00:57:42] The next tier is growing a lot faster. And the big four have like well I mean they doubled but they didn't triple. David Leary: [00:57:49] Got it. And so where are the partner numbers go here. Let's see. Yeah. So the like you just said the revenue per partner for the big four is kind of ridiculous. It's $5 million right. 5.3 million per partner. The next 12 that that tier it's 2.87. And the remaining 88 four is 2.1 million. So the and the revenue per employee. Big Four is 258,000. Next 12 is 250. The remaining 84 is 227. So that's where that that revenue per employee is really that line, that 250,000. Blake Oliver: [00:58:22] But the revenue per employee is is a lot closer than the revenue per partner. That's the big difference. That's the big difference. Big Four they just. David Leary: [00:58:30] Have more staff. Blake Oliver: [00:58:32] Fewer. David Leary: [00:58:32] The next 12, their revenue per employee is closer to the big four than they are the other 84. That's I think, the big thing. But it's I think just an interesting concept to kind of think about when we talk about this. We always think about big four. But really we need to start thinking about the next 12. Yeah. Blake Oliver: [00:58:48] In the, in the, um, in the live stream here, Dre has a question about the 5 million number that is revenue per partner at the big four. Right. David Leary: [00:58:59] Revenue per partner, big four. Sorry, I didn't mean I think I said salary on accident. Blake Oliver: [00:59:03] So that's that's that's that 5 million is the partner and their whole team. So that's that could be a lot of people, right? Does it say in the chart how many, uh, staff there are per partner? David Leary: [00:59:14] No, it just says per employee. Blake Oliver: [00:59:17] Yeah, I think it's like it. I don't remember exactly what it is, but I think it can be like 20 to 1. It can be really high. Whereas at, like regional firms it might be closer like 10 to 1. And then it's small firms it could be just 5 to 1 or even smaller than that. But you know, if you think about it that way, um, you know, 5 million per partner. Well, what's the profit of a typical accounting firm? A good rule of thumb is you can pull out 20% profit. So if that partner oversees a $5 million book of business, they personally should be making $1 million in profit on top of whatever their labor is worth in terms of their hourly billings. In theory. So that's why Big Four partners make so much money. Uh, but of course, the model requires them to work many, many hours in order to make that. So they are selling their time and they're making the most money you can probably from selling your time, I guess. Well, lawyers at big firms make more. Probably, but it's not bad. I just, I don't know, I wouldn't make that trade off personally. Yeah. David Leary: [01:00:36] All right. I just think as we talk about this stuff now, we're probably going to start referring to this group of 12 instead of just big four in the future. Blake Oliver: [01:00:46] Someday maybe. All right, David, I got to jump to another meeting. So great to talk to you as always. Thanks everyone who joined us on this, uh, unusually scheduled live stream. Don't forget, you can earn free continuing professional education credit for listening to this episode. Get the free earmark app. Go to Earmark app in your browser or download earmark CPE from the App Store. Create your free account. Find our channel on the app and get a free CPE. The course is available within about 48 hours of the episode releasing on the podcast, so if you don't see it yet, just wait a little bit. It'll show up, but you can go back and get CPE for all our previous episodes and we will. David Leary: [01:01:29] All those of you with the June deadline. This now is the time to cram. It's coming up fast. That's right, June 30th deadline. Blake Oliver: [01:01:36] And yes, boring accountant Friday will be our next live stream. We're going to get back on track with that. Um, let us know what you think we should talk about. Send us an email The Accounting Podcast. At earmarks. That's The Accounting Podcast at earmarks. Me, and we'll see you around. Bye, David. David Leary: [01:01:54] Bye.