Business Taxes

Internal Controls 101: What Your Auditor is Looking For

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Most business owners assume an audit is about checking whether their numbers add up. But there’s a lot more to an audit than ensuring the accuracy of your financial reporting, and it all comes down to internal controls.

Internal controls are the checks and balances your organization puts in place to mitigate risk and protect your financials. It’s an ongoing system of policies and procedures that should be directed by management and carried out by your team.

In our 30+ years as experts in audit and assurance, evaluating those controls is always one of the first orders of business. Here’s a closer look at the process and how to get ahead of it. 

What’s at risk?

Under Generally Accepted Auditing Standards (GAAS), auditors are required to obtain an understanding of your internal controls. They’re looking for any unintentional or intentional errors that could cause your financial statements to be wrong.

For example, a company that processes vendor payments without a secondary approval could allow fraudulent disbursements to go undetected, raising red flags during an audit.

Auditors assess your current controls to determine how much additional testing they need to do to satisfy audit requirements and sign off on your financials. In a nutshell, strong controls mean less testing while weak controls mean more.

What do auditors evaluate?

Auditors typically zoom in on five areas. They follow a structured framework to gain a closer look at how your organization manages financial risk.

  1. Control environment. Does management take financial integrity seriously? Are ethical standards clear and enforced?
  2. Risk assessment. Does your organization identify and respond to risks as the business changes? For example, a company that grows from five to fifty employees, but never updates its approval workflows, can cause a breakdown of oversight.
  3. Control activities. Are there specific policies and procedures that put controls into action, including approvals, reconciliations, physical safeguards and IT access? This is where most of the hands-on audit testing happens.
  4. Information and communication. Are the right people getting accurate, timely financial information? Are issues escalated appropriately?
  5. Monitoring. Does management regularly check that controls are working? Controls that were effective three years ago might not be applicable to your business today.

Once your audit is completed, any control deficiencies are outlined in a letter with recommendations on how to address them. You’ll be expected to respond with a remediation plan.

If the same weaknesses continue to pop up audit after audit, that’s a signal to auditors, lenders and investors that you’re not working to address problems and improve the overall fiscal health of your organization.

Staying a step ahead 

Don’t wait for an auditor to find problems. Make sure your policies are documented and followed. Walk through your key financial processes and pinpoint who’s responsible for each task. Look for anywhere one person controls an entire process from start to finish, which can put your organization at risk for fraud.

Need more support? The CPAs at Magone & Company are experts in internal control assessments. Whether you’re preparing for your first audit or need a more constructive approach to improving your processes, reach out 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 specific to your unique circumstances

 

 

5 Signs Your Business has Outgrown Your Tax-only Accountant

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The accountant who got your business through the startup phase isn’t always the one who gets you to $5 million — or $10M or $20M.

As your business grows, the inflection point usually comes when you need financing, are seeking proactive tax mitigation strategies or need to reward key employees to help retain critical talent.

This is when the gap between basic tax prep and true financial advisory can mean the difference between making informed decisions and expensive mistakes. If your CPA’s involvement hasn’t changed since year one, you may have outgrown the relationship.

Here’s how to tell:

1. They only reach out when they need something for your tax return.

You hear from them during tax season, but there’s no ongoing dialogue about tax planning or your business goals throughout the rest of the year. An advisory relationship should include regular touchpoints aligned with your business cycle and discussions about how today’s financial decisions impact tomorrow’s tax position.

What advisory looks like at Magone & Company: Quarterly check-ins, year-round tax planning and strategic conversations — not just April deadlines.

2. They give you historical data, not forward-looking insights.

Your profit and loss statement arrives with no context or interpretation. There’s no benchmarking against industry standards, no guidance on what to watch for next, and no proactive analysis to identify opportunities.

Here’s an example: We worked with a client on their business and personal returns. This client had previously been with a traditional tax-prep-only firm for the past three years.

With our deep knowledge of state tax laws, we were able to take advantage of that state’s law to exclude income in the state. This resulted in a tax savings of approximately $600,000.

That’s the distinction between an accountant and an advisor. Our advisory approach explains why your business margins are shifting, flags issues before they become problems and identifies which metrics deserve your attention.

What advisory looks like at Magone & Company: We’ll suggest proactive tax mitigation strategies, identify trends in your industry and offer data-informed insights to get ahead of whatever’s next in your business.

2. You’re asking strategic questions, and they’re giving you compliance answers.

When you bring major decisions to your accountant — like hiring employees versus contractors, or buying versus leasing a building — you get technical tax answers instead of strategic guidance. They’ll tell you both options are compliant but won’t help you evaluate which choice is better for your cash flow, growth trajectory or long-term goals.

What advisory looks like at Magone & Company: Actual analysis of your specific situation with scenario planning and concrete recommendations.

3. They have no experience with your next stage.

As you prepare for an acquisition or expansion, you need an accountant who’s guided other clients through these transitions. If your CPA hasn’t helped a business secure financing, navigate due diligence or structure equity arrangements, they can’t speak the language that banks and investors expect or anticipate the challenges.

What advisory looks like at Magone & Company: We’ve walked many clients through these scenarios, and we’ll make sure you know what to expect.

4. Your business is making decisions without their financial input.

You’re setting prices based on gut feelings. You’re hiring reactively because you’re overwhelmed. You’re making large purchases or considering expansion without cash flow projections. And your accountant hasn’t provided any input.

What advisory looks like at Magone & Company: Together, we’ll sift through relevant data and develop a plan based on informed insights, not guesses

Level up your CPA

If any of these signs resonate, take the time to evaluate whether your accounting relationship can really support your business as it grows.

  • Is your accountant proactively suggesting tax strategies, or only responding when you ask?
  • Do they understand your goals for the business, not just this year’s revenue target, but your three-to-five-year plan?
  • Do they understand your business model, your margins and what drives profitability in your industry?
  • Can they suggest operational improvements to improve productivity or reduce risk?

The advisors at Magone & Company can offer your business the guidance and support it needs for long-term success. To learn more, 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 specific to your unique circumstances

 

 

 

Self-Employment Tax Planning: Start Now or Pay Later

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Working for yourself can be great, but it can also be quite… taxing.

Being your own boss comes with incredible perks — like working where you want and when you want — but the tax side of things can be a bit more complex than when you had an employer handling everything.

To help avoid any unpleasant tax surprises, here are some key rules to keep you in good standing with the IRS.

You have to report income and expenses on Schedule C of Form 1040. As a self-employed worker, you’ll wind up owing taxes on your net profit.

The upside? Your business expenses get deducted against your gross income and not as itemized deductions. And if you have a bad year and lose money, you can usually deduct those losses against your other income.

You’ll have to pay self-employment taxes. For 2025, you’ll pay 15.3% on your first $176,100 of net earnings, then 2.9% on anything above that.

If you’re a high earner, you’ll pay an extra 0.9% Medicare tax once you hit $200,000 if filing individually or $250,000 if married filing jointly. The silver lining? You can deduct half of what you pay in self-employment tax.

You might qualify for a pass-through deduction. If your business generates qualified business income, you may be able to deduct up to 20% of it.

The pass-through deduction is applied after most of your other deductions, meaning it reduces your final taxable income. The good news is you can claim it whether you itemize your deductions or take the standard deduction.

Your home office expenses may be deductible. Working from your home? Your home office can be a dedicated room, part of a room or even a separate building on your property that’s used to conduct business.

You may quality for the home office deduction on all direct expenses, as well as part of your indirect expenses that are related to working from home.

You’re responsible for quarterly estimated tax payments. Since no employer is withholding taxes from your income, you’re on the hook for paying the IRS four times a year.

You can deduct your health insurance premiums as a business expense. This means you get to deduct 100% of your premiums, compared to the regular medical expense deduction that only kicks in after you’ve spent over 7.5% of your income on medical costs.

You must maintain complete records of your income and expenses. In order to claim the full amount of deductions you’re entitled to receive, be sure to keep careful documentation of your expenses.

Be aware that some expenses — like car costs, travel and meals — come with extra rules and recordkeeping requirements or limitations on deductibility.

You may consider setting up a retirement plan. This can be a great tax savings strategy, allowing you to deduct what you contribute now and only pay taxes when you withdraw the money later.

Look into retirement plan option like a SIMPLE plan or SEP IRA, which require less paperwork but still offer solid tax benefits. In 2025, business owners may contribute up to 25% of their total earnings or a maximum of $70,000 into their SEP IRA.

You’ll need to handle payroll taxes for your employees. Hiring a team to work for you? That means getting a taxpayer ID number and dealing with withholding, adding a whole new layer of administrative responsibility to your business.

Questions? The CPAs at Magone & Company can help support you in achieving the most favorable tax situation as a self-employed worker or small business owner. Give us a call 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.

What the One Big Beautiful Bill Means for Your Business

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The One Big Beautiful Bill (OBBB) legislation represents an overhaul of the federal tax landscape, introducing dramatic changes to taxes, credits and deductions that will impact taxpayers across all income levels. And everyone from entry-level employees to Fortune 500 CEOs will be affected.

The good news is that once you wrap your head around these changes, your business may benefit from opportunities to optimize your tax strategy. Here’s what you need to know:

  • Paid family and medical leave credit. Now a permanent credit, employers can choose between two methods for calculating the credit: a percentage of wages paid to qualifying employees during family and medical leave, or a percentage of premiums paid for insurance policies providing paid family and medical leave. Additionally, employers may now elect to include employees with at least six months of service (reduced from one year).
  • Employer-provided childcare credit. Effective in 2026, the OBBB increases the credit percentage for “qualified childcare expenditures” from 25% to 40% for regular businesses and 50% for eligible small businesses. The maximum credit is $500,000 ($600,000 for eligible small businesses). Beginning in 2027, all amounts are subject to annual inflation adjustments.
  • Employee exclusion for employer-paid student loans. The OBBB permanently extends the employee exclusion for qualifying employer student loan payments. Starting in 2026, the current $5,250 maximum exclusion amount will be adjusted annually for inflation.

What’s next?

Stay in the know as additional guidance and regulations are released, and reach out to the tax planning experts at Magone & Company to get your questions answered.

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.

Maximizing the Tax Benefits of Your Remote Workforce

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The pandemic fundamentally altered how many U.S. businesses operate. Distributed teams and flexible arrangements have become permanent fixtures rather than temporary fixes.

For employers and workers, this also means new opportunities and challenges for tax planning and compliance.

The reality of remote workers

Companies have discovered that productivity doesn’t require physical proximity. In fact, 60% of remote workers report their flexible work arrangement has boosted their ability to get work done and meet deadlines. This proven effectiveness means that today’s employers may have teams spanning cities and states, creating complex tax implications that extend beyond traditional office-based considerations.

Comprehensive tax credit and incentive (TC&I) analysis has become essential for businesses supporting remote teams. These specialized programs provide detailed assessments of available opportunities, breaking down qualification requirements and implementation strategies tailored to your specific business model.

TC&I experts examine your operations, identifying federal, state and local programs that align with your workforce distribution, ensuring you’re capturing every available benefit while maintaining full compliance across all jurisdictions where your employees work.

Navigating the nexus challenge

Before your businesses can capitalize on these opportunities, you must establish and manage nexus obligations.

State tax nexus determines where your business has sufficient connection to warrant tax obligations, and remote employees can create these connections in states where you’ve never maintained a physical presence.

Each state has different standards for establishing nexus through employee activities. Some require minimal employee presence to trigger obligations, while others have higher thresholds. Getting nexus right requires a proactive approach:

  • Conduct regular nexus assessments. Implement regular reviews of employee locations and activities to identify new potential nexus obligations before they become compliance issues.
  • Establish clear remote work policies. Develop guidelines that address tax implications of employee relocations and temporary work arrangements.
  • Engage multi-state tax professionals. Partner with specialists who understand the nuanced requirements across different jurisdictions.

Credits that reward a remote work strategy

Once your nexus obligations are properly managed, the evolving work landscape has expanded access to numerous tax credit opportunities for remote employers. For example:

  • State-specific remote work incentives. Various states offer credits for companies hiring remote workers or relocating operations.
  • Home office deduction optimization. While limited for employees, businesses can structure arrangements to maximize legitimate office-related deductions.
  • Technology investment credits. Many jurisdictions offer incentives for investments in equipment and software that enable remote collaboration.
  • Economic development incentives. Location-specific credits may be available when remote workers are based in designated economic zones.

Making the most of your remote workforce

Regular assessment of your workforce distribution, combined with strategic implementation of available credit programs, positions your business to thrive. Learn how the experts at Magone & Co can help. Reach out 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.

 

Breaking Down The One Big Beautiful Bill for Businesses

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Recently enacted tax legislation known as The One Big Beautiful Bill was passed by Congress and signed into law on July 4, 2025.

This new legislation brings immediate relief in several key areas while creating strategic decisions that require prompt attention. Here’s a summary of the most critical provisions that may impact your business:

Research and Development (R&D) expensing. Businesses can once again fully deduct domestic R&D expenses in the year they’re incurred. Small businesses can amend 2022-2024 tax returns to claim immediate R&D deductions previously capitalized which may generate refunds and improve cash flow.

Large corporations cannot amend prior years but can take the full remaining deduction in 2025 or split it between 2025 and 2026.

Research credit coordination. New rules require choosing between claiming the full R&D tax credit or taking the full expense deduction, as you can no longer maximize both.

If you claim the Section 41 research credit, you must reduce your R&D deductions by the same amount. Alternatively, you can elect a smaller credit to preserve your full deduction.

Business interest limitation. The bill’s business interest deduction now limits returns to the more favorable 30% of EBITDA calculation, reversing the restrictive EBIT-based rules that had been in effect since 2022. This change is permanent, eliminating previous uncertainty about future policy shifts.

The key improvement is that depreciation and amortization are back in the calculation base, increasing the threshold for allowable interest deductions. This benefits manufacturers and other capital-intensive businesses that were hit hard by the previous rules.

But there’s one important clarification: Capitalized interest (interest added to asset costs rather than immediately deducted) must now be included in the limitation calculation, with the 30% cap applied to capitalized interest first before current deductible interest.

Foreign-derived income changes. The foreign-derived income deduction is being scaled back in two phases. The deduction rate drops permanently from 37.5% to 33.34% for tax years beginning after 2025. And starting mid-2025, income from selling intangible property and depreciable assets won’t qualify for the deduction, and only expenses directly tied to qualifying foreign income can reduce the benefit.

The 100% bonus depreciation is back for all qualifying equipment and property purchased after that date. This reverses the phase-down schedule that reduced the benefit to 60% in 2024 and 40% in early 2025. The reinstatement applies to plant, equipment and tangible personal property, including both new and used assets. There’s also a special elective provision for manufacturing and refinery property placed in service through 2031, giving these businesses additional flexibility in timing their depreciation benefits.

International tax changes. Starting in 2026, Global Intangible Low-Taxed Income (GILTI) rules are being renamed Net CFC Tested Income (NCTI), affecting businesses with foreign operations.

The deduction rate drops from 50% to 40%, which increases the effective tax rate from approximately 13.1% to 12.6% (around 14% when factoring in foreign tax credits). The previous exclusion for tangible asset investments is eliminated, meaning all foreign income is now subject to tax under these rules.

In addition, the foreign tax credit rate increases from 80% to 90%, and rules for allocating deductions against this income are being tightened to exclude interest and R&D expenses from the calculation base.

Next steps for your business

The One Big Beautiful Bill offers substantial tax relief, but maximizing these benefits requires proactive planning and strategic decision-making now. The professionals at Magone & Co can help. Reach out to our knowledgeable 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.