Recruiting, flexible working, and tax season issues for small firms

Hosted by Neil Amato

Some issues facing small CPA firms are the same as those facing large firms or other organizations — talent retention, change management, and more. But there are some issues that are specific to small firms, and potentially more acute, as explained in this Journal of Accountancy podcast episode with Carl Peterson, CPA, CGMA, the AICPA's vice president–Small Firm Interests.

Also, learn about recent JofA coverage of criticism of the updated Form 1099-K reporting threshold.

What you'll learn from this episode:

  • Some of the stereotypes that small firms must overcome in recruiting.
  • How the advent of flexible working is tied into retention and recruiting.
  • The pay and benefits changes small firms are making to attract talent.
  • Why some smaller firms are behind in tax season and how that can affect employee burnout.
  • The reason Peterson advises small firms to not return to "the way you used to practice."

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at


Neil Amato: This is Neil Amato, and you're listening to the Journal of Accountancy podcast. This episode focuses on smaller CPA firms, the top issues, staffing trends and obstacles – tax season and other. Joining me to explore that topic is Carl Peterson, a CPA who serves as vice president of Small Firm Interests for the AICPA. You'll hear that interview right after this brief sponsor message.

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Amato: Carl, welcome to the podcast. First, as someone in regular contact with leaders at small firms, what would you say are the top issues facing them these days?

Carl Peterson: Neil, there are several. Talent is certainly is the top issue both recruitment and retention, but primarily retention. Then from there, you can look at regulatory change from a standards perspective and a tax perspective. Of course, change management – there's talent, technology, client needs, and opportunities. They're all somewhat related, but you put those all together, it's all about practice management.

Amato: You mentioned talent first, so that's where we'll go first. What are some of those specific recruiting challenges for smaller firms?

Peterson: I can tell you that as a small firm practitioner in the past before I came to AICPA, being a small firm, the first issue or challenge is that there's an awareness challenge. Students and potential candidates oftentimes don't even look at a small firm and won't even give them the time of day. So, awareness is a big problem. There's the stereotypical view of what a small firm is. Candidates aren't aware of small-firm opportunities, not sure of the culture, and definitely they feel that there's no upward career path that is similar to large firms.

When they're in college and university, they hear about large firms and they talk about the path to becoming a partner and all those things. Small firms don't have that same path necessarily. They're not that same size in scope as a large firm. So, the big challenge really is awareness and getting over that stereotype view that many people have about smaller firms.

Amato: Regarding the people they already have on staff, how are retention and flexible working arrangements tied into each other?

Peterson: This is small firms, large firms, this is really pretty much the same. Retention is directly tied to flexible work arrangements. Staff is simply not going to stay if they have to work in the office every day of the week. That's true for a small firm and a larger firm.

So retention in firms today has to be flexible. They have to offer the remote access and not only offer the remote access, which they've actually been able to do for years, but really allow that staff person to work from home more than just one day of work, more than just the evenings and weekends now that we're in tax season.

Amato: What are the trends, I guess, on real estate footprint and attendance that you're seeing with some of those smaller firms these days as far as a return to in-office work?

Peterson: Well, I can tell you, Neil, that this has been a big discussion since the pandemic started and what's been happening last two years, that smaller firms would rather be in the office. The smaller firms, I don't believe, really are reducing their footprint much like a lot of the large firms are.

Think about the large firms in that respect – they have to accommodate in an office environment, they needed a bigger footprint. Today in the flexible work arrangement, the hybrid offices, you don't really need that.

Smaller firms, I don't think we're going to see much of reduction in footprint on their real estate. There may be some that go totally remote, but for the most part, small firms are not going to make that change, but they also have made as much of an investment in the space that the larger firms have.

Amato: On the staffing front, whether it's new employees or existing ones, what are the strategies that small firms are using to remain competitive?

Peterson: It changes pretty quick. First, they want to get across what a small firm culture really is, how great it is, how great the environment is. But to be competitive, they're actually raising their level of compensation now, too – much faster than they have in the past.

There's retention bonuses as well, increased PTO, flexible work schedules with working-from-home options. All of these, trying to avoid the Great Resignation, trying to reduce the amount of staff that says, "You know what, I just can't put the time in anymore." So there's quite a bit going on really.

Amato: We will get to client expectations as they relate to tax season in just a bit, but what are some of the nontax themes that are emerging for small firms when it comes to living up to what a client wants?

Peterson: Great question. Workload compression with a tight staff, hours are too long, everybody's worried about burnout, there's too much work to do, not enough time, not enough bodies to get the work done. So, really, managing client expectations while not burning out staff is a big issue.

There's only a finite period of time during tax season, so the issues are really more acute and need to be handled now and not later. But that whole pressure of putting in all the time and energy over the last two years continues into this year as well.

Amato: Tax season, it's obviously here. There are issues that the Journal of Accountancy has covered widely, but what are some of the biggest pain points for small firms this year related to tax season?

Peterson: Technology – everybody has tax software in their office. Hopefully, many firms have workflow processing software in the office, but not enough of them have that. Not enough small firms are utilizing solid, strong workflow processing applications.

Technology is not always staying up to speed as far as it relates to – I know there's frustration out there right now with firms, they tell me that while the federal side of the tax software is ready to go, the state-specific forms may not be approved and ready to go, or the interaction between multiple states is a challenge because the software was really not ready. So there's that.

The big question this year has been K-2/K-3 forms. Do I file them? Do I not file them? Do I wait? You can't file them electronically yet. I think they'll be available here later in March. What do I do? Do I extend those passthrough entities and then decide later to file the K-2/K-3 forms? Those things are big issues.

The other thing is that everybody is late this year. All the firms are behind where they thought they should be where they were in prior years, even the last two years. So clients are late in getting their data to their tax practitioner.

Amato: So, that can't help with the burnout problem.

Peterson: We expect our staff to be putting in all this time year after year, which they've done. But I also think over these last two years we've seen a lot of burnout and a lot of people leaving their staff of all ages, of all levels.

I know of young partners that have not left the firm, but have come back on their commitment and say, "You know what, I'm only going to work 70%, 80% time." The work doesn't go away. The client demands don't go away. The client expectations don't go away. Now you have fewer bodies to get it all done, so you really just have to manage those client expectations.

Amato: You touched on the state issue. I want to go to something that we didn't really think about discussing, but it's popped into my head. What about the SALT issue, the state and local taxes, how are small firms handling that?

Peterson: It is probably one of the number one issues. I''m on various email networking groups, email streams, and this is a hot topic. So as you know and I think you're alluding to the SALT issue, there's limitations on an individual's ability to deduct a certain dollar amount of state and local tax.

The workaround in many states is to create this passthrough entity tax that you can go ahead and have those taxes paid at the state level through the passthrough entity. That gets deducted then for state purposes, and the individual ends up being able to get the benefit of a higher deduction and ultimately they get the money back.

But that is the big question is, not every state is doing it the same way. Not all of the filing requirements are exactly the same. For sure the difference is, it isn't that straightforward. So there's a lot of questions, a lot of clarity that needs to happen.

So firms are challenged by that as well, and I've watched this in these email streams, people asking each other questions, "How do I handle this? What's the impact of this on PTE?" That's how they referred to the passthrough entity tax as PTE.

It is a hot topic. It's great you brought it up, because it is potentially today, because March 15th is coming up here soon. It could be one of the number one issues in practice today.

Amato: I will make the note that we're recording on Tuesday, March 8th. So that March 15th deadline that Carl mentioned, I believe on our publishing schedule, it may be on March 15th that this episode publishes.

Carl, CPA firms really came to the rescue of small businesses with the Paycheck Protection Program, helping getting those loans. In what ways can they or have they capitalized on that effort to strengthen client relationships and build new ones?

Peterson: Oh, my gosh. The last two years, there's a lot of firms that went from being strictly a compliance-type operation, preparing tax returns, getting what needs to be done and filed for their clients, and moved directly into being a consultant and adviser.

For those firms that are already doing it, they became even a closer trusted business adviser over the last few years. So now's this great time to capitalize on that. If you think about the clients that small firms – any firm has – you always have a book of clients, a book of business that you do year in and year out.

Now that you've gone through this and you've become these closer trusted business advisers, it's probably time to capitalize on that experience and take a look at the client base you have. Is it right for your practice? Are you still right for that individual or that business?

Capitalize on your knowledge that you gained during the last two years and become that adviser to a smaller group of businesses and clients. Don't go back to the old practices, the way you used to practice. Don't go to the old habits. You've developed new habits for workflow. You've developed new habits in communication with your client. You've developed new management processes to getting work done. Capitalize it, now's the time to do it.

Amato: This has been an interesting conversation and an enlightening one for me. Anything you'd like to add in closing?

Peterson: I'll tell you, Neil, that I think year in and year out, being a CPA is probably one of the best things to do. Because we talk about the clients, we talk about the workflow, we talk about the things that we do. But there's not many professions where we really get to help our clients and help individuals and businesses accomplish their goals and get paid for it and feel good about it.

We're giving back to the communities all the time. By giving back to our clients and helping them achieve their goals, it's a win for everybody. I've heard others say it in the past, other leaders of AICPA talk about how great it is to be CPA. It's so true today. It's pretty cool.

Amato: That was Carl Peterson, VP of Small Firm Interests at the AICPA.

In other news, the Journal of Accountancy's Paul Bonner has written about the new lower form 1099-K reporting threshold and some of the criticism of that change. The change to a $600 threshold drew a cautionary tax tip from the Taxpayer Advocate Service. The National Taxpayers Union Foundation has urged Congress to revoke or reduce the magnitude of the change. You can find the link to that article in the show notes for this episode.

I'm your host, Neil Amato. Thanks for listening to the Journal of Accountancy podcast.