Business Taxes

The latest guidance on tax payment relief

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We have received guidance regarding the special payment relief proposed by the Treasury Department on March 17. This payment relief includes:

Individuals: Income tax payment deadlines for individual returns, with a due date of April 15, 2020, are being automatically extended until July 15, 2020, for up to $1 million of the 2019 tax due. This payment relief applies to all individual returns, including self-employed individuals, and all entities other than C corporations, such as trusts or estates. The IRS will automatically provide this relief to taxpayers. You do not need to file any additional forms or call the IRS to qualify for this relief.

Corporations: For C corporations, income tax payment deadlines are being automatically extended until July 15, 2020, for up to $10 million of the 2019 tax due.

This relief also includes estimated tax payments for tax year 2020 that are due on April 15, 2020. Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. If you file your tax return or request an extension of time to file by April 15, 2020, you will automatically avoid interest and penalties on the taxes paid by July 15.

We remind our clients and friends that for the vast majority, your tax return is due on April 15, 2020 without extension. This relief does not extend the filing date, only the payment of the tax liability.

We also remind you this relief applies only to federal income tax (including tax on self-employment income) payments otherwise due April 15, 2020, not state tax payments or deposits or payments of any other type of federal tax.

Here is the latest on the payment deferral and filing due dates for the states that have published information:

  • California — Filing and payments extended until June 15, 2020. Includes quarterly estimated tax payments.
  • Connecticut — Business returns extended until June 15, 2020, individuals until July 15th.
  • Michigan, Colorado, Georgia, Maryland, Massachusetts, Ohio, Oregon — State treasury departments have said they will mirror IRS guidance; however, there have been no official pronouncements issued yet.
  • South Carolina – Filing and payments extended until June 1, 2020 for individuals and corporate taxpayers. Quarterly estimates were not addressed.

Many state treasury departments are closed, but monitoring the IRS guidance. We continue to monitor various state payment deferral plans and due dates, and will communicate them if and when they are adopted.

Our team of tax professionals is here for you during this uncertain time. Please call the office at 973-301-2300 with any questions.

Tackling your own business tax issues? Bad idea

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Running a small business means wearing multiple hats — from salesperson to HR manager to collection agent. But should you add tax expert to your growing list of duties?

You may think preparing tax returns for your small business is no big deal. After all, there’s no shortage of tax software options and apps on the market that can help simplify the do-it-yourself route. But before you fill out the endless forms and scan a mountain of receipts, consider these three compelling reasons to leave your taxes to the professionals:

  1. It’s too easy to make a mistake. Even a small business tax return can span dozens of pages. And with so many figures and numbers, there are literally thousands of opportunities for an error to occur. Inadvertent blunders could mean hefty overpayments. Or worse, they could trigger an audit and tie your up business for months.
  2. If there’s an audit, you’re left to fend for yourself. The IRS is increasingly setting its sights on the small business community, and that means you have a target on your back. As an individual taxpayer, your chances of being audited are less than 1%. But as business owner who’s filing a Schedule C, the odds are far higher. Would you know how to proceed without the knowledge of a trusted tax professional?
  3. The tax laws are always changing. Even if you’re an expert on the current tax code, that expertise will not last long. Every new year brings a slew of changes, and many directly impact small businesses. If you rely on your own knowledge, you could miss a vital update that could save your firm money or get hit with a penalty that you didn’t know existed.

Putting a price tag on peace of mind
 Having your taxes professionally prepared can be one of the best investments you make this year. If you don’t already have a trusted tax professional on your team, give Magone & Company a call at (973) 301-2300.

Business location, location, location: The best and worst U.S. states to set up shop

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Whether you’re launching a business or expanding an existing one, location plays a critical role in the formula for success. Choosing where to open your doors can make or break your entire business plan — especially for smaller startups.

To give you a head start on identifying possible locations for your next venture, WalletHub recently published a study that ranks all U.S. states on the optimal conditions for new businesses. They compared all states across three elements: the overall business environment, access to resources and business costs.

How the states stack up
Texas claims the number one overall spot, also ranking number one in business environment, which includes the average length of the work week, five-year business survival rate and the number of startups per capita. While the Lone Star State earned a lackluster rating for costs from WalletHub, the Tax Foundation’s 2019 State Business Tax Climate Index reminded entrepreneurs that Texas doesn’t have an individual income tax or corporate income tax, lending to the state’s appeal for a startup.

Spending is a necessary part of building a business, but lower operating costs can of course help increase your profit margins and boost your bottom line. With costs in mind, Oklahoma and Mississippi were found to be the most affordable states for doing business, taking the number one and number two spots based on:

  • Office space affordability
  • Labor costs
  • Insurance premiums
  • Cost of living

Looking to stay in the New York tri-state area? New Jersey is 49th on the overall WalletHub list, ranking 50th in business costs and 44th in business environment. In terms of cost, New York clinches the 49th spot, but ranks 42nd overall. And thanks to New York City, it’s no surprise that the Empire State comes in at an impressive number six for access to business resources. Connecticut rounds out the tri-state, ranking 48th in business costs and 48th in overall business environment.

Choose wisely based on what matters to you
One survey isn’t going to dictate your business’s optimal location. Be sure to consider other factors that can play a pivotable role. Are competitors in the area? Is the location consistent with your brand’s style and image? Do the demographics match your ideal customer profile?

According to the Bureau of Labor Statistics’ Business Employment Dynamics, just 50% of businesses with employees make it to their fifth year in business. To increase your survival odds, do your research and pick a location that will work for your current and future needs.

Reaching a tax resolution: Is an IRS “Offer in Compromise” the right move for you?

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Like clockwork, tax season is upon us. But for taxpayers who owe multi-year payments plus mounting penalties, it’s an especially expensive and stressful time of year.

Owing money to the IRS can be frightening, to say the least. For each day that goes by, more interest and penalties may accrue, wreaking havoc on your finances. Even if you think there’s no hope in paying off what’s owed, there are repayment options worth exploring that can help you get out of debt for a reduced amount.

The Offer in Compromise
If you owe back taxes to the IRS or have years of unfiled returns, you may qualify for programs that can help pay off your debt faster and with minimal headaches. An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS, settling your liabilities for less than the full amount owed. While this option is widely known, it’s often considered a complicated part of the tax code.

Without an experienced tax resolution specialist to navigate the ins and outs of an OIC, the IRS may turn down your application, and the amount you’re obligated to pay could keep climbing. A tax pro also has extensive knowledge of other IRS programs and payment options, which may better suit your personal situation.

There’s no time like the present to get back on track
Few things in life are as frightening as owing money to the IRS, but the faster you move, the sooner you can work on paying off your debt. If you’re in tax trouble, reach out to our NJ tax resolution firm for guidance on how to best proceed. Contact Magone & Company today at (973) 301-2300.

Can depreciation save your business money?

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Depreciation is a deduction from income tax that lets your firm recover the cost of property. Read on to see how the IRS allows for the wear and tear, deterioration or even obsolescence of items.

The depreciation of tangible property — buildings, machinery, vehicles, furniture, equipment and even cell phones — as well as intangible property, such as patents, copyrights and computer software, is allowed by the IRS in certain situations, and can be used to offset income from your business. Does your property meet these requirements?

  • You own the property
  • You lease the property and make capital improvements
  • You use the property in business and for personal purposes (In this case, you can only deduct depreciation for business use of the property)
  • The property has a determinable useful life of more than one year

However, not everything can be depreciated. For example, land is off the table because it doesn’t get used up and is not subject to wear and tear. Inventory is not depreciated either.

You depreciate an asset over time. When you place property in service to use in your business or trade or to produce income, that’s when depreciation begins. However, property stops being depreciable when you’ve fully recovered the property’s cost or other basis or when you retire it from service — whichever happens first.

There are different schedules for different items. For computers, office equipment, cars, trucks and appliances, the recovery time is up to five years. Office furniture and fixtures work on a seven-year schedule. Residential rental properties can be recovered over 27.5 years, while commercial buildings and nonresidential properties can be recovered over 39 years, depending on the year you acquired them.

There are three basic depreciation methods. Particular situations will dictate which ones are most appropriate for you. Keep in mind that you need to know the initial cost of the asset and how long you can depreciate it for.

  • Straight line — Depreciate the property an equal amount each year over its useful life
  • Accelerated method — Take larger depreciation deductions in the first few years of the property’s useful life and smaller deductions later on
  • Section 179 deduction — Deduct the entire cost of the asset the year it’s acquired

To ensure that you properly depreciate property, you need to consider:

  • The depreciation method for the property
  • The class life of the asset
  • Whether the property is “Listed Property” as defined by the IRS
  • Whether you’ve elected to expense any portion of the asset
  • Whether you qualify for any bonus first-year depreciation
  • The depreciable basis of the property

Use depreciation to decrease your company’s tax burden, as you are lowering your overall taxable income. Depreciation doesn’t affect your company’s cash flow or its actual cash balance — it’s a non-cash expense. But before making any decisions, remember to consult your tax professional.

4 income tax filing mistakes that could land you in tax trouble

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Thinking of preparing your own income tax return  this April? You might want to reconsider. Even the slightest oversights might mean hefty fines and penalties that could have been avoided. Watch out for these four mistakes before hitting the “submit” button.

#1 Neglecting to report all of your income.
Whether it’s your regular paycheck, a side gig, gains that you’ve made on the stock market or interest earned from deposits in the bank, you need to account for all of it in your tax return. If you don’t, the IRS may come knocking. Every time you make at least $600 in income working as an employee of any description, you get a 1099 form stating what you’ve made. Technically, you should also record smaller chunks of income for which you don’t get a 1099.

#2 Guessing what your deductions are.
Back up every attempt at a deduction with documentation like receipts or logs. If you attempt a rough estimate at what your deductions should be, you could trigger suspicion — especially if the sum you claim is high for your income level, or if it’s a convenient round figure.

#3 Automatically rejecting the idea of itemizing.
Most tax filers choose to take the standard deduction, rather than itemize. But, this doesn’t mean that you shouldn’t itemize — it really depends on your specific circumstances. If you have many legitimate deductions to make because you pay a great deal of mortgage interest, for example, itemizing may work in your favor.

#4 Procrastinating filing your return.
Preparing your taxes is a complex process. If you’re self-employed, or if you need to itemize, it man only get worse. Don’t rush through the process, as mistakes can be costly. Take the time to file your taxes well ahead of the deadline. If you need extra time, you can always file for an extension and avoid the late filing penalty, which can add up to a whopping 25% of the original tax amount.

Whatever you do, don’t skip filing altogether! At Magone & Company, we’re here to help. Give us a call at (973) 301-2300 for assistance in resolving any tax issues that come your way.