Business Taxes

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

May 9, 2025 by Nick Magone, CPA, CGMA, CFP®

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

Keeping Main Street Strong: Protecting Small Business Tax Relief

February 7, 2025 by Nick Magone, CPA, CGMA, CFP®

Small businesses face a critical tax challenge as a significant tax deduction is set to expire at the end of 2025. But the Main Street Tax Certainty Act aims to provide a lasting solution.

Initially introduced in the 2017 Tax Cuts and Jobs Act, the Main Street Tax Certainty Act is proposed legislation to make the 20% pass-through business income tax deduction permanent. This benefit allows eligible small businesses — including sole proprietorships, partnerships and S corporations — to reduce their taxable income, provide tax stability and support continued economic growth.

What this means for Main Street USA

Small businesses, which create local and drive economic growth, are experiencing significant pressures — from economic uncertainty to rising prices to a labor shortage.

By offering a commonsense solution to strengthen these businesses, the Act seeks to enhance their resilience and arm them with a competitive edge, ultimately supporting the long-term success of small towns across the U.S.

The deduction supports 2.6 million jobs and contributes $325 billion to the U.S. economy. Permanent tax relief would enable:

Improved financial planning
Increased investment in workforce and technology
Enhanced competitiveness against larger corporations

The bill requires broader bipartisan support in order to be signed into law. Small business owners are encouraged to stay informed about the legislation, lobby their local Congressional representatives and consult tax professionals about impending impacts.

Navigating tax changes with confidence

If you have questions about how this potential change could affect your tax strategy, the tax experts at Magone & Company can help guide your business with a sound financial plan. Reach out today at (973) 301-2300.

Small Businesses Get Big Benefits from SECURE 2.0 Retirement Provisions

January 17, 2025 by Nick Magone, CPA, CGMA, CFP®

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.

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

January 3, 2025 by Nick Magone, CPA, CGMA, CFP®

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.

The IRS’ “Dirty Dozen” — What Tops This Year’s List? Part 2

December 27, 2024 by Nick Magone, CPA, CGMA, CFP®

Nearly one in three Americans (31%) report being a victim of online financial fraud or cybercrime.

When it comes to protecting your money and your identity, knowledge is power. Here’s a recap of the last six scams on the IRS’s 2024 “dirty dozen” list.

7. “Ghost” tax return preparers. Be wary of “professionals” who claim they can help you obtain tax credits or refunds that you don’t even qualify for. Watch for red flags like a high fee based on the size of the intended return or their refusal to include their PTIN (IRS Preparer Tax Identification Number) on the return. These ghost preparers can even steal your entire refund before pulling their disappearing act.

8. Trusting social media. This is a message that sadly bears repeating: Social media platforms like Instagram and TikTok are not reliable sources for tax advice. If a Facebook ad suggests filing inaccurate W-2 forms to increase your tax return, for example, don’t give it a second thought. Remember, just because it’s on the internet does not make it true. Always consult with your tax professional.

9. Spearphishing. A targeted form of phishing, spearfishing aims to deceive businesses or individuals within an organization, typically via email. According to the IRS, scammers can pose as new clients or even as an HR department looking to score sensitive employee data. Always use extra caution when opening emails and clicking links. And think twice before sharing any information.

10. Faux art deductions. Taxpayers may deduct an art donation from their tax bill, but beware of deducting it at an inflated valuation. The IRS warns of “promoters” who sell discounted art with the promise it’s worth more, so it can be donated for a hefty write-off. Don’t fall victim to false claims of deductions on art donations. Uncle Sam will eventually find out.

11. Fake tax avoidance techniques. Taxpayers should be on high alert when encountering any schemes that assure you ways to avoid paying taxes. For example, syndicated conservation easement agreements may inflate tax deductions by exaggerating the value of investments. Bottom line: You can’t avoid paying the IRS.

12. International schemes. Individuals should be cautious of offers to contribute to foreign or overseas retirement accounts. Hiding money offshore as a tax reduction strategy can land you in hot water with the IRS.

As scammers continue their relentless attempts to commit fraud, heed the IRS’s warnings to maintain your identity, your reputation and your bank account. For a quick refresh, check out scams one through six. And don’t hesitate to reach out to the tax professionals at Magone & Company with any questions.

The IRS’ “Dirty Dozen” — What Tops This Year’s List? Part 1

December 20, 2024 by Nick Magone, CPA, CGMA, CFP®

Every year, the IRS releases its list of the “dirty dozen” scams that taxpayers, including business owners, should be aware of to protect themselves against fraud and identity theft.

As you begin preparing for tax season, here’s part 1 of our recap so you don’t fall victim to these sophisticated cons and schemes:

Phishing or smishing. Designed to steal sensitive personal information, these scams target taxpayers with fake communications from entities posing as the IRS or state taxing authorities. Phishing schemes are generally sent in the form of an email, luring potential victims with the promise of a phony tax refund or the threat of legal action. Smishing scams use similar intimidation tactics via text or SMS messages. Be cautious of any unsolicited emails or texts requesting personal or financial information.
Aggressive promoters of ERC claims. Many employee retention credit (ERC) promoters are responsible for leading unsuspecting employers astray, causing them to file a claim in error. These questionable claims add up to stiff penalties, hefty interest payments and potentially even criminal prosecution. The IRS urges you to carefully review the ERC guidelines before submitting a claim.
Online account help scams. In this scam, a “helpful” third party offers to assist taxpayers in setting up an online IRS account where users can view balances, see copies of their IRS notices and more. With your log-in information in hand, they can easily access your personal information and steal your identity. Be sure to establish an account directly through IRS.gov to prevent the risk of information theft.
Fuel tax credit claims. Similar to the ERC credit, promoters are pushing improper fuel tax credit claims that taxpayers aren’t qualified to receive — and they charge a substantial fee to the taxpayer to make these false claims. Scammers collect the fees while you are left with the responsibility of righting this wrong. Remain cautious and look to a reputable tax professional for their expertise regarding this credit.
Offer in compromise mills. An offer is compromise is a legitimate IRS program that helps taxpayers settle their tax debt for less than what’s owed. But very few people actually qualify.In this scheme, scammers lure their targets with the promise of resolving debt through negotiating an offer in compromise, often requiring hefty fees for the bogus service. If it sounds too good to be true, it is. The phony deal will cost you, but it won’t deliver on its promises.
Fake charities. Following a natural disaster or hardship, some fraudulent groups prey on good-hearted individuals and pressure them into making donations quickly to support the cause — and claim a deduction on their income tax return. Unless you can research and verify the charity, you could be giving your money away to a scammer. Do your due diligence, especially if you feel coerced into giving.

Stay tuned for continued guidance as we recap more scams from the dirty dozen list. In the meantime, don’t hesitate to reach out to the tax professionals at Magone & Company. We’re here to help.