Small Business

Small Businesses Get Big Benefits from SECURE 2.0 Retirement Provisions

by

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.


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.

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

by

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.

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

by

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.

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

by

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

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.

 

Important Update on the Corporate Transparency Act

by

Remember the Corporate Transparency Act we told you about earlier this year?

A Texas federal court just issued an injunction declaring the law invalid, stating that the requirements of the Beneficial Ownership Information Reporting exceed Congress’s commerce authority.

The law required submission of a report listing a business’s “beneficial owners”—the individuals who actually own or control the business. Businesses formed on or after Jan. 1, 2024, were required to also provide information about “company applicants,” the people who actually filed business entity formation paperwork.

The stay on reporting comes weeks before the law’s January 1, 2025 filing deadline. Failure to report would trigger both civil and criminal penalties.

Though the due dates have been suspended and penalties will not be instituted, the filing requirement may be reinstated in the future.

If you’re yet to file your Beneficial Ownership Information Reporting, please consult with your attorney to stay ahead of changing requirements.

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.

Employing Independent Contractors? 1099 Reminders for Small Businesses

by

For small business owners, hiring an independent contractor has many advantages. From access to specialized project skills to reduced onboarding time, it’s a strategic way to increase your efficiency and productivity — without adding to your headcount.

Like every worker, they’re compensated. And any independent contractor earning $600 or more should typically receive a 1099 form from your business come tax time.

Sending out 1099s is an important tax-related obligation. Failure to do so can mean significant penalties. Here are some reminders to stay on top of the task:

Collect essential information. Request W-9 forms from your contractors at the start of every engagement to obtain the following:

  • Full legal or business name
  • Mailing address
  • Taxpayer identification number (TIN), Social Security number or Employer identification number

Fill out the correct form at tax time. Form 1099-NEC (Non-employee compensation) is most commonly used for independent contractors, but a 1099-MISC, for example, may be used for specific types of payments.

Double check for accuracy. Complete 1099 forms accurately, including a contractor’s name, address, TIN and the total amount earned during the year, as well as your business’s name, address and TIN. Any errors or discrepancies can lead to delays in processing and potential fines, so allow ample time to review and address any discrepancies.

Provide copies to contractors. Once the forms are ready, distribute them to your contractors and vendors promptly. 1099-NEC forms for the current tax year are due to payees by January 31, 2025. Deadlines for different 1099-MISC forms may vary from late January to mid-February.

File with the IRS. Paper and e-filing due dates are typically at the end of February for paper filings and the end of March for electronic filings. Check IRS guidelines for exact due dates, as they can change. Current deadlines are as follows:

  • 1099-NEC paper and e-filing – January 31, 2025
  • 1099-MISC paper filing – February 28, 2025
  • 1099-MISC e-filing — March 31, 2025

Keep careful records. There’s always the possibility of an IRS audit, so be sure to maintain copies of all 1099 forms, as well as supporting documentation and payments, for a minimum of four years.

Consequences of 1099 noncompliance

Remember, tax laws, requirements and deadlines can always change, so it’s crucial to stay in the know.

If you have any questions or need assistance, don’t hesitate to reach out to the tax experts at Magone & Company. Together, we can ensure that your small business remains in good standing with the IRS. Give us a call today at (973) 301-2300.