Nick Magone, CPA, CGMA, CFP®

How Tax Debt Could Impact Your International Travel Plans

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Gearing up for a summer getaway abroad? Before you head to the airport, be aware of a potential roadblock for delinquent taxpayers — passport problems.

In 2015, the Fixing America’s Surface Transportation Act empowered the IRS to inform the State Department about taxpayers with “seriously delinquent tax debts.” This information can be used to deny passport applications or renewals for individuals who owe a hefty amount to Uncle Sam. As of 2024, the “seriously delinquent” threshold stands at $62,000, including back taxes, interest and penalties.

So how can you help ensure you’re in your seat for takeoff?

Before the gate closes…

Affected taxpayers will receive written notice from the IRS outlining steps to resolve the issue.

Once the tax debt is settled, the IRS will reverse the certification within 30 days. The State Department also allows a 90-day period to make full payments or set up a payment arrangement before denying passport applications.

It’s essential to act promptly if international travel plans are on the horizon. Be sure to:

  • Pay the tax debt in full or set up a payment plan with the IRS to settle the debt in installments
  • Consider an Offer in Compromise (OIC)
  • Comply with a settlement agreement
  • Request a collection due process appeal or relief

An important reminder: The IRS will never call or email in an attempt to settle a tax debt, nor will they require payment via gift cards or other unorthodox means. Verify through official channels or contact your accountant or attorney for assistance to avoid falling victim to fraud schemes.

Departing on time

Whether you’re traveling for business or pleasure, don’t miss your flight due to delinquent taxes. By exploring these relief options and seeking guidance from a trusted tax advisor, you can navigate through challenges with a smoother landing.

Reach out to the tax experts at Magone & Company, or give us a call today at (973) 301-2300 for an evaluation of your tax situation.

 

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 tax situation.

Before You File, Double Check Those Medical Bills

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According to the IRS, medical expenses include the “costs of diagnosis, cure, mitigations, treatment or prevention” of an injury or disease. And dealing with these costs can be a challenging part of life.

But what many taxpayers may not realize is that there are specific tax laws governing the deduction of certain medical expenses to help you save.

Understanding these regulations is essential to ensure you’re maximizing your tax benefits while staying compliant with the law. Here’s a rundown of the basic rules:

Flexible spending accounts (FSAs). An FSA is a tax-advantaged account offered by some employers to help alleviate qualified health-related expenses like prescriptions or eyeglasses. This type of account has a “use-it-or-lose-it” feature, so any money leftover at the end of the year will be forfeited. Keep that in mind when allocating how much to contribute for the year.

Medical and dental deductions. Medical and dental expenses that aren’t reimbursed by your insurance may be deducted to the extent your annual total exceeds 7.5% of your adjusted gross income.

To qualify for medical deductions, you must also itemize. When adding up your medical costs, be sure to include the cost of traveling to your doctor or medical facility for treatment. If you go by car, you can deduct a flat mileage rate, adjusted by the IRS each year, or you can keep track of your actual out-of-pocket expenses for gas, oil, repairs, parking and tolls.

So what’s eligible?

To make the most of your tax deductions, here’s a quick breakdown of items that you may and may not write off.

Questions about your medical deductions? Reach out to the CPAs at Magone & Company to ensure you’re on track to save.

Eligible Not Eligible
A physician-directed weight-loss program undertaken to treat obesity Meal replacements, diet foods and supplements, or a weight-loss program to maintain appearance
Treatment at a drug or alcohol clinic, a smoking-cessation program or  a prescription for nicotine withdrawal medication A doctor-recommended trip or vacation to rest or boost your mood
Acupuncture Marriage counseling
Dentures, hearing aids and orthopedic shoes Household help
Admission and transportation to a medical conference concerning the chronic illness impacting you or your family member The collection and storage of DNA (unless you can prove how DNA will be used for diagnostic testing)
Childbirth classes for a mother-to-be Maternity clothes
Teeth cleaning and orthodontia Teeth bleaching
A wig that benefits the mental health of patients suffering hair-loss from disease Hair transplants
Contact lenses and peripheral materials Retin-A for wrinkles
Nursing services at home or a care facility Home nursing services for a normal, healthy baby

 

This information is provided for educational purposes and should not be construed as financial or legal advice. Please consult your accountant or attorney for advice specific to your situation.

Employee or Independent Contractor? New Regulations Now in Effect

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As an employer, it’s critical to stay informed about changes in regulations that impact how you classify workers.

The U.S. Department of Labor has updated the rules regarding independent contractor classification. The traditional tests used to classify independent contractors versus employees are no longer valid, requiring a shift in how you approach this distinction when hiring.

For years, many employers have grappled with the blurred line between independent contractors and employees. Misclassifying workers can lead to significant legal and financial consequences for your business.

The DOL released a comprehensive six-part test to assist you in correctly classifying workers as either independent contractors or employees. Here’s a brief overview:

  1. Is the work vital to your business? If the worker’s role impacts the core operations of the business, they’re likely economically dependent on the employer. On the other hand, the work of an independent contractor is usually inessential to the organization.
  2. Does the worker’s managerial skill affect their opportunity for profit or loss? An independent contractor can experience both profit and loss based on their managerial decisions, such as hiring, purchasing and marketing. In contrast, an employee’s ability to earn more money is not tied to their managerial skills.
  3. How does the worker’s relative investment compare to your investment? Independent contractors typically make investments that contribute to the growth and success of the business, while an employee’s investment is usually minimal compared to the employer’s.
  4. Does the work require special skill and initiative? A worker’s business skills and initiative play a role in determining their economic independence. But having specialized skills alone does not automatically classify a worker as an independent contractor.
  5. Is the relationship permanent or indefinite? If the worker’s association is ongoing or indefinite, they’re likely an employee. Independent contractors work on a project basis.
  6. What is the degree of your control as the employer? The level of control exerted by the employer is a key factor in determining the worker’s economic dependence. Independent contractors have more autonomy over their work, while stringent control over a worker’s job schedules and tasks indicates an employer-employee relationship.

Implications for employers

It’s essential to review and update your current practices and contracts to ensure compliance with the updated classification criteria. This includes outlining the scope of work, payment terms and the level of control exerted over the contractor.

By keeping detailed records, you can demonstrate compliance in the event of an audit or legal dispute. The U.S. Department of Labor requires employers to maintain careful documentation for each exempt and independent contractor hired including:

  • Forms signed by independent contractors acknowledging their classification
  • A copy of contract between the employer and the independent contractor
  • Copies of any licenses or registrations held by the independent contractor

Taking a proactive approach

While the new regulations may require adjustments to your current practices, they also present an opportunity to ensure fair treatment of all workers and uphold the integrity of your business.

If you’re looking for guidance regarding your employee classifications or business structure, reach out to our business advisory team– we’re here to help.

Cash vs. Accrual Accounting: Making the Right Choice for Your Business

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Unless you’re a financial professional, navigating your business’s accounting can seem daunting. One key decision you must make as a business owner is choosing between cash and accrual accounting methods.

Each method has its own set of advantages and considerations.

What’s best for your business? Here’s a quick breakdown:

Accrual accounting. Accrual accounting recognizes revenue and expenses when they’re incurred, regardless of when cash actually changes hands. This method provides valuable insights into your business’s financial health and performance, as it reflects all transactions in real-time.

The downside? If your business has limited accounting expertise, accrual accounting may require more time and resources to implement and maintain.

From a tax strategy perspective, accrual accounting can help you track and manage your receivables and payables more effectively, which can be advantageous for tax planning purposes. And because you can match revenues and expenses with greater accuracy, this can lead to more consistent tax liability over time.

Cash accounting. Cash accounting is a straightforward method that records transactions when cash actually changes hands. Revenue is recognized when it’s received and expenses are recorded when they’re paid.

One of the main advantages of cash accounting is its simplicity and ease of use, making it ideal for small businesses with straightforward finances. However, this method may not provide a clear picture of your business’s financial wellness — especially if you have outstanding invoices or bills.

The cash method is often preferred by businesses due to its flexibility in timing income and deductions, allowing for strategic management of taxable income. This can be beneficial for businesses looking to defer income or accelerate deductions. By delaying the receipt of payments or accelerating expenses, you can potentially lower your taxable income for a particular year.

Expanded cash method eligibility

Under the Tax Cuts and Jobs Act (TCJA), eligibility criteria for using the cash method of accounting has been expanded for small businesses. Previously, the gross receipts threshold for small business classification varied depending on factors such as business structure, industry and inventory considerations.

The TCJA simplified this definition by establishing a single gross receipts threshold of $25 million (adjusted for inflation), making small business status accessible to a wider range of companies.

Considering a change?

While a change in accounting methods may result in tax advantages, it may also add additional administrative complexities, especially if financial statements are prepared using the accrual method for reporting purposes. Consulting with a tax professional can help you make an informed decision and develop a tax strategy that aligns with your business’s goals.

The CPAs at Magone & Company can support you in making the most tax-efficient decisions for your business. Give us a call today at (973) 301-2300 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.

Planning Ahead for Gift and Tax Exemption Decreases

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The 2017 Tax Cuts and Jobs Act (TCJA) introduced substantial adjustments to estate and gift tax exemptions. The act nearly doubled the lifetime estate and gift tax exemption to $13.61 million per person and $27.22 million for a married couple.

But nothing lasts forever. The increases in the federal gift and estate tax exemption are temporary and are expected to decrease by the close of 2025 and revert to (significantly lower) 2017 rates.

While there’s a possibility for new tax legislation to pass prior to 2026, families who may face tax liability in the near future should review their estate plans now and make some smart money moves to preserve their wealth — before it’s too late.

Building a strategy with estate planning

Take a proactive approach to help safeguard your goals for your legacy while ensuring that your estate plan remains effective and tax efficient. If your family is impacted, consider some options to build long-term financial stability for your loved ones:

  • A credit shelter trust may be created by a surviving spouse, following the death of a spouse. Also known as a bypass or exemption trust, it allows your assets to pass on to your remaining beneficiaries — with no estate taxes — when the surviving spouse also passes. If you or your family have assets above the exclusion amount when the current law expires, this type of trust might be worth a discussion.
  • Another estate planning tactic for married couples, a spousal lifetime access trust allows one spouse to create an irrevocable trust to benefit their partner. As the grantor, the assets would be taken out of your estate and are available to your beneficiary spouse as needed.This is an option for transferring wealth to your loved one and future generations without exposing the assets to federal estate tax.
  • By transferring assets to your heirs now, you can effectively lower your future estate tax obligation and provide asset protection. But what about highly appreciating assets like real estate, stocks or cryptocurrency that may see significant growth in the future? A grantor retained annuity trust allows you to transfer that asset appreciation to your beneficiaries. That means you can potentially eliminate estate and gift taxes that would otherwise be paid on the value of the appreciation.

At Magone & Company, our goal is to help you create long-term financial stability for you and the people who matter most to you. For estate planning guidance or assistance, 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 tax situation.

A Chunk of Change: Keeping Your Small Business Financially Healthy Amid New Tax Regulations

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Business owners know that keeping up with the latest tax regulations is critical for the financial health and continued success of your organization. And in 2024, there are some major tax concerns to heed.

From expiring provisions of the Tax Cuts and Jobs Act (TCJA) to new reporting requirements, prepare for what’s next so you can best manage your tax obligations — and keep more money in your business.

Here a few key changes to keep in mind this year:

The Qualified Business Income (QBI) deduction phase-out. If you’ve benefited from the QBI deduction in the past, this generous tax break won’t be around after 2025. This deduction allows small business owners more financial breathing room, freeing up money for hiring and expanding operations. But unless new legislation is introduced, applicable partnerships, proprietorships and S-corps may no longer deduct 20% of qualified business income from individual federal income taxes.

Continued bonus depreciation on qualified property. The TCJA changed the applicable percentages and qualifying property rules, allowing businesses to write off 100% of the cost of eligible property. Each year, the bonus percentage decreases by 20 points. Going forward, consider the impact the phase-out schedule may have on your financials:

  • 2024: 60%
  • 2025: 40%
  • 2026: 20%
  • 2027: 0%

Possible tax bracket revisions. The government has recently proposed raising the corporate tax rate to 28% in an effort to create a more equitable tax system. If new legislation is introduced, businesses like yours may experience adjustments in tax liability, depending on your income. To plan ahead, review your current financial position to estimate your projected income for the upcoming year, and determine how your tax bracket may affect your business’s profitability.

Updated reporting requirements. Beginning this year, many small businesses will be required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to build a national database to aid in the prevention of using of shell companies for criminal activity. Your reporting due date depends on when your company was created or registered. Get the details to ensure your business is in compliance, or you may face the risk of costly penalties.

Tax planning — A year-round strategy

At Magone & Company, we’ll help your small business proactively plan for new tax regulations before they become effective. Our goal is to help minimize your liability now and in the future. For small business tax planning guidance or assistance, 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 tax situation.