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. 

 

Financial Metrics That Matter for Business Owners

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One crucial element that can make or break your business? Financial management.

Understanding the financial health of your organization is essential for making informed decisions and planning for the future. But to gain valuable insights and take proactive steps to improve your financial stability, you need to know what metrics to track.

Every business is different, but the following metrics can serve as a solid foundation:

Profit and Loss (P&L) statement. Also known as an income statement, your P&L is a fundamental financial tool that tracks your business’s revenue, expenses and profitability. This statement provides a snapshot of your financial performance over a specific period — typically a month, quarter or year — revealing your gross profit margin, operating profit margin and net profit margin.

P&L statements are very telling in terms of how effectively your business generates profit from its core operations and oversees day-to-day financial operations.

Cash flow statement. A cash flow statement shows how cash moves in and out of your business over time, while separating cash inflows (sales revenue, loans or investments) from cash outflows (expenses, loan repayments or asset purchases).

By regularly reviewing this statement, you can identify potential cash flow gaps and take proactive measures to address them. For example, you can negotiate more favorable payment terms with suppliers or make tweaks to optimize your inventory management.

Key performance indicators (KPIs). KPIs are specific metrics that measure various aspects of your business’s operations, helping assess its overall health and progress toward your goals. Important financial KPIs include revenue growth rate, customer lifetime value, return on investment (ROI) and customer acquisition cost (CAC).

By tracking these KPIs, you can best prioritize customer retention efforts, assess the profitability and efficiency of your business’s investments, and identify areas of strength and weakness within your business. CAC, for example, is a straightforward metric. Simply divide the funds spent on customer acquisition by the number of prospects who converted during a given time period. Understanding your CAC is crucial for marketing planning and budgeting, ensuring you’re not overspending time and resources in the pursuit of new customers.

Revenue per employee. This ratio can help you keep an eye on how well you’re utilizing resources, as well as how productive your employees are. The formula is simple: Calculate the total revenue for a set time period and divide your employee count for the same period. The result is a general idea of the value you’re getting from your talent, making sure they’re contributing to your profitability.

Only a starting point

Tracking the right financial metrics is vital for every business owner, and you may need to customize your approach based on your unique business circumstances. With the right knowledge in hand, you’ll be empowered to work smarter and drive your business forward.

At Magone & Company, we can help your business maintain a healthy cash flow and plan for long-term financial success. Reach out to us 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 unique circumstances.

How Owning a Home Can Pay Off at Tax Time

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From building equity to growing roots in a community, home ownership has some significant benefits — including some hefty tax savings.

Uncle Sam offers homeowners several tax advantages to help ease the financial burden of your costly investment. If you’re thinking of moving into a new home or just settling into your dream home, homeownership not only provides a place to call your own. It also can offer some valuable savings along the way.

Discount points. Considering a home purchase? If you plan to stay in the home for at least 10 years, buying mortgage points — or discount points — may be worth your while.

Each mortgage point represents one percent of your underlying loan amount. While they’re an additional upfront cost at closing, they’re also a way to negotiate a lower interest rate. Plus, they’re deductible.

Mortgage interest deduction. As a homeowner, you can deduct the interest you pay on your mortgage loan from your taxable income. This deduction can result in substantial savings, especially during the early years of your mortgage when the interest portion of your monthly payment is typically higher.

For example, if you purchased a home with a mortgage loan of $300,000 and an interest rate of 4%, you would pay approximately $12,000 in interest during the first year. By deducting this amount, you could potentially lower your tax liability by thousands of dollars.

Property tax deduction. Property taxes are calculated by the local government and are typically based on the assessed value of your home. The good news is that you can deduct the amount you pay in property taxes from your taxable income, reducing your overall tax liability.

This deduction is particularly beneficial for homeowners who live in areas with high property tax rates.

Home office deduction. If you use a portion of your home exclusively for business purposes, you may be eligible for the home office deduction. This allows you to deduct all direct expenses and part of your indirect expenses involved in working from home, including utilities, insurance and repairs.

Keep in mind, this deduction is calculated based on the percentage of your home that is used for business purposes. So if your home office occupies 10% of your total square footage, you can deduct 10% of your eligible expenses.

Home equity loan interest. A home equity loan allows you to access the equity you’ve built in your home and borrow the funds as needed. You can typically borrow 80-85% of your total home equity.

Similar to regular mortgage interest, you can deduct the interest you’ve paid — as long as the funds were spent on making home improvements.

Medically necessary home improvements. And speaking of home improvements, medically necessary home improvements that help you, your spouse or dependents live safely in the home may be deductible. These include widening doorways, lowering cabinets, adding railings and more.

Time to take advantage of homeownership tax benefits

There are few times in life you can get money out of your house — rather than pouring cash into it. Tax season is a key opportunity!  At Magone & Company, we’ll help you get the most tax savings as a homeowner. For tax planning guidance, 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. 

Magone & Company Confirms Relocation to Parsippany, NJ Office Space

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NJ CPA firm Magone & Company, a leading NJ tax & advisory practice, has announced an upcoming relocation to new offices.

The 40-person firm will shift its operations in May 2024 to the Century Campus at 4 Century Drive in Parsippany, NJ, near the intersection of I-287, Routes 10 and 202, and in close proximity to Routes 24, 280 and 78.

Says managing partner Nick Magone, “The new space allows our firm to consolidate our current Morris and Essex County offices into a single location. We’re looking forward to enhanced collaboration opportunities for our teams to innovate, share ideas and ultimately better serve our clients.”

The Class A Century Campus features a park-like setting, comfortable communal areas and expanded amenities including yoga and fitness, a coffee bar and full-service café.

Magone’s Morris County location is complemented by its soon-to-be Hackensack offices to more easily accommodate clients across northern and central New Jersey and New York City.

The NJ CPAs at Magone & Company, P.C. bring a unique 360° perspective to the practice of accounting and business consulting. The firm supports leading entrepreneurial companies, non-profits, international firms, medical/dental practices, technology companies and the real estate industry with a complete range of accounting, audit & attestation, tax, wealth management and business consulting services.

For more information, reach out or call (973) 301-2300.

Keep More Money in Your Business: Are You Claiming All Eligible Tax Deductions?

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How should I structure my business for tax efficiency? It’s a question we hear often from business owners and entrepreneurs. And the answer? That depends…

Whether you choose to operate as a sole proprietorship, C-corporation, S-corporation, partnership or LLC, there are unique deductions that can lower your taxable income and keep more money in your business. Here’s a quick overview of each:

Sole proprietorships. As a sole proprietor, you have the freedom and flexibility to run your business as an individual. This business structure comes with its own set of tax deductions that can help save you some cash, including:

  • The home office deduction. If you use a portion of your residence exclusively for your business, you can deduct expenses like rent, mortgage interest, utilities and insurance.
  • Self-employment tax. You’re responsible for paying both the employer and employee portions of Social Security and Medicare taxes. However, you can deduct the employer portion of these taxes when calculating your business’s net income.
  • Personal vehicle use. If you use your personal car for business purposes, you can deduct gas, maintenance and insurance or other related expenses.
  • Professional fees. Any expenses considered ordinary or necessary for your business — such as legal or accounting fees — can be written off on your tax return.

C-corporations. Unlike sole proprietorships paying individual income tax, businesses operating as a C-corporation must pay corporate taxes — which can also be beneficial when it comes to deductions:

  • Employee wages and benefits. C-corporations can deduct the full amount of employee salaries, bonuses and benefits as ordinary and necessary business expenses. This deduction not only helps reduce your taxable income but also can help to attract and retain top talent by offering competitive compensation packages.
  • Business travel and entertainment expenses. This deduction includes airfare, hotel accommodations, meals and even some client entertainment expenses.
  • Research and development (R&D) tax credit. If your business invests in R&D activities, you may be eligible for a tax credit that can significantly reduce your tax liability.

S-corporations. S-corporations, also known as “small business corporations,” offer exclusive tax advantages to minimize your liability:

  • Qualified Business Income (QBI) deduction. Under this deduction, business owners can deduct up to 20% of their qualified business income on their taxes.
  • Expenses related to employee benefits. This includes health insurance premiums, retirement plan contributions and other fringe benefits provided to employees. Additionally, S-corporations can deduct business-related expenses such as advertising, professional fees and office supplies.

Partnerships and LLCs. Partnerships and LLCs, also known as “pass-through entities,” allow profits and losses to flow through to the individual partners or members, who then report them on their personal tax returns. Deductions include:

  • Self-employment tax. This one is exclusively available to partners and LLC members. Similar to sole proprietors, these individuals can deduct the employer portion of their self-employment taxes when calculating their taxable income.
  • Expenses related to employee wages and benefits. This deduction covers salaries, bonuses and benefits provided to employees. You can also deduct ordinary and necessary business expenses such as rent, utilities, professional fees and advertising costs.

Boost your bottom line

When it comes to taxes, every dollar saved can add up to a significant amount of cash. Keep in mind, there are other tax deductions that eligible businesses can make, regardless of structure — from charitable donations to health insurance to retirement plan contributions.

We know that’s a lot to take in when you’re just starting out. Choosing (or changing) your entity type is a big decision, so be sure you’re getting professional guidance. Reach out if we 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 tax situation.