Header Right

Payroll Taxes Increase, But Tax Credit Relief May be Coming

by

New Jersey business owners face a projected $200 million increase in unemployment insurance (UI) taxes scheduled to take effect in July.

However, a bill now being considered by the New Jersey Assembly Appropriations Committee would help minimize the impact on the state’s small businesses in the form of tax credits.

Assemblyman Roy Freiman, D-District 16, says while the UI tax increases may have a negative impact, it will be countered by the positive tax credits. Small businesses would be able to use the credits to offset their corporation business taxes and their gross income taxes.

If enacted, Senate Bill 2378 would adopt the U.S. Small Business Administration’s (SBA) parameters for a small business. According to the SBA, size standards are mainly based on yearly business receipts or an average number of employees. The SBA also indicates that its definition of “small” varies by industry.

Tax credits provided by the bill would be available for calendar years beginning in 2023 and the following year. Credits would be based on expected increases to unemployment insurance taxes in fiscal years 2023 and 2024.

The bill would also allow the tax credits to carry forward for seven years, and they are non-refundable.

If a small business uses government funds, including grants or subsidies, to minimize its contribution to UI, the business would be prohibited from using the tax credits.

Goal is lower UI taxes

Senate Bill 2378 has the long-range goal of reducing employer UI taxes. The bill’s sponsors are asking for the establishment of a supplemental unemployment compensation fund and $375 million to go along with it.

According to the bill, the fund would be used to pay off federal loans made to NJ’s UI fund. Once the loans are paid-in-full, sponsors say that will also eliminate federal charges for the debt, allowing the fund to regenerate quickly. With the reserves in the UI fund, sponsors hope that will lead the way for reductions in UI taxes for employers.

Opponents of the bill say the $375 million could be better spent elsewhere. They argue the current state of the economy doesn’t allow for diverting resources that could be used by people who are still out of work.

Finally, the bill calls for the Department of Labor and Workforce Development to notify individual employers, 30 days in advance, of any changes to their UI tax rates.

The bill is now before the New Jersey Assembly Appropriations Committee for consideration. We’ll keep you posted.

Don’t miss the credit if it applies to you

How will the new tax credit impact your payroll? Don’t miss a beat – the CPAs at Magone & Company have years of experience assisting businesses and individuals with our strategic Tax Planning Services. Give us a call today at (973) 301-2300 to learn more.

4 Reasons Your Nonprofit Needs an External Auditor

by

How are you handling your nonprofit’s audits?

Internal audits are a great way to promote fiscal responsibility, but they’re not always the most reliable. Because the auditor is an employee of the organization with a vested interest, it can be challenging to conduct a neutral analysis.

An external auditor, on the other hand, has no affiliation with your nonprofit. They are typically CPAs who are hired to conduct a thorough review of all financial statements to ensure they fairly represent the entity. In other words, they verify the work of internal auditors — which can be beneficial to your organization for several reasons:

  1. Mitigate potential risks. External auditors are in a better position to spot discrepancies that can paint an inaccurate picture of your nonprofit’s finances. They can help board members identity any unethical practices or internal errors that could compromise the integrity of the organization.
  2. Perform a thorough analysis. The auditor will delve into balance sheets and cash flow statements, as well as leases, mortgages, donations, budgets and more. They may also interview your board members and your employees to learn more about internal controls.
  3. Offer outside expertise. Following their review, the external auditor will share their assessment with your organization’s audit committee. They may make recommendations on how to improve your processes and procedures, and safeguard assets. They will also answer any questions raised during the investigation.
  4. Strengthen donor potential. Did you know that charity rating websites take into account whether a nonprofit undergoes an external yearly audit? Donors may be more likely to contribute to a charitable organization with this distinction.

Preparing for an external audit

An external audit is usually performed at the close of an organization’s fiscal year. To streamline the process, begin by compiling the financial documentation that the auditor will likely need. This includes:

  • Banking and financial statements
  • Budgets
  • Donations
  • Payroll documents
  • Accounts receivable and accounts payable records
  • Mortgage statements or leases
  • Board meeting minutes

In addition, it’s important to share any factors or legal matters that may have impacted the organization’s reporting and recordkeeping. So be sure to collect any related documentation.

Guide your organization to a healthier financial future

Some nonprofits, because of the size of their annual budgets, or because they receive federal or state funding, are required by law to conduct an independent audit.

In other situations, a charitable nonprofit has a choice whether or not to conduct an independent audit. If you’re among the latter, you may choose to invest in an audit for the reasons mentioned above. If you need help determining if an audit would benefit your organization, give us a call at (973) 301-2300 to learn more.

Executive Pay and Fringe Benefits: Is Your Compensation Plan Triggering an Audit?

by

Executive compensation has evolved dramatically in recent years, in terms of creativity, complexity and dollar value. For example, stock options, deferred compensation, fringe benefits and other “non-cash” alternative forms of payment are becoming increasingly popular at business types of all sizes, making up a larger portion of executives’ overall compensation packages.

But creativity isn’t fooling Uncle Sam. The IRS is well aware that executives often receive extraordinary (and potentially taxable) fringe benefits that are not provided to other employees.  And executive perks that are not properly reported can land both you and your company in hot water.

Under the IRS’s watchful eye

If your organization does get audited, here’s what you might expect as the IRS examines your executive compensation and fringe benefits:

  • Assessment of corporate executives and officers to identify the highly compensated employees and determine who is responsible for approving and processing their payments.
  • Review of meeting minutes concerning executive compensation. In this case, auditors are looking for decisions and instructions about the treatment of fringe benefits.
  • Inspection of employment contracts and severance agreements to identify salaries and benefits.
  • Examination of loan agreements between the corporation and executives and officers. 
  • Evaluation of monthly expense reports submitted by executives.
  • A search of accounts payable records for the names, titles and Social Security numbers of executives to establish if payments made to them were included on their Forms W-2 or 1099.
  • Examination of any documents filed with the Securities and Exchange Commission, such as Form 10-K, to identify compensation issues.
  • Scrutinizing of payroll codes or other accounting codes which might be used for executive expenses to detect payments which may be taxable.
  • Analysis of certain items on tax returns to see if fringe benefits have been claimed.

Getting ahead of an audit

When it comes to executive compensation, getting the details right and staying in compliance can be a daunting task. Reach out to the CPAs at Magone & Company to ensure your company’s executive compensation plans are in line with IRS regulations.

The Right Time to Build a Banking Relationship? Right Now

by

If you think about it, running a business is largely about building relationships. And establishing a solid banking relationship is one of the most critical moves you can make as a business owner.

When is the appropriate time to begin forming this relationship? According to CPA Nick Magone, Managing Partner of Magone & Company, “Immediately — before you need the money.”

Get the ball rolling on the relationship

Banks typically offer three levels of financing:

  • Branch level – up to $250K
  • Small business lending – $1-5 million
  • Middle marketing lending – Over $5 million

To get started, reach out to your branch manager, and they’ll introduce you to the correct contact for your future lending needs.

Become the ideal borrowing candidate

What are banks looking for? First and foremost, if your business isn’t profitable, or isn’t able to show a track record of profitability, the bank will not loan you money. Remember, the bank is not your business partner.

Banks also need to have a clearcut understanding of your business and what it brings to the table for them. For example, how many of their services will you use? Will you need their treasury or cash management services in the future? In other words, they are looking for a profitable relationship. Bankers are more than accommodating to get to know you, especially if there is business to be had.

The first meeting

While in-person meetings are preferable, a video meeting can be just as effective for introducing yourself and your business. A typical presentation may include:

  • An overview of your business and management team, including who you are and the number of years in business overall.
  • The market your business serves, including the top 10 suppliers and customers.
  • Your high-level budget for the year, e.g. cost of goods sold, wages, administrative costs, etc.
  • The performance of the budget, as well as the trend for expected revenue and profitability throughout the year.
  • Future plans for growth, acquisition or inventory that may require financing.

The takeaways

Says Magone, “The three main points to keep in mind: Get to know your banker before you need the money; invite your banker to a meeting before you need the money; and, profitability and performance are key to having your loan approved.”

30 years of experience and expertise

In celebration of our 30th year in business, we’re rolling out a series of educational videos to help busy executives, families and business owners meet their accounting and tax needs and achieve their financial goals. Check out the latest on our YouTube channel.

Workers Back On-site? That’s a Green Light for Transportation Benefits

by

If all or part of your workforce is once again commuting to the office, they may be looking to save on mass transit expenses. In the past, certain transportation costs were tax-free to employees and deductible by employers, within certain monthly limits — until the Tax Cuts and Jobs Act (TCJA) eliminated the deduction for employers and established other special rules for tax-exempt organizations.

But your company may continue to offer this perk — clearly a plus to incentivize those who’ve been working from home during the pandemic — if you follow the new rules.

Transportation benefits may be provided tax-free, as long as they don’t exceed the current IRS limit of $280 per month. Check out the three main types of transportation benefits that apply:

  1. Mass transit passes. According to the IRS, this includes any pass, token, fare card, voucher or similar item. The pass must entitle someone to ride free of charge or at a reduced rate on mass transit or in a professionally driven vehicle seating at least six adult passengers. Mass transit may be operated publicly or privately by bus, rail or ferry.
  2.  Commuter highway vehicle expenses. A commuter highway vehicle seats at least six adult passengers. At least 80% of the vehicle mileage should be for transporting employees between their home and workplace, and employees must occupy at least 50% of the vehicle’s seats. A tax-free arrangement may also involve several forms of vanpooling. For example, your company might purchase or lease vans so employees can commute together to work. Or you might contract with a third party to provide the vehicles and pay some or all of the operating costs.
  3. Qualified parking fees. This benefit allows employer-provided parking for employees on or near the business premises. It also covers fees for parking on or near the location from which employees commute to work using mass transit, commuter highway vehicles or carpools (for example, at the parking lot of a train station). However, the benefit doesn’t extend to parking at or near an employee’s home.

Put the pedal to the metal

Aside from the three main transportation benefits, employers may offer reimbursements to employees who commute via bicycle. Under the TCJA, you can continue to deduct reimbursements of qualified bicycle expenses as business expenses, but the tax exclusion for employees has been eliminated.

 Check in with the tax experts

Whether you’ve been offering transportation benefits for years, or are just now introducing them, be sure to consider both the tax and non-tax implications they entail. Be sure to consult with your tax or benefits advisor for advice specific to your company’s needs and circumstances.

Don’t have an advisor? Reach out to the NJ CPAs at Magone & Co — we’re here to help.

Hiring Your Spouse in Your Small Business: 6 Tax Reasons to Say “I Do”

by

Many businesses are having trouble recruiting and retaining qualified workers. According to a recent report conducted by the Society for Human Resource Management (SHRM), nearly 90% of employers reported difficulty filling open positions; 73% have seen a decrease in applications for hard-to-fill positions, and only 6% expect labor shortages to diminish any time soon.

If your small business is understaffed with no strong prospects in sight, have you considered hiring your spouse?

If he or she is already familiar with the job, hiring your spouse as an official employee can have many benefits — including various tax-savings opportunities. Here are six ways hiring a spouse may help chip in to lower your taxes.

1. Retirement savings. If certain requirements are met, an employer can deduct contributions made to a qualified retirement plan on behalf of its employees, including your spouse.

For example, if your company has a 401(k) plan in place, your spouse can elect to defer up to $20,500 ($27,000 if age 50 or older) for the year, in addition to any matching contributions by the company. This is a great way for your spouse to save for retirement independently.

2. Business travel expenses. Normally, you can’t deduct travel expenses attributable to a spouse when he or she accompanies you on a business trip. It’s considered a nondeductible personal expense.

But the tax outcome changes if your spouse is a bona fide employee of the company and travels with you for business reasons. As a result, your company may be able to write off your spouse’s business-related travel expenses, such as airfare or other transportation, lodging and 50% of the cost of meals. Plus, the benefit is tax-free to your spouse. The same basic rules apply if your spouse goes on a business trip alone.

3. Health insurance premiums. If you’re currently paying to cover your spouse under the company’s health insurance plan, you may be able to shift more of the cost to the company if your spouse is an employee.

The company can deduct all the health insurance premiums it pays on behalf of your spouse — just like it can for other employees. Similarly, you can deduct 100% of the cost if you operate a self-employed business.

4. Additional health-related breaks. If you operate a C corporation or you’re self-employed, a Health Reimbursement Arrangement (HRA) for your employees can offer even more tax savings if your spouse participates. If certain requirements are met, the company may reimburse your spouse for out-of-pocket medical expenses and health insurance premiums, while the costs are deductible by the company. This is a win-win situation.

Likewise, if your spouse is covered by a qualified high-deductible health plan, he or she can contribute pretax income to an employer-sponsored Health Savings Account (HSA) or make deductible contributions above the line to the HSA. Your business can also contribute to your spouse’s HSA. Alternatively, your spouse can redirect pretax income to an employer-sponsored Flexible Spending Account (FSA).

5. Vehicles. Although you may derive tax benefits for your vehicle’s business use, your spouse’s expenses are purely personal and nondeductible. But as an employee, he or she may be entitled to business deductions under a complex set of rules, including limits on so-called “luxury car” write-offs.

6. Group-term life insurance. An owner’s spouse is entitled to the same group-term life insurance coverage as other company employees (typically, equal to three or four times the individual’s salary).

Under long-standing tax rules, the first $50,000 of employer-paid group-term life insurance coverage is tax-free to the employee. Plus, any additional coverage is taxable at relatively low rates. Thus, having your spouse work for the company provides more insurance protection for your family.

A match made in heaven?

Before you hire your spouse, meet with a professional tax advisor to discuss whether this strategy would be beneficial for your business and your tax circumstances. The CPAs at Magone & Company can help you make the most tax-efficient decisions. Give us a call today at (973) 301-2300 to learn more.

 The above information is provided for general education purposes and should not be considered financial or tax advice. Please consult your accountant or financial advisor for advice specific to your business or tax situation.