Archives for May 2025

The New Tax Audit Landscape: Protecting Your Financial Future

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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.

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

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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