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W-2 or 1099? Navigating Worker Classification with Confidence

July 4, 2025 by Nick Magone, CPA, CGMA, CFP®

Are you classifying your workers correctly as W-2 employees or 1099 independent contractors? This distinction carries costly legal implications and tax consequences that impact both your business and your workers.

Here’s a breakdown of the differences and why they matter to your bottom line.

The basics: W-2 vs. 1099

A W-2 employee works directly for your company under your control and direction. You determine when, where and how they perform their duties. On the other hand, a 1099 contractor operates as their own business entity, providing services to your company while maintaining autonomy over how they complete their work.

But how does the IRS determine worker status? When evaluating whether someone is an employee or independent contractor, the IRS analyzes three critical categories:

  • Behavioral control. Who directs how work is performed, including instructions, training methods and supervision requirements?
  • Financial control. Who controls the economic elements of the work relationship, examining factors like the worker’s investment, opportunity for profit or loss and payment structure?
  • Type of relationship. How do both parties view their connection, considering factors like relationship permanency and provision of traditional employee benefits such as insurance and paid time off?

The business-wide impact of worker classification

Each classification carries its own distinct set of requirements and implications that directly impact your bottom line, compliance status, management approach and more.

Taxes. As an employer or W-2 employees, you withhold income taxes, Social Security and Medicare from their paychecks and contribute the employer’s portion of these taxes. You pay federal and state unemployment taxes and must issue a W-2 form by January 31 showing annual wages and tax withholdings.

In comparison, 1099 employees are responsible for their own tax obligations, including self-employment taxes. There are no FICA or unemployment tax requirements.

Cost. While hiring independent contractors might seem less expensive no benefits costs, reduced payroll taxes), the calculation isn’t always straightforward.

Contractors typically charge higher rates to cover their self-employment taxes and benefits. However, the flexibility of scaling contractor relationships up or down based on business needs can be a valuable perk.

Control and legal protection. With W-2 employees, you maintain greater control over work processes, schedules and training. But this control comes with additional legal protections under employment laws.

Independent contractors, however, offer expertise without requiring the same level of day-to-day management.

Business planning. W-2 employee relationships typically create more stable, consistent teams but require longer-term financial commitments. Independent contractor relationships provide greater flexibility and specialized expertise that can be brought in precisely when needed.

When developing both short and long-term business plans, understanding the appropriate mix of employment relationships becomes a strategic advantage for resource allocation and organizational agility.

The right choice for your business

When it comes to worker classification, getting it right the first time is always less expensive than fixing it after an audit. Ask your CPA for clarity, or give us a call at (973) 301-2300 to see how our business advisory services can help you remain compliant with employment regulations.

 

Filed Under: Small Business

Demystifying the Non-profit Audit Process

June 20, 2025 by Nick Magone, CPA, CGMA, CFP®

Navigating the world of non-profit audits can feel overwhelming — especially for organizations focused on their mission rather than financial procedures and compliance.

But understanding audit requirements and best practices is critical for maintaining transparency, accountability and donor trust.

During our 30+ years as non-profit auditors, we’ve seen nearly every situation under the sun, and answered thousands of questions about the non-profit audit process. Here’s a short Q&A we’ve compiled to help your organization boost its knowledge and prepare for potential audits with confidence.

What is an independent audit?

An independent audit involves a comprehensive review of a non-profit’s financial records, accounting systems and operational procedures by an external professional. This independent professional is typically a certified public accountant (CPA), working under a service contract rather than as an employee.

Throughout the process, the auditor examines the non-profit’s financial statements to verify their compliance with Generally Accepted Accounting Principles (GAAP), noting any discrepancies between the two. The GAAP are established by the Financial Accounting Standards Board and serve as the standard framework for financial reporting.

The CPAs at Magone & Co can also provide risk management services, due diligence and make recommendations for improving internal controls.

Why are non-profits required to undergo an independent audit?

Requirements for audits typically arise from:

  • Government agencies requesting audited financial statements
  • Non-profits spending $750,000+ in federal funds annually
  • State/local government service contracts
  • State charitable registration requirements for fundraising
  • Private foundation grant application processes
  • Banking requirements for loan approval

Whether your non-profit requires a review, compilation or complete audit of your financial statements, we’ll impart the appropriate level of assurance to satisfy your donors.

What states require an independent audit?

State audit requirements for non-profits vary significantly across state lines. Most require independent audits under specific conditions, like annual revenue or contribution thresholds.

The majority of states also require submission of audited financial statements when renewing charitable registration or non-profit status.

However, your non-profit may be exempt from these requirements even in states with audit laws, as exemptions often depend on specific factors like annual gross income or contribution levels detailed in each state’s legislation.

States with mandatory audits for all non-profits include California, Hawaii, Illinois, Maine, New York, West Virginia and Rhode Island. Find out the laws for your specific state.

Why should a non-profit conduct an audit, even if not required by law?

Beyond legal requirements, non-profits may choose to undergo independent audits for several reasons:

  • Enhanced credibility. Voluntary audits demonstrate your organization’s commitment to financial transparency — a quality increasingly expected by donors and the public.
  • Funding access. Many foundations, private funders and government agencies require audited financial statements as part of their application process, making audits necessary for accessing certain funding opportunities.
  • Governance best practices. An audit provides your board with professional assurance that financial statements are error-free, helping them fulfill their fiduciary responsibilities. Audits also serve as guardrails to identify internal financial controls that may be necessary to avoid opportunities for misappropriation of organizational funds.

At Magone & Co, our goal is to instill confidence that your records are an accurate representation of the current financial condition of your organization

From compliance to assurance

Remember, an audit is ultimately a tool that helps ensure your non-profit has the financial foundation it needs to pursue its mission effectively for years to come. Learn why you may need an external auditor to get the job done right.

For specific questions regarding your non-profit organization, contact the expert CPAs at Magone & Company for guidance.

Filed Under: Nonprofits

Financial Reporting 101 for Small Business Owners

June 6, 2025 by Nick Magone, CPA, CGMA, CFP®

New to running a business? While passion and hard work are crucial, financial reporting is integral to your company’s success.

Financial reports are detailed documents that provide a thorough overview of your company’s financial performance and position. They can help you:

  • Make strategic decisions
  • Ensure compliance with tax and legal requirements
  • Attract and secure potential investors or loans
  • Cut unnecessary expenses
  • Understand your business’s financial trends

Take control of your business’s financial health. These six financial reports that can help transform how you manage and grow your business.

  1. Income statement. Is your revenue growing? Are expenses creeping up unexpectedly? An income statement generally reveals your business’s cost of goods sold, operating expenses, net profit or loss and other metrics that are indicative of whether you’re making or losing money. By regularly reviewing your income statement, you can also identify areas of high spending and gain a broader understanding of your business’s profitability.
  2. Balance sheet. A balance sheet captures your business’s financial position at a specific moment, breaking down your assets, liabilities and your equity. It offers insights into your business’s net worth, helps track long-term financial stability and is essential for securing loans. That’s why it’s important to verify all entries monthly, ensure accuracy of asset valuations and check for outdated or irrelevant entries to proactively manage your business’s finances.
  3. Cash flow statement. Is your core business financially sustainable? What is your company’s overall operational efficiency? Positive revenue doesn’t always mean positive cash flow. That’s why tracking your cash flow is so important. This statement displays how cash moves in and out of your business, which can help predict cash shortages, manage day-to-day operations and make more strategic financial decisions.
  4. Inventory valuation report. An inventory valuation reports help manage your business’s physical assets, tracking current inventory levels, cost of inventory, value of existing stock and inventory turnover rates. It can be very beneficial in helping to track performance metrics like inventory turnover rate and in optimizing your inventory purchasing decisions
  5. Accounts receivable aging report. This report is like your financial watchdog, tracking outstanding customer invoices, how long invoices have been unpaid and which customers are slow to pay up. Use this report to follow up on late payments and improve your cash collection process.
  6. Accounts payable aging report. While an accounts receivable aging report manages what you’re owed, an accounts payable aging report helps you manage what you owe. This report provides a rundown of delinquent bills and expenses and payment due dates. Having a handle on your upcoming payments can help prevent late fees and penalties, and assist in your business’s cash flow planning.

Knowledge is power when it comes to your business’s financial health. That’s why the tax experts at Magone & Company can help you best understand your financial reports, interpret them and use the data to make informed decisions.

Reach out to our collaborative team or give us a call today at (973) 301-2300.

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your business situation.

Filed Under: Small Business

The New Tax Audit Landscape: Protecting Your Financial Future

May 23, 2025 by Nick Magone, CPA, CGMA, CFP®

With advanced technologies and stricter compliance standards, tax audits are evolving. And as a result, they’re transforming how individuals and businesses approach their financial reporting.

Navigating today’s audit landscape requires vigilance and strategic planning. Here are five risk factors — and mitigation tips — to plan for:

High-income earners
Complex financial portfolios present more opportunities for potential tax discrepancies. That’s why tax authorities are focusing on high-income earners.

To combat this trigger, impacted individuals may consider:

  • Implementing a multi-layered verification process for all income
  • Creating a robust digital filing system for financial records, including back-up copies of all critical financial documents
  • Collaborating with tax professionals that specialize in high-net-worth financial management

Tax return errors
From simple miscalculations to complex reporting mistakes, the IRS is zeroing in to reduce errors and close tax gaps. The most common errors include incorrect Social Security numbers, mismatched names, math mistakes and inconsistent income reporting across different forms.

Critical prevention strategies include:

  • Using official IRS forms and publications as reference
  • Maintaining updated records and accurate personal information
  • Addressing income or deduction inconsistencies quickly and proactively

Cryptocurrency transactions

Cryptocurrency and digital assets have created a challenging regulatory environment. As a result, the IRS is developing increasingly sophisticated mechanisms to track and tax these transactions.

How you can you build a solid defense?

  • Documenting every cryptocurrency transaction meticulously
  • Keeping a detailed transaction log with corresponding market values
  • Staying updated on emerging digital asset tax laws and regulations

Uncommon business expenses

Unusual business expenses may appear suspicious when they lack clear business purpose or blur the line between personal and professional spending. Entertainment costs, vehicle expenses, home office deductions and travel expenditures frequently raise red flags.

By making strategic moves now, you can prove the legitimacy of these expenses if and when an audit arises:

  • Meticulously documenting every expense and save all receipts
  • Creating a clear narrative of business purpose for each expense
  • Making sure expenses are proportional to business income and being prepared to provide a comprehensive explanation if audited

Deductions

Sizeable deductions can increase your chances of an audit — especially in 2025. A careful deduction management strategy requires substantiating, categorizing and defending business and personal expenses:

  • Understanding industry-specific standards and maintaining a comprehensive and organized record-keeping system
  • Ensuring that every claimed expense has a legitimate, verifiable business connection
  • Segregating personal and business expenses through dedicated financial accounts, keeping detailed receipts with clear descriptions

If there’s something that makes the IRS take a second look, an audit may be inevitable.

By staying informed, you can transform potential audit stress into a proactive tax strategy. Don’t hesitate to reach out to the tax professionals at Magone & Company for guidance.

 

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.

Filed Under: IRS woes

The New Geography of Work: A Business Guide to State Tax Nexus

May 9, 2025 by Nick Magone, CPA, CGMA, CFP®

The pandemic accelerated a massive shift to remote work, revolutionizing the way we do business. Fast-forward five years, and approximately 22 million U.S. employees continue to log in from home. It’s also not uncommon for employees to work in different states than their employer.

This new reality of distributed teams has transformed the traditional understanding of state tax nexus — the connection between a business and a state that triggers tax obligations. Understanding these evolving tax implications isn’t just about compliance; it’s about making strategic decisions that could significantly impact a company’s bottom line and operational flexibility.

For employers, understanding the state tax nexus has never been more critical.

Decoding state tax nexus: Beyond the office walls

Traditionally, physical presence determined nexus — offices, warehouses or retail spaces — but remote work has expanded its definition.

These new nexus triggers may require employers to implement employee tracking systems and regularly review their multi-state tax obligations to ensure they’re in good standing:

  • Employee location. Having even one employee working remotely in a state can establish nexus, potentially creating tax responsibilities in that jurisdiction.
  • Revenue thresholds. Many states have economic nexus laws that require tax registration based on total revenue generated within the state, regardless of physical presence.
  • Temporary work arrangements. Short-term remote work and even employee travel can unexpectedly create tax obligations, even if an employee is only working temporarily from another state.

Unlike traditional nexus rules, there’s also an economic nexus that focuses on revenue thresholds, transaction volumes and digital interactions, rather than physical presence. Employee locations, digital service delivery and distributed workforce models can all simultaneously trigger multiple state tax obligations, creating a complex compliance landscape.

To avoid noncompliance, businesses may need to develop and implement sophisticated strategies to address a range of intricate tax implications:

  • Tracking employee locations and work patterns
  • Understanding varying state tax regulations
  • Maintaining accurate records of remote work arrangements
  • Calculating potential tax liabilities across multiple jurisdictions

Building a tax-compliant remote work infrastructure

The key to managing tax nexus obligations is to transform obstacles into manageable processes.

  • Develop clear policies. Create comprehensive remote work guidelines that address pre-approval requirements for out-of-state work, duration limits for temporary relocations, tax implications notification procedures and more.
  • Invest in employee training. Implement regular training programs focusing on location reporting requirements, tax compliance procedures, documentation protocols and state-specific regulations.
  • Create compliance checkpoints. Establish periodic review processes, including regular economic threshold monitoring, annual compliance audits and state registration reviews.
  • Leverage technology solutions. Utilize advanced tools for real-time location tracking, automated tax calculations, multi-state compliance reporting and economic nexus monitoring.
  • Partner with the experts. By working with a trusted tax professional, businesses can have peace of mind they’re getting the proper guidance and expertise to address the tax nexus challenges of remote workers.

The CPAs at Magone & Company can help your remote operations remain compliant and minimize your tax liability. Reach out to learn more.

 

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances

Filed Under: Business Taxes

Understanding Your NJ Cryptocurrency Tax Obligations

April 25, 2025 by Nick Magone, CPA, CGMA, CFP®

As cryptocurrency investments have become increasingly mainstream, staying compliant with both federal and New Jersey state tax requirements is more crucial than ever.

Whether you’re trading Bitcoin or collecting NFTs, understanding your tax obligations can help ensure you’re maintaining compliance — and avoiding costly penalties. Here’s a quick overview:

How do crypto taxes work?

The cryptocurrency tax landscape evolved significantly in 2024, bringing big changes to reporting requirements.

The IRS classifies cryptocurrencies and other virtual currencies as property. That means you’re required to report any cryptocurrency you receive as income and pay capital gains on any increase in value when sold.

In New Jersey, cryptocurrency profits are subject to state income taxation, with rates up to 10.75%. So if you sell your cryptocurrency holdings at a profit, these capital gains must be included in your total taxable income.

Additionally, income from cryptocurrency transactions is subject to federal taxation under IRS guidelines. Federal law is requiring stricter transaction reporting standards, replacing earlier cryptocurrency reporting forms with a new Form 1099-DA.

The updated requirements also mandate that exchanges report not only the proceeds from sales but also include cost basis data when such information is available.

That’s why it’s important to maintain accurate records of crypto transactions and report your income on both state and federal tax returns.

What triggers a taxable event?

Any action that involves acquiring or disposing of cryptocurrency can create a taxable event. This includes:

  • Converting or trading one cryptocurrency to another (e.g., Bitcoin to Ethereum)
  • Cashing out and selling cryptocurrency for U.S. dollars
  • Making purchases using cryptocurrency or business transactions accepting cryptocurrency as payment for goods or services
  • Receiving “free” cryptocurrency through airdrops or hard forks

Staying ahead of your cryptocurrency tax obligations

Whether you’re an experienced crypto investor or just getting started, proper tax planning and accurate reporting are essential. And while exchanges now provide more detailed reporting, you’re still obligated to:

  • Report any taxable cryptocurrency transactions to the IRS
  • Maintain your own comprehensive records of transactions across different platforms and digital wallets
  • Keep track of trades
  • Maintain documentation of cost basis for any digital assets

To stay compliant under these new requirements, the tax pros at Magone & Company can help you accurately navigate your crypto reporting. Give us a call today at (973) 301-2300 for assistance.

 

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances

Filed Under: Tax Tips for Individuals

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