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Archives for January 2025

Best Accounting Practices for an Online Business

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Running an online business comes with its own set of unique challenges. One of the biggest hurdles? Managing the financial side of the company.

From cash flow fluctuations to multi-state sales tax laws, online businessowners must have the accounting strategies in place to navigate daily operations with confidence.

Here are six best practices to ensure your online business is positioned for sustainable success:

  1. Monitor your bank accounts and cash flow. Like any business, first and foremost you need to keep a close eye on your bank account, making sure you’re not overspending or simply spending money you don’t have. This proactive measure allows you to quickly identify any discrepancies or errors, and pinpoint areas of your business that may need additional attention, so you can plan for potential changes to your finances. Online businesses should have a system in place for tracking all income and expenses. This includes recording every sale, subscription payment, advertising cost, software subscription and more. Categorizing transactions properly is key, as it will make tax preparation and financial analysis much easier down the line.
  2. Leverage accounting software. Investing in a robust accounting software solution is essential for online businesses. Popular desktop options like QuickBooks, Xero and FreshBooks can automate many time-consuming tasks like invoicing, expense tracking and financial reporting. This time saver also helps maintain accurate documentation when it’s time to prepare your tax returns.
  3. Utilize cloud-based tools. You may also consider cloud-based accounting software to access your financial data from anywhere, collaborate with your tax professional and take advantage of features like automated backups and real-time reporting. The rise of cloud-based accounting, invoicing and productivity tools has been a game-changer for online businesses, allowing for real-time financial visibility, remote collaboration and automatic data backups — all crucial for managing an online operation. 
  4. Manage sales tax compliance. Online businesses must navigate different tax rates across states, counties and cities, as well as varying product categorizations and exemptions. Depending on the states and countries in which your online business operates, you may be required to collect and remit sales tax. Proper sales tax management is not just about collecting the right amount — it’s about maintaining your business’s reputation, avoiding costly penalties and achieving sustainable growth. Regular review and updates of your sales tax compliance processes can keep your business current with changing regulations while maintaining proficient operations.
  5. Prepare for quarterly tax payments. Unlike traditional businesses that make annual tax payments, online entrepreneurs often need to make quarterly estimated tax payments to the IRS. This includes self-employment tax, as well as income tax. Making timely quarterly payments helps you stay on top of your tax liability and avoid penalties, and demonstrates to authorities that you’re a responsible, compliant business owner.
  6. Document everything. When transactions happen at the click of a button, meticulous record-keeping is a critical task. Online business owners should keep detailed records of all financial transactions, bank statements, receipts, invoices and other documentation. This will not only help with tax preparation and help reduce the likelihood of financial errors, but it also provides an ironclad paper trail if your business must undergo audit or other financial review.

With the right systems and mindset in place, there’s no limit to what your online business can accomplish. At Magone & Company, we can work together to ensure the financial side of your operations runs efficiently, while maintaining good standing with the IRS. Reach out to us 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 unique circumstances.

 

Magone & Company, P.C. Successfully Passes Accountant Peer Review

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Magone & Company, P.C. — a leading provider of accounting services — is pleased to announce that it has successfully passed its latest accountant peer review. This achievement underscores the company’s commitment to maintaining the highest standards of professionalism and excellence in accounting practices.

The peer review, conducted by Martini & Martini CPA, PA, involved a rigorous assessment of Magone & Company’s accounting and auditing practices. The review confirmed that the firm complies with the stringent quality control standards set by the accounting profession.

“We are pleased to validate our dedication to delivering exceptional service and upholding the trust of our clients,” says Nick Magone, Managing Partner at Magone & Company. “This achievement reflects the hard work and expertise of our team, as well as our ongoing commitment to continuous improvement.”

By completing this review, Magone & Company demonstrates its readiness to provide reliable and trustworthy financial services to its clients.

For more information about Magone & Company, reach out today to discuss our tax planning solutions.

Small Businesses Get Big Benefits from SECURE 2.0 Retirement Provisions

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The federal SECURE 2.0 legislation was designed and enacted to improve retirement readiness for more American workers.

This legislation aims to make it more affordable and attractive for small employers to provide valuable retirement benefits to their employees by offering enhanced tax credits that can significantly offset the costs of starting and maintaining a plan.

Under SECURE 2.0, your small business may be eligible for the following:

Start-up tax credit. Small businesses with under 100 employees can claim a tax credit of up to $5,000 per year for three years to help cover the administrative costs of starting a new plan.

Previously, small businesses with less than 100 employees were eligible for a three-year, start-up tax credit of up to 50% of administrative costs with an annual limit of $5,000. SECURE 2.0 increased the credit to 100% of qualified start-up costs for eligible employers with no more than 50 employees, and at least one non-highly compensated employee, when they establish a SEP, SIMPLE, defined benefit or defined contribution plan, including 401(k) plans.

For employers with 50-100 employees, the credit is 50% of eligible start-up costs, up to the greater of $500 or the lesser of $250 per non-highly compensated eligible employee or $5,000. The credit is available for up to three years for all qualified employers.

Small employer auto enrollment credit. Businesses that automatically enroll employees in their retirement plan can claim a $500 per year tax credit for five years.

SECURE 2.0 introduced this new tax credit for eligible employers with under 100 employees who offer defined contribution plans like 401(k)s. The credit is based on an employer’s plan contributions, up to $1,000 per employee annually, excluding those earning over $100,000.

To qualify for the full credit, employers must have no more than 50 employees. For employers with 51-100 employees, the credit decreases by 2% for each additional employee over 50. The credit may cover up to:

  • Years one and two: 100% of contributions
  • Year three: 75% of contributions
  • Year four: 50% of contributions
  • Year five: 25% of contributions

Employers can claim this credit over five years.

Saver’s match credit. Lower-income employees who contribute to a retirement plan can receive a government matching contribution of up to $2,000, which the employer can claim as a tax credit.

Still on the fence about offering a retirement plan?

The new credits may provide the financial incentive you need to boost retirement readiness for your employees — especially with the rise of state retirement plan mandates. These state-level initiatives require businesses to either offer a qualified retirement plan or enroll employees in a state-run program. And as deadlines for compliance are approaching in several states, you may consider the benefits of a plan that demonstrates your commitment to your employees’ long-term financial security.

Questions? Reach out to the experts at Magone & Co for guidance on taking advantage of these and additional tax credits.


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.

Active Income vs. Passive Income: Breaking Down the Tax Consequences

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Working hard for the money or letting the money work hard for you? That’s the main difference between active and passive income.

Active income typically comes in the form of your wages earned from working a job or running a business. Passive income includes sources you don’t actively work for, like rental income, investments, shareholder distributions or licensing fees.

While both types of income can support your lifestyle and meet your needs, each has their own set of tax consequences — which can significantly impact your bottom line.

The ins and outs of active income  

When you receive a paycheck for your work, the income is considered active because it is directly tied to your efforts and time spent on the job. As a business owner, you may pay yourself a salary or wages from your company’s earnings, which would fall under the category of active income.

From a tax perspective, active income is subject to federal income tax, as well as payroll taxes such as Social Security and Medicare. And depending on your income level, you may also be liable for state income tax. The tax rates for active income are typically progressive, meaning that the more you earn, the higher your tax rate.

There are strategies to reduce the tax burden on your active income. As a businessowner, you may consider exploring the many tax deductions and credits available. Plus, expenses related to running a business — such as office supplies, equipment and professional services — may be deductible, reducing your overall taxable income.

Additionally, contributing to retirement accounts or health savings accounts can provide tax benefits for all employees, while saving for the future.

Simplifying the tax consequences of passive income

Passive income is generated from sources in which you’re not materially involved. These income streams can be a lucrative way to build wealth and diversify your income sources — as long as you’re staying on top of tax obligations.

Taxes will depend largely on the exact source of your passive income and your financial situation as a whole. Rental income, for example, is typically taxed at your marginal tax rate, but you may be able to deduct expenses related to managing the property — from maintenance and repairs to pet fees and property taxes.

Shareholder distributions from corporations are taxed at the individual level and may be subject to capital gains for qualifying investments held for more than a year. And regarding royalties and licensing fees, the tax treatment can vary depending on the nature of the income and the agreements you have in place.

It’s best to keep detailed records of all income received from passive sources and, as always, consult with a tax professional to ensure compliance with tax laws and regulations.

Optimizing your tax strategy

By carefully managing your income streams, you can minimize your tax liability and maximize your profitability. Remember, it’s critical to stay informed about changes in tax laws and seek guidance from a qualified tax advisor. Get in touch to see how Magone & Co can help.

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.