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Blog – Full Posts

Why S Corporation Elections Backfire More Often Than You Think

Earmark Team · September 5, 2025 ·

Early in his accounting career, Jeremy Wells, EA, CPA, landed what seemed like the perfect client: a newly independent contractor drowning in tax debt to both the IRS and his state agency. Within just a couple of years, Wells helped transform this financial disaster into a success story. Through strategic S corporation planning, proper bookkeeping, and careful tax planning, his client went from owing thousands to receiving small but satisfying annual refunds.

The S corporation election was absolutely the right move. But Wells emphasizes that this was the right client at the right time, with the right circumstances.

In a recent episode of Tax in Action, “S-Corporation Reality Check,” Wells examines the oversimplified advice flooding social media feeds and startup marketing campaigns. While countless online voices promise S corporation elections deliver automatic self-employment tax savings for any successful self-employed person, Wells sees this advice creating expensive problems for businesses that never should have made the election in the first place.

“There’s a cottage industry developing around this concept,” Wells explains. We’re in a perfect storm where remote work and the gig economy have created lots of successful self-employed people who need tax help, but there’s a shortage of qualified advisors who can provide proper guidance.

The reality is, while this cottage industry promises easy self-employment tax savings, the one-size-fits-all approach ignores critical deal-breakers that can transform a supposed tax benefit into a costly mistake.

Balance Sheet Red Flags That Kill S Elections

The cottage industry’s relentless focus on self-employment tax savings completely sidesteps fundamental balance sheet realities that can make S elections counterproductive or even trigger unexpected taxable events.

The most dangerous misconception involves debt basis. Unlike partnerships, where partners receive basis credit for their share of entity debt, S corporation shareholders get no such benefit unless they personally loan money to the corporation.

“I can go get a loan and intend to use the funds in my S corporation, but if I personally guarantee that debt, that is not me generating debt basis,” Wells explains. “I am not loaning money to my corporation.”

This distinction catches many business owners—and their advisors—completely off guard. The COVID-era Economic Injury Disaster Loans are a perfect example of this misunderstanding. Thousands of sole proprietorships took personally-guaranteed SBA loans and later elected S corporation status, only to discover that their EIDL debt provided zero debt basis benefit. When these businesses generated losses, shareholders couldn’t deduct them against other income because they lacked sufficient basis.

But there’s another trap buried in the S election process itself. When an LLC elects S corporation status, the tax code requires a two-step transaction that most people don’t understand. First, the LLC becomes an association taxed as a C corporation, then immediately elects S status. During that first step, a Section 351 exchange occurs where the entity’s assets and liabilities transfer to the new corporation in exchange for stock.

Here’s where it gets dangerous: if the business has liabilities exceeding assets—not uncommon for debt-heavy service businesses with minimal fixed assets—this exchange creates taxable gain. “We might be inadvertently generating a taxable event for that owner or those partners when they make that selection,” Wells warns.

The equity structure challenges run even deeper. S corporations demand a single class of stock, pro-rata allocations of everything, and pro-rata distributions with no exceptions. “All items of income, loss, deduction, gain and credits must be allocated to the shareholders pro rata based on their percentages of ownership in the corporation stock, and there are no exceptions to that,” Wells notes.

This inflexibility is particularly problematic for businesses planning future acquisitions. Many small businesses today are built with acquisition in mind—not just Silicon Valley startups, but local businesses designed to be attractive to buyers within three to ten years. S corporations complicate these plans because many acquisition entities aren’t qualified S corporation shareholders. Non-US entities, partnerships, and C corporations can’t own S corporation stock, forcing expensive workarounds.

This is why Wells always asks clients about their long-term goals: “We always have to plan with the end in mind, especially when it comes to equity.”

Operating Agreements: The Hidden S Election Killers

The S corporation promotion industry systematically ignores a fundamental reality: most operating agreements are legal landmines for S elections. Wells’ firm learned this lesson the hard way, which is why they now require operating agreements from all multi-member LLC clients before making any S election recommendations.

“We read through it and try to pick out these terms and concepts and potential red flags,” Wells explains. What they consistently find are documents written exclusively for partnership taxation under Subchapter K—documents that can directly contradict the rigid requirements of Subchapter S.

The most dangerous provisions involve substantial economic effect requirements under Section 704(b). Partnership operating agreements routinely include liquidation provisions requiring distributions based on positive capital accounts. This creates non-pro-rata distribution requirements that are perfectly normal for partnerships but absolutely prohibited for S corporations.

Wells has encountered operating agreements that explicitly prohibit S elections, containing language like “this LLC will always be a partnership for tax purposes” or “the business cannot do any sort of corporate election.” Even more commonly, he’s seen agreements with waterfall distribution clauses that prioritize some members over others—a structure that violates S corporation pro-rata distribution requirements and can trigger inadvertent election termination.

Perhaps most problematic, Wells notes: “I have never seen an operating agreement in an original draft that listed out what happens if an S election takes place.” Most templates simply don’t consider the possibility, leaving businesses with agreements that actively work against their tax election goals.

Even operating agreements that appear silent on these issues often default to state partnership laws that can require non-pro-rata distributions. “If we have an operating agreement that doesn’t really cover these topics, that’s when state law intervenes,” Wells explains.

The solution requires proactive legal work that the quick-and-easy S corporation services don’t provide. Businesses need either revised operating agreements that explicitly allow for S elections or entirely new agreements written with tax flexibility in mind. This legal work might cost a few thousand dollars upfront, but it’s far cheaper than dealing with an inadvertent election termination that requires a private letter ruling or Tax Court intervention.

The Math Doesn’t Add Up: Hidden Costs and Incomplete Calculations

The S corporation promotion machine focuses entirely on self-employment tax savings while conveniently ignoring every other aspect of a client’s tax situation. This creates problems where businesses make expensive elections based on wildly inaccurate financial projections.

The most glaring flaw involves reasonable compensation requirements. “A lot of the estimates of tax savings with an S election just estimate reasonable compensation way too low,” Wells observes. “Those tax savings are not the result of the S election. Those tax savings are unreasonably low salaries being paid through those S corporations.”

It’s a mathematical sleight of hand. Of course, any advisor can eliminate 100% of self-employment tax by simply not running payroll to active S corporation shareholders. But this isn’t tax planning; it’s setting clients up for IRS problems down the road.

The Section 199A qualified business income deduction creates another calculation error that the cottage industry ignores. Higher reasonable compensation reduces the pass-through income that forms the basis for this valuable 20% deduction. As Wells explains: “We save a little bit of self-employment tax at the expense of a pretty significant deduction for a lot of small business owners.”

For many successful small business owners, losing substantial QBI deductions easily outweighs any self-employment tax savings from an S election.

State and local taxes deliver the knockout punch to many S election projections. Tennessee imposes a 6.5% tax on S corporations. New York City hits S corporations with an 8.85% rate. California charges the greater of $800 or 1.5% of net income. As Wells puts it, “Those taxes can wipe out any projected tax savings from an S election.”

A business owner in Tennessee could save $3,000 in federal self-employment tax only to pay $5,000 in additional state tax. The cottage industry’s federal-only analysis turns a supposed tax benefit into a $2,000 annual penalty.

The complications extend to asset transactions. S corporations create taxable gain when distributing appreciated property to shareholders, which is a problem that partnerships avoid. For businesses holding real estate or other appreciating assets, this difference can cost tens of thousands in unexpected taxes. That’s why Wells generally recommends not holding real estate in an S corporation.

Similarly, S corporations lose access to Section 754 elections that allow partnerships to step up the inside basis of assets when ownership changes. This valuable planning tool helps partnerships minimize taxes when partners sell their interests or inherit them. S corporations simply don’t have this option.

The Professional Alternative to Checkbox Solutions

The problems with S corporation election advice reveal a broader issue: complex tax decisions are being oversimplified into marketing soundbites. While the cottage industry profits from reducing professional judgment to self-employment tax calculators, tax professionals face a choice between participating in this race to the bottom or demonstrating why expertise matters.

“We need to seriously look at what that entity election will mean for the business today, in the future, and for the shareholders or partners themselves,” Wells says. This level of analysis requires understanding balance sheet implications, legal document conflicts, comprehensive tax calculations, and long-term business planning—expertise that can’t be packaged into a simple online service.

When clients arrive demanding an S election because “everyone online says it saves taxes,” the professional response isn’t to immediately comply or dismiss the idea. Instead, walk them through the complete analysis: balance sheet structure, operating agreement provisions, reasonable compensation realities, QBI impacts, state tax consequences, and future business goals.

This educational approach protects clients from expensive mistakes while positioning you as genuinely knowledgeable rather than just another order-taker. It creates long-term relationships built on trust and demonstrated expertise.

While the cottage industry promises simplicity, its oversimplified approach consistently creates far more complexity down the road. Inadvertent election terminations, operating agreement conflicts, unexpected state taxes, and acquisition complications all require costly professional intervention to resolve.

For tax professionals willing to master this complexity, the S corporation election presents both a professional responsibility and a market opportunity. Clients need advisors who can navigate the factors that determine whether an S election truly benefits their specific situation.

Good tax advice requires understanding the complete client situation, not just plugging numbers into a self-employment tax calculator. 

To hear Wells’ complete analysis and learn how to position yourself as the thoughtful alternative to the S corporation promotion industry, listen to the full Tax in Action podcast episode where he details the specific questions to ask and analyses to perform that separate professional advice from marketing-driven recommendations.

QuickBooks Online’s Latest AI Update Could Save You Hours of Detective Work

Earmark Team · September 1, 2025 ·

Picture this: You’re reviewing a client’s profit and loss statement when travel expenses catch your eye. They’ve jumped 624% from last month. Is this legitimate business growth, a categorization error, or duplicate entries? Traditionally, this would mean hours of detective work, drilling into transaction details and cross-referencing receipts.

But what if an AI agent had already investigated this anomaly, traced it back to two identical $10,834 hotel charges, and presented you with a detailed report, complete with visual charts and actionable recommendations?

This feature is rolling out to QuickBooks Online users this summer.

In this episode of The Unofficial QuickBooks Accountants Podcast, Jim Dzundza, Staff Product Manager for the QuickBooks Accounting Automation team, explains how AI-powered error detection agents are transforming accounting workflows. But this isn’t about robots replacing bookkeepers. It’s about intelligent collaboration where AI handles time-consuming pattern recognition while accountants focus on analysis and client relationships.

From Program Manager to Product Developer

Dzundza’s journey at Intuit offers unique insight into how accountant feedback shapes product development. He started on the business development team working on desktop product partnerships, then moved to manage the ProAdvisor program for several years.

“Accountants have had a special spot in my heart,” Dzundza explains. “They are the key to us developing amazing products and amazing functionality.” His transition from the front-facing ProAdvisor program to backend product development wasn’t accidental; it was driven by impact.

“I felt like I could make a bigger impact by bringing this accountant perspective and finding a team within Intuit that really thinks about how accountants use and love the product,” he says. “And then focusing on where a lot of the pain is, to be honest. How can we help accountants reduce the pain of the work that they have to do?”

This accountant-first approach shows in every feature Dzundza shared on the podcast.

The AI Agent Revolution Begins

QuickBooks Online’s new platform introduces six specialized AI agents, each designed for specific accounting functions. The accounting, payments, and finance agents are currently available. Project management is in beta, while payroll and customer agents are coming soon.

The rollout timeline is aggressive but manageable. All new files created now automatically use the new platform. Starting in July, existing users can opt into the new experience. By September, everyone will see it, with the ability to opt out until the transition becomes mandatory at the end of September.

“We are daily reviewing feedback that is streaming in around all of the new UI, the new agents, everything coming out,” Dzundza emphasizes. “We’re implementing fixes and changes based on user feedback.”

This feedback period allows accountants to shape these tools rather than simply accepting what’s provided.

Eliminating Data Entry Frustrations

The accounting agent tackles three major workflow areas: getting transactions into the books, categorizing them, and reconciling accounts. Each advancement addresses real pain points accountants face daily.

PDF Statement Upload

For years, working with small banks meant manually keying transactions or using third-party tools like MoneyThumb. The new PDF statement upload feature completely changes this.

“You have the PDF and you go in to add that statement or upload those transactions in the same way you would upload a CSV today,” Dzundza explains. “And now you’re able to upload a PDF.” The AI extracts transactions directly from bank statement PDFs, eliminating the need for external conversion tools.

Enhanced Collaboration

Perhaps more revolutionary is the new collaboration feature available on Essentials and above. When you encounter a transaction needing clarification, you can ask questions directly within the bank feed and send clients a magic link via email or text.

“They can go on their phone and answer the question,” Dzundza notes. “They can answer it from wherever without having to log into QuickBooks.” Once clients respond, the AI automatically updates its categorization recommendations based on that context, creating a feedback loop that improves accuracy for future similar transactions.

This addresses a major frustration: forcing business owners to log into QuickBooks just to answer simple questions about transactions. It also gives accountants control over their books while still gathering necessary context.

Reconciliation Gets Smarter

The reconciliation process receives similar AI enhancements, with tools launching in mid-July. Like bank feeds, reconciliation now supports PDF extraction with a crucial enhancement: when the AI can’t extract everything accurately, it flags questionable areas for human review.

“Our goal for this one is 100% accuracy,” Dzundza explains. This hybrid approach, combining AI speed with human verification, ensures accuracy while eliminating manual data entry.

The new reconciliation interface organizes information into logical sections: cleared transactions that matched one-to-one, flagged one-to-many matches requiring review, and AI recommendations for transactions that should potentially be excluded or unposted.

This addresses common reconciliation headaches like duplicate detection. As Dzundza discussed with host Alicia Katz Pollock, it’s easy to upload a receipt and then also accept the same transaction from the bank feed without noticing the duplication. The AI now surfaces these duplicates automatically, eliminating manual scanning for errors.

The Anomaly Detection Game-Changer

The most sophisticated feature is the accounting agent’s anomaly detection, which transforms financial statement review from manual line-by-line scanning to intelligent pattern analysis.

How It Works

The system analyzes 13 months of historical data, comparing the most recent complete month against established patterns to identify accounts that deviate significantly from normal behavior. But it’s smarter than simple variance detection. It considers each account’s historical volatility. Accounts with consistent monthly variation won’t trigger alerts for normal fluctuations, while stable accounts get flagged for even modest deviations.

“It looks over the past 13 months, and then it looks at the most recent complete month,” Dzundza explains. “And it will tell you if this month’s total seems off on either the balance sheet or P&L.”

Professional-Quality Investigation

When the system detects anomalies, the AI conducts detailed investigations using what Dzundza describes as “customized prompts we designed in partnership with accountants.” These prompts guide the AI to analyze transaction patterns, identify common characteristics, and surface potential root causes.

Travel expenses are a perfect example of this capability. When the AI flagged a 624% increase in travel expenses, it didn’t just note the variance; it traced the increase to two identical $10,834 hotel charges from the same vendor, immediately raising the question of whether these were duplicates or legitimate separate transactions.

Seamless Integration

The feature integrates directly into standard financial statements through subtle blue sparkles next to affected line items. Clicking a sparkle opens a detailed analysis directly in context, allowing investigation without leaving the familiar report format. The sparkles don’t print when you export reports, maintaining clean client deliverables while providing powerful review capabilities.

Actionable Reporting

The AI generates professional-quality PDF reports that serve as both investigation summaries and work papers. These reports include visual charts showing the anomaly, detailed root cause analysis, supporting data points with reference numbers for easy transaction lookup, and comprehensive narrative explanations of findings.

As Katz Pollock notes, “this is something I would be very happy to just send to my client.”

The Partnership Model That Works

These AI updates aren’t about replacing accountants, but about elevating their work.

“It’s not about replacing jobs or anything like that,” Dzundza emphasizes. “It’s really focused on creating tools that make people more efficient in getting their work done.”

As Katz Pollock summarizes, “this is in no way taking your job. All this is doing is calling your attention to things that it’s noticed in a way that you would not have access to just by looking.” The technology provides pattern recognition and initial investigation, but professional judgment about significance, cause, and appropriate action remains firmly in human hands.

Your Voice in the Development Process

Dzundza stresses that development teams are reviewing user feedback daily and implementing changes based on that input.

This gives accounting professionals a unique opportunity to actively shape these tools. The key is providing constructive, actionable feedback with specific details rather than general complaints.

The Future of Accounting Practice

Technical proficiency with AI tools is becoming as important as traditional accounting skills. Accountants who embrace this partnership will find themselves elevated from data processors to strategic advisors, spending less time hunting for errors and more time interpreting their significance for clients.

The collaboration model redefines what it means to be an accounting professional in an AI-enhanced world. The accountants who thrive will be those who view AI as a powerful research assistant rather than a threat, focusing their expertise on the strategic analysis and client relationships that technology cannot replace.

As these AI agents roll out over the coming months, you have the opportunity to be part of shaping the future of accounting practice. Listen to the full episode to hear Dzundza’s complete demonstration of these features, understand the implementation timeline, and learn how to provide constructive feedback that will help refine these tools for maximum benefit to accounting professionals.

The future of accounting is being written now. Make sure your voice is part of that conversation.


Alicia Katz Pollock’s Royalwise OWLS (On-Demand Web-based Learning Solutions) is the industry’s premier portal for top-notch QuickBooks Online training with CPE for accounting firms, bookkeepers, and small business owners. Visit Royalwise OWLS, where learning QBO is a HOOT!

Why Your Clients Keep Losing Good Employees and How You Can Fix It

Blake Oliver · August 27, 2025 ·

Small businesses are losing talent and money through employee turnover while a proven solution sits right under their noses—one that their accountants could easily provide, but rarely do. The numbers are stark: companies lose productivity, face constant recruiting costs, and struggle to compete for quality employees. Yet most business owners don’t know that offering benefits could dramatically reduce these problems, and their trusted financial advisors aren’t telling them.

That’s the message from a recent Earmark Podcast episode featuring Justin Kurn, Chief Revenue Officer of Dark Horse CPAs, a firm that doubled revenue from $6 million to $12 million in just one year, and Julia Miller, GM and Head of Product – Benefits at Gusto. Their conversation revealed a massive disconnect between what small businesses desperately need and what they currently receive from their professional service providers.

The Hidden Cost of Employee Turnover and the Benefits Solution

Small businesses lose money due to a problem they don’t fully understand while ignoring a solution that’s both affordable and proven. Employee turnover quietly erodes the bottom line, yet most business owners don’t realize that benefits can solve this crisis.

Research at Gusto reveals numbers that should make every small business owner and their accountant pay attention. “Small businesses that offer 401(k) have 40% lower employee attrition in the first year of employment than small businesses that don’t,” she explains. “Small businesses that offer health insurance have 25% lower attrition in the first year.”

These aren’t small improvements. Employee retention directly impacts profitability. When employees leave within their first year, businesses lose productivity, institutional knowledge, and momentum. They face constant training cycles, disrupted team dynamics, and the opportunity cost of what that departing employee could have contributed.

Yet most small business owners approach benefits with a fundamental misconception that costs them dearly. “Businesses think of benefits as an immediate cost increase to their business when it actually is not,” Kurn observes from his experience working with hundreds of small businesses. The knee-jerk reaction is always the same: business owners assume they’ll need to pay 20, 30, or 40% more in payroll costs to cover employee health insurance and retirement contributions.

But most don’t realize that simply providing access to benefits, even when employees pay the premiums themselves, can be transformative. The value isn’t necessarily in what the employer contributes, but in what they make possible. As Justin points out, when you run the numbers, “if the options are I either give them a raise or I add benefits, benefits is probably the right option,” once you factor in payroll taxes and other considerations.

Perhaps more importantly, offering benefits widens the talent pool available to small businesses. “It’s not that the same candidate stays longer, it’s that a different candidate you didn’t even explore before is coming to you and staying longer,” Justin explains. Skilled employees who can demand and receive comprehensive compensation packages simply won’t consider positions that don’t offer benefits. By not providing these options, small businesses automatically exclude themselves from competing for top talent.

This creates a cycle: without benefits, businesses can only attract employees who can’t demand better packages elsewhere. These employees are often less committed, less skilled, and more likely to leave quickly when something better comes along. Meanwhile, companies offering benefits access an entirely different candidate pool of professionals who think strategically about their total compensation and career stability.

The Massive Advisory Gap and Competitive Opportunity

It’s shocking how few small businesses get the guidance they need. “Ten percent of our customers get benefits-related advice from their accountants,” Miller reveals. “Just imagine what we could do for the small business community in this country if that 10% went to 50%.”

Think about that for a moment. Nine out of ten small businesses struggle with employee retention, losing money through turnover, and missing out on accessing better talent pools, all while their trusted advisors remain silent on a solution that could transform their companies. This is a huge opportunity for accountants who recognize what’s happening.

Dark Horse CPAs understood this shift and built their explosive growth around it. The firm began building its advisory services at the tail end of 2022. They added benefits to their service menu and fundamentally changed how they engage with clients, moving from reactive compliance work to proactive strategic guidance.

Recognizing the trigger points and knowing how to act on them is crucial. Kurn’s team watches for three critical signals: revenue growth, staff growth, and high employee turnover. When they spot these patterns, “it’s a question of, not if, but when,” Justin emphasizes. “If you plant the seed of when, it’s like, ‘well, this is a necessary step in my growth and development as a business.’”

This subtle shift in messaging completely changes the client’s mindset. Instead of viewing benefits as an optional expense they might never need, clients begin to see it as an inevitable step in their business evolution. The conversation moves from “Do I really need this?” to “When should we implement this?”

The beauty of this approach is that it doesn’t require accountants to become benefits experts overnight. “If you focus just on compliance and blocking and tackling, these are not conversations that you’re privy to,” Justin notes. “But if you’re in the seat of the advisor, these conversations do come up either directly or indirectly.” The key is positioning yourself to hear these conversations and knowing when to act on them.

What makes this opportunity even more compelling is most accounting firms aren’t even trying to capture it. While Dark Horse doubled its revenue by embracing advisory services, their competitors remain stuck in the traditional compliance mindset. This creates a massive first-mover advantage for firms willing to make the shift now.

The Practical Path to Benefits Advisory Success

Shifting from transactional payroll processing to strategic benefits advisory doesn’t require accountants to become licensed insurance brokers overnight. Instead, you need to understand how to facilitate the process while positioning yourself as the trusted advisor throughout the journey. Dark Horse’s model leverages both technology and authenticity to create genuine value for clients.

Gusto’s platform enables what Kurn calls “self-discovery.” Rather than requiring accountants to lead every conversation and manage every detail, roughly 60% of Dark Horse’s clients actually discover and explore benefits options independently through the platform, then return to their accountants for validation and guidance. “They can self-assess quite often and look for validation from the accountant’s side, and then support during the process,” Kurn explains.

This model works because Gusto’s user experience encourages exploration rather than intimidating users. “Clients dump it onto their accountant because it’s like, ‘I don’t even want to go in here. I don’t even know how to get in here.’ Gusto is different,” Kurn notes. The platform follows an intuitive path that allows business owners to understand their options without feeling overwhelmed by complexity.

But the secret weapon that makes Dark Horse’s approach so effective is authenticity. “The best sales tool or the best advisory tool comes from a place of authenticity,” Kurn emphasizes. Dark Horse uses Gusto benefits for the firm, which means every team member experiences the platform as an end user. When clients have questions about the employee experience, Kurn can show them what they’ll see because he uses it himself.

This authenticity eliminates the biggest barrier many accountants face when considering benefits advisory work: the fear they’ll need to become benefits experts and “sell” something they don’t fully understand. Instead, it becomes a natural conversation: “Do you want to see? I could actually show you what the experience is as an employee. Like, this is what I see because I use it myself,” Kurn explains.

When clients are ready to move forward, Gusto provides licensed human advisors who can partner with accountants to help answer complex questions and guide clients through the selection process. This means accountants don’t have to become benefits experts. They just need to recognize when clients need this guidance and facilitate the connection.

The implementation process minimizes the burden on accountants and business owners. For new benefits offerings, Miller explains that while clients typically shop a few months ahead, the actual implementation can be compressed to about four weeks when necessary. The business owner’s involvement can be minimal. They need to understand what they’re signing up for and sign the necessary documents, but Gusto handles the heavy lifting of carrier coordination, employee communication, and enrollment management.

Most importantly, this advisory approach translates directly into significantly higher revenue for accounting firms willing to make the shift. Kurn’s pricing strategy is straightforward. The firm treats benefits implementation as project-based work with ongoing advisory fees that typically run two to three times higher than transactional services.

“There’s a three times delta between these two things. That’s the value to the firm if you can get into the seat of the advisor,” Kurn emphasizes. This isn’t about charging more for the same service. It’s about providing valuable, strategic guidance that justifies premium pricing.

The Time to Act is Now

This perfect storm of opportunity won’t last forever. Small businesses are struggling with employee retention, losing talented workers they can’t afford to lose. Offering benefits can slash turnover rates by 25% to 40%. Yet nine out of ten businesses don’t get this crucial guidance from their trusted advisors.

For the accounting profession, this is a chance to transform how we serve clients and position our firms in the marketplace. Dark Horse CPAs didn’t just stumble into doubling their revenue; they recognized their clients’ need for strategic guidance.

But this window won’t stay open indefinitely. As more accounting firms recognize this opportunity and begin offering benefits advisory services, the competitive advantage will diminish. The firms that act now, while 90% of their competitors remain stuck in transactional mode, stand to capture significant market share and establish themselves as the go-to advisors for growing businesses.

Start by implementing Gusto benefits for your firm to gain authentic experience with the platform. Begin watching for those trigger points Kurn identified: revenue growth, staff growth, and high employee turnover. When you spot these signals, initiate the conversation using “when” language rather than “if” language.

Most importantly, don’t let fear of the unknown hold you back. You don’t need to become a benefits expert overnight. You need to become the trusted advisor who recognizes when clients need this guidance and connects them with the right resources. The expertise already exists through platforms like Gusto’s licensed advisors. Your role is to facilitate access to it while providing the strategic oversight your clients depend on.

The small businesses in your portfolio are waiting for this guidance, whether they realize it or not. They’re struggling with employee retention, losing sleep over recruiting costs, and missing out on talented candidates who won’t even consider positions without benefits.

Don’t let this massive opportunity pass by. Listen to the full Earmark Podcast episode to hear Justin Kurn and Julia Miller’s complete playbook for transforming your practice through benefits advisory services. Your clients need this guidance, the data proves its effectiveness, and your competitors might not be providing it yet. Will you be among the first to capture it? Or among the last to realize what you missed?

The Hidden Traps in Clean Energy Credits That Could Cost Your Clients Thousands

Earmark Team · August 27, 2025 ·

Picture this scenario: You just finished a call with a client who mentioned installing solar panels on her vacation home. Now it’s tax time, and she’s dropped off her tax documents, including information about the solar installation. Among the paperwork, you find two invoices: one for the solar panels, equipment, and installation labor, and another from a building contractor for roof work. Your client included a note explaining that the solar panel installation required structural retrofitting to make the roof suitable for the panels.

This is your first time dealing with solar tax credits. You know there’s some special tax benefit, but you’re not sure how it works. Which expenses qualify? How do you calculate the credit? And what about those two different invoices? Does the roof work count toward the solar tax credit?

This scenario comes from Jeremy Wells’ Tax in Action podcast, where he walks tax professionals through the residential clean energy credit. Wells, a CPA and Enrolled Agent in Florida, has seen this situation repeatedly as more clients install solar panels and other clean energy property.

While the residential clean energy credit offers substantial savings—at least until it’s eliminated at the end of 2025— tax professionals must navigate complex qualification rules, timing requirements, and cost allocation issues, often with limited regulatory guidance beyond the basic code section.

Understanding the Clean Energy Credit Basics

The residential clean energy credit comes from Internal Revenue Code Section 25D. It provides a nonrefundable credit for up to 30% of qualifying expenses on residential clean energy property. The credit was initially designed to be worth 30% of qualifying expenses through 2032, then drop to 26% in 2033 and 22% in 2034. However, H.R. 1, commonly known as the “One Big Beautiful Bill Act,” eliminated the credit at the end of 2025.

Since this is a nonrefundable credit, it can’t reduce a taxpayer’s liability below zero or create a refund. However, if the credit exceeds the taxpayer’s current tax liability, the excess carries forward to future years.

The qualifying property includes several types of clean energy installations:

  • Solar panels (most common)
  • Solar water heaters  
  • Small wind energy systems
  • Geothermal heat pumps
  • Fuel cell property
  • Battery storage property

It’s important not to confuse this with the residential energy efficiency improvements credit under IRC Section 25C, which covers items like new windows, insulation, or HVAC systems. Those fall under a completely separate credit.

What Makes a Residence Qualify

Unlike some residential tax benefits that only apply to primary residences, Section 25D has broader requirements. The property must be installed at a “dwelling unit,” a place the taxpayer actually lives in the United States and uses as a residence. This can include second homes, vacation homes, or summer homes, as long as the taxpayer uses them personally.

However, the credit doesn’t apply to rental properties or investment properties. If a client installs solar panels on a rental property, that falls under entirely different tax provisions.

Business use of the home creates additional considerations. If more than 20% of the property’s square footage is used for business purposes (like a large home office), you’ll need to allocate the expenses. The taxpayer can only claim the credit on the portion allocated to personal use of the home. For business use of 20% or less, no allocation is required.

Qualifying Costs and Technical Requirements

Determining which costs qualify for the credit requires careful analysis of invoices and documentation. Eligible expenditures include:

  • The cost of the property itself
  • On-site labor costs to prepare, assemble, and install the property  
  • Costs to connect the property to the home’s electrical or plumbing systems
  • Sales tax paid on eligible costs

However, not all installation-related costs qualify. Wells explains the critical distinction: “If the panels actually become a structural part of the roof, then we can include that cost. That’s different from saying that we had to do some work to the roof to be able to install those panels.”

In the opening scenario, the solar panel installation costs would likely qualify, but the separate roof retrofitting work probably wouldn’t. The roof work represents preparation rather than panels becoming part of the roof structure.

Different types of property have specific technical requirements:

  • Solar water heaters must be certified by the Solar Rating Certification Corporation or a comparable state-endorsed entity.
  • Geothermal heat pumps must meet Energy Star requirements.
  • Battery storage needs a capacity of at least three kilowatt hours. As Wells notes, “I’m not an electrical expert. I’m a tax professional. I’m going to ask the client for some piece of paper from the installer showing me that it has a capacity of at least three kilowatt hours.”
  • Fuel cells face cost limitations of $1,667 per half-kilowatt of capacity.

Any property that serves additional functions beyond energy production, like a swimming pool or hot tub heated by solar energy, can’t include those additional components in the credit calculation.

Rebates, Incentives, and Excess Generation

Rebates and incentives can affect the credit calculation. Direct or indirect rebates from manufacturers, distributors, sellers, or installers reduce the eligible costs. However, state government incentives typically don’t reduce the federal credit calculation.

A particularly complex issue arises when solar installations generate more electricity than the home needs. If the taxpayer sells excess electricity back to the grid, only the portion of costs related to the home’s actual electricity needs qualifies for the credit.

Wells acknowledges the challenge this creates: “Do we allocate this based on actual electricity generated and over what period of time? Should we be using data from the home’s electrical usage prior to installation? These are all unanswered questions as far as the guidance we have now.”

Timing Rules That Matter

When a taxpayer can claim the credit depends on the type of installation:

For existing residences, the credit applies when the property is completely installed, when work crews are done, and when the property is ready for use. For new construction or reconstruction, the credit applies when the taxpayer begins using the dwelling unit, which may be later than when the clean energy property is installed.

This distinction can shift credits between tax years and impact tax planning. Wells sees many situations where taxpayers start work in one year but don’t complete installation until the next year, or where installation happens late in the year but certification doesn’t arrive until the following year.

If taxpayers finance the purchase through the seller, they can calculate the credit based on the full cost of their payment obligation, not just the amounts actually paid. However, interest on financing doesn’t count toward eligible costs.

Documentation and Reporting Requirements

Tax professionals often find themselves helping clients gather documentation that the client should have obtained during the purchase process. This includes:

  • Detailed invoices breaking down eligible and non-eligible costs
  • Certification documents showing technical specifications
  • Information about any rebates or incentives received
  • Details about excess electricity generation and sale back to the grid

Taxpayers report the credit on Form 5695, Residential Energy Credits, with different lines for different types of property. The form calculates the maximum credit amount and applies limitations based on the taxpayer’s tax liability.

Since this is a nonrefundable credit, it can offset the alternative minimum tax but can’t create a refund. Any unused credit carries forward to future years.

Practical Takeaways for Tax Professionals

Wells emphasizes that, unlike most areas of tax law, practitioners have limited guidance beyond the code section itself. “We really don’t have much guidance beyond what’s in the code section itself. We don’t have any Treasury regulations related to this code section, which is not very common.”

This means tax professionals must rely heavily on professional judgment when making determinations about qualification, cost allocation, and timing. The key is asking the right questions:

  • Is this the taxpayer’s personal residence, and what percentage do they use for business?
  • What costs did the homeowner pay, and are there any rebates or incentives?
  • For a solar electric property, is the property owner selling any electricity back to the grid?
  • When was the property completely installed, or when did the taxpayer move into a new residence?

Wells notes that sometimes by helping clients gather proper documentation, “we actually help them ensure they’ve gathered all the documentation they might need in the future.”

The residential clean energy credit offers significant tax savings for qualifying installations, but success depends on careful analysis of costs, proper documentation, and understanding the technical requirements that vary by property type. While the guidance may be limited, a systematic approach to qualification and documentation helps ensure clients can take advantage of these valuable credits while maintaining compliance with tax requirements.

To hear Wells’ complete analysis and additional examples of how to handle complex scenarios, listen to the full Tax in Action episode.

Protect Your Bookkeeping Practice: Essential Boundaries That Preserve Your Value

Earmark Team · August 27, 2025 ·

When hosts Alicia Katz Pollock and Veronica Wasek spun their “Wheel of Rants” on a recent episode of The Unofficial QuickBooks Accountants Podcast, they landed on a topic that sparked an energetic discussion: “The 20 things that accountants should never do.”

What followed was a candid conversation about the essential boundaries every bookkeeper should establish to protect themselves and their clients. Whether you’re just starting your bookkeeping practice or you’re a seasoned professional, these boundaries are critical safeguards for building a sustainable business.

Client Relationship Boundaries: Who’s Really in Charge?

“Allowing clients to control the work we do and really treating us as employees” topped Wasek’s list of boundary violations. She explained that many bookkeepers, especially those transitioning from employee roles, fall into the trap of letting clients direct their work.

“The client shouldn’t be directing the work you do,” Wasek emphasized. “There should be proper diagnosis done by us as accountants and then we give the client our recommendations.”

This distinction is crucial: Are you following orders or leading the process? As Katz Pollock  pointed out, “If you’re a bookkeeper with your own firm or your own practice, you should be the one guiding the narrative.” Otherwise, you might actually be functioning as an employee rather than an independent contractor.

Financial Boundaries: Know Your Worth

Both hosts shared strong opinions about working for free or undervaluing services. Wasek explained how offering free work “devalues our industry as a whole” and signals that you don’t value your own expertise.

Katz Pollock added a practical concern: “If you were willing to do it for free, why would I pay you $500 a month to do it?” This initial boundary violation creates expectations that become nearly impossible to reset later.

Another common mistake is marking down invoices without discussion. Wasek shared an example based on her own experience. “My fee was $10,000 based on all the time that I spent on it, but I don’t think they’re going to pay me $10,000, so I just charge them $5,000.”

She now recognizes this as a serious boundary violation, explaining, “We tend to project our own feelings about money to our clients.” Instead of assuming clients won’t pay, have an open conversation about pricing.

Katz Pollock offered a practical strategy for those who bill hourly. “I charge what I consider a reasonably high rate, and that allows me to give a discount. Then I feel like everybody wins. I’m still getting a satisfactory rate, and they feel good.”

The hosts also warned against becoming financially dependent on just a few clients. “What if one out of those three leaves and you were financially dependent on that client?” Wasek cautioned. This dependency traps bookkeepers in problematic relationships where they can’t enforce other boundaries for fear of losing essential income.

Security Boundaries: Protecting Your Clients and Yourself

“Having direct access to the client’s bank accounts or their bill payment” is a practice Wasek strongly discourages. She shared a sobering example of a client that embezzled $8 million through their in-house bookkeeper, who had unrestricted access.

Katz Pollock acknowledged the practical challenges, noting she sometimes needs bank account access to view statements or check images. Her solution involves strict controls: “We have a 1Password vault that nobody has access to except for me and my contracted bookkeeper,” plus explicit language in her engagement letter that they “will never take any action either on your behalf or at your request.”

Both hosts emphasized the importance of secure password management. “Nowadays, you need to have unique passwords for everything,” Wasek explained, recommending systems that limit credential visibility to only those who absolutely need them.

Email communication presents another security concern. “The bane of my existence is emails,” Katz Pollock admitted, noting important client communications often get buried. More critically, Wasek warned, “There are so many email scams going on right now where you think you’re talking to your client and they are not your client.”

She shared a chilling example: “One of my clients was a victim of an email scam with a vendor. He sent a couple of million dollars to this fraudulent vendor, and then couldn’t do anything about it.” This led her firm to abandon email entirely for client communications, moving to secure platforms instead.

Professional Expertise Boundaries: Know Your Limits

“Taking a client when you lack the required skills” and giving legal or tax advice without proper qualifications made both hosts’ lists of major boundary violations.

“Certain industries and certain types of clients are more complex,” Wasek explained, highlighting areas like e-commerce and nonprofit accounting that require specialized knowledge.

Both hosts stressed that bookkeepers should never give tax or legal advice without proper credentials. “If you don’t have a law degree and if you don’t have a tax designation, then you can’t actually back up and stand by the advice you’re giving,” Katz Pollock cautioned.

Instead, they recommended developing relationships with specialists and having prepared responses for common client questions. As Wasek suggested, “I would try to give them the right words to use to ask their CPA the proper question.”

Documentation Boundaries: Get It in Writing

“Not using engagement letters” was another boundary violation, both hosts emphasized. Wasek learned this lesson “the hard way” after initially “working on a handshake,” explaining that formal agreements “really set the tone for the entire relationship.”

A comprehensive engagement letter should outline services provided, responsibilities, pricing, payment terms, and procedures for ending the relationship. Katz Pollock recommended reviewing engagement letters annually. “I look to see if their scope has changed. How many checking accounts did I agree to and how many do they have now?” This gives a “tangible reason for raising our prices” beyond just annual increases.

Both hosts also advocated for paid diagnostic assessments before committing to new clients. This smaller initial engagement helps evaluate a client’s responsiveness and complexity before making longer-term commitments.

Personal Boundaries: Protecting Your Time and Energy

The hosts discussed the common issue of bookkeepers acting as “unpaid therapists” for their clients. Wasek recalled a client who “would keep me on for at least an hour” multiple times weekly, making it impossible to complete actual work. She learned to establish time parameters, saying, “I’d love to talk to you, but I have a meeting in 15 minutes.”

Another crucial personal boundary involves maintaining client confidentiality. “You never, ever, ever talk badly about either the business owner or a bookkeeper to another business owner or another bookkeeper,” Katz Pollock stressed. This includes avoiding sharing information between clients or discussing former clients with their new bookkeepers without explicit permission.

Wasek shared a situation involving partnership conflicts: “I had to terminate the relationship. I would rather this client think badly of me for leaving them without a bookkeeper than to attack the other partner or to tattletale.”

Building a Stronger Practice Through Boundaries

Throughout their discussion, Wasek and Katz Pollock emphasized that proper boundaries ultimately create more sustainable and rewarding businesses.

“I am a big believer in karma, and that when one door closes, another one opens,” Katz Pollock shared. “If you have a really large client that you depend on, and either they let you go or you just find it toxic, I don’t recommend staying.”

Wasek agreed, adding that when bookkeepers release problematic clients, they gain “so much more mental energy to devote to better clients.”

For bookkeepers looking to establish stronger boundaries, the hosts recommended:

  • Getting proper training to understand your expertise and limitations
  • Using engagement letters reviewed by legal professionals
  • Implementing secure technology solutions for passwords and communications
  • Developing scripts for common boundary challenges
  • Building relationships with specialists for referrals
  • Conducting paid diagnostic assessments before committing to new clients

As Katz Pollock concluded about maintaining professional boundaries, “It says way more about you than it does about them.” It’s a reminder that how you establish and maintain boundaries ultimately defines your professional reputation and the health of your practice.

To hear more detailed insights about these essential bookkeeping boundaries, listen to the full episode using the player below or wherever you get your podcasts.


Alicia Katz Pollock’s Royalwise OWLS (On-Demand Web-based Learning Solutions) is the industry’s premier portal for top-notch QuickBooks Online training with CPE for accounting firms, bookkeepers, and small business owners. Visit Royalwise OWLS, where learning QBO is a HOOT!

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