Perks for Parents: Tax Tips to Help Families Maximize Their Savings

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Tax season is officially upon us, and there’re no escaping it. The IRS has its hand out to collect a portion of your taxable income. The good news? If you have children, there are credits and strategies that can help you save more of your money this year and in years to come.

Parents, be sure to take advantage of the following opportunities that apply:

Open tax-advantaged accounts. Does your employer offer a Health Savings Account?

Specifically designed for medical expenses, you can enjoy several tax advantages by making tax-deductible contributions to your account, which reduces your taxable income. Plus, any interest or earnings on the account are tax-free, and withdrawals made for qualified medical expenses are also tax-free.

If you’re thinking ahead to paying for your children’s higher educations, a 529 plan allows money to grow in a tax-deferred account. It can be withdrawn tax-free for qualified, education-related expenses at colleges, vocational programs and apprenticeships. The funds from a 529 plan may even be applied toward up to $10,000 in student loan debt.

Claim credits exclusively for families. Eligible New Jersey residents can boost their refund by claiming a Child Tax Credit on their NJ-1040. For tax year 2023, you may receive up to $1,000 for each dependent child who’s five or under.

Have kids in daycare? If you pay for child care while working or looking for work, you might be able to claim the Child and Dependent Care Credit on your return. This gives you a tax break on qualified expenses like summer camp or before/after school care. Kids must be under the age of 13 to qualify, unless they’re incapable of caring for themselves due to physical or mental conditions. Keep in mind, you must have a New Jersey taxable income of $150,000 or less to qualify.

Another valuable tax credit for families is the Earned Income Tax Credit (EITC). The EITC assists low and moderate-income families with a refundable tax credit based on your income, filing status and the number of qualifying children you have. Depending on your circumstances, the EITC can result in a significant tax refund.

Maximize deductions. Families can take advantage of several deductions to lower their taxable income. One common deduction for families? Mortgage interest. If you own a home and have a mortgage, you can deduct the interest you pay on that loan. When you’re in the early years of your mortgage, your savings can be substantial as the majority of your payments go toward interest. Additionally, families can deduct state and local taxes, including property taxes, which can further reduce your tax liability.

Have dependents pursuing higher education? There’s also a deduction for qualified education expenses for eligible students. This deduction allows you to deduct up to $4,000 of qualified expenses, such as tuition and fees. Parents may also deduct interest payments on certain student loans from qualified lending institutions.

Planning to save can really pay off

With a little bit of planning and knowledge, you can help your family keep more of your hard-earned money. Taking steps to optimize your tax situation is an important aspect of your family’s overall financial planning. Not sure where to start? The professionals at Magone & Company can help. 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.

6 Reasons the IRS Might Zoom in on Your Business’s Finances

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Did you know that something as simple as a math error or an unsigned form could invite unwanted attention from the IRS? Even if you have no intention to evade taxes or find loopholes, if there’s something on your return that makes the IRS take a second look, an audit of your business may be inevitable.

When it comes to dealing with the IRS, honesty is always the best policy. Learn some of the top audit triggers for businesses — and tips on keeping Uncle Sam at bay.

Excessive deductions. As a business owner, you’re entitled to deduct certain expenses to lower your taxable income. But don’t overdo it. If your deductions appear disproportionately high compared to your income, the IRS might suspect you’re padding your expenses. So what constitutes a legitimate business expense? The cost of goods sold, rent, salaries and business-related travel are generally deductible. The key is to keep accurate records of all your business expenses, making sure every deduction is backed by appropriate documentation like receipts, invoices or mileage logs.

Consistent business losses. It’s normal for businesses to experience losses, but reporting losses year after year can catch the IRS’s attention. They might suspect that your business is more of a hobby — and hobbies don’t qualify for business tax deductions. To avoid this trigger, you must be able to demonstrate what’s called a profit motive. For example, this could be a business plan indicating how and when you expect to become profitable, or records showing that you’re treating your business seriously by maintaining regular hours, keeping accurate financial records or investing in professional development.

Sizeable charitable donations. If you’re not generating a significant amount of income, any large charitable donations can raise eyebrows. Be sure to document every generous gift with related receipts and any supporting materials to help prove you have the best intentions. And remember, contributions must be made to qualified organizations that meet IRS guidelines for your business to claim a deduction.

Home office deductions. In the post-pandemic world of work, more people than ever are clocking in from home. But the IRS knows that even if you’re running your business from home a few days a week, that doesn’t mean you’ll necessarily qualify for the home office deduction. Do your due diligence and ensure your home office fits the bill as your principal place of business, meeting these IRS guidelines.

Large cash transactions. Dealing with wads of cash? The IRS is watching. The agency requires businesses to report cash transactions exceeding $10,000, and all businesses must comply with reporting requirements. It’s not just cash transactions that need to be reported. The rule applies to cash equivalents like cashier’s checks, money orders and bank drafts, too.

Personal use of a work vehicle. If you think you can pick up the kids at school or run errands in your business vehicle, the IRS may be on to you. You may derive tax benefits for your vehicle’s business use, but if you’re also using it for personal business, you’ll need to account for it on your taxes. Keep a detailed record of your mileage and gas costs pertaining to your vehicle’s usage. Keep a calendar to record the purpose and the mileage of each trip, every time you get behind the wheel.

As a business owner, your focus should be on growing your business — not worrying about an audit. Reach out to the CPAs at Magone & Company to ensure you’re on track for IRS compliance.

This information is provided for educational purposes and should not be construed as financial or legal advice. Please consult your accountant or attorney for advice specific to your situation.

No Harm, No Foul: New ERC Voluntary Disclosure Program for Impacted Businesses

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Did you file an Employee Retention Credit (ERC) claim in error? Mistakes happen. That’s why the IRS recently introduced a new Voluntary Disclosure Program aimed at helping businesses rectify erroneous claims and repay the funds.

The program is open through March 22, 2024, allowing employers to reimburse the IRS for 80% of the claim they received. Why 80%? Many ERC promoters responsible for leading small businesses astray charged a percentage fee at the time of payment, resulting in recipients never receiving the full ERC amount.

To apply for the Voluntary Disclosure Program:

You’ll need to file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, using the IRS Document Upload Tool. Additionally, if the ERC was claimed for any tax period ending in 2020, Form SS-10, Consent to Extend the Time to Assess Employment Taxes, must be submitted along with Form 15434.

Like most employers, you probably use a payroll company that reports, collects and pays employment taxes on your behalf. In such cases, the company — not you — must file Form 15434.

If a third party filed for the ERC on your behalf, they must complete Form 2848, Power of Attorney and Declaration of Representative.

Next steps:

If the IRS approves your application, you’ll be mailed a closing agreement. Repayment may be made online or by phone via the Electronic Federal Tax Payment System. If you’re unable to fulfill the required 80% repayment, the IRS may consider an installment agreement on a case-by-case basis, in which fees and penalties may apply.

Need an informed guide to navigate future situations like these — and protect your company’s interests? Reach out to the professionals at Magone & Company.

New BOI Reporting Requirements — Is Your Business Compliant?

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Beginning this year, your small business may be one of millions dealing with additional reporting requirements. Yes, you heard that right.

Many LLCs, S-corps and C-corps will have new reporting requirements under the Corporate Transparency Act (CTA). In a nutshell, this mandate is intended to help mitigate money laundering by requiring certain businesses’ “beneficial owners” to report their Beneficial Ownership Information (BOI). The goal? To help the Financial Crimes Enforcement Network (FinCEN) establish a national database that can be utilized by national security and law enforcement agencies to combat criminal activities.

So what might this mean for you?

Determining beneficial ownership

Are you a beneficial owner? The beneficial owners of a reporting company can be categorized into two groups:

  • Individuals who exercise substantial control over a reporting company
  • Individuals who own or control 25% or more of a reporting company’s ownership interests

Keep in mind, actual ownership in the company is not a requirement. If you’re a CEO, COO, CFO or president, you may qualify as a beneficial owner.

 Providing BOI to FinCEN

All beneficial owners must submit the following:

  • Full legal name
  • Date of birth
  • Street address
  • Unique ID number which can be obtained from a non-expired US passport, state driver’s license or other government-issued ID

Filing on time

Your reporting due date depends on when your company was created or registered:

  • Before 2024: January 1, 2025
  • In 2024: Within 90 days of its creation or registration
  • After 2024: 30 days to file the initial report

If there are any changes made to your company’s beneficial owners, an updated report must be filed within 30 days. Failure to file both initial and updated reports can result in costly penalties, fines and even possible jail time.

All BOI reports must be filed electronically through FinCEN’s e-filing portal. You may choose to complete or a web-based version of the form or upload a completed PDF version. It’s generally an easy, straightforward process with no associated fees.

Ensuring compliance with BOI reporting requirements

By taking the necessary steps to meet these obligations, you can keep your business in good standing, while contributing to the prevention of money laundering.

For more details on these reporting requirements, check out the Small Entity Compliance Guide or consult your legal counsel for guidance.

How Qualified Charitable Distributions can Fulfill RMD Obligations

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When saving for retirement, tax advantages play a significant role. Traditional individual retirement accounts (IRAs) and employer-sponsored retirement plans such as 401(k)s offer tax-deferred growth, so you don’t pay taxes on the investment gains — as long as the money stays in your account.

However, the IRS doesn’t want you to avoid paying taxes on these funds indefinitely.

If you’re approaching age of 70½, required minimum distributions (RMDs) will help ensure that you start withdrawing money from your tax-deferred retirement accounts and pay the appropriate taxes on those distributions. But did you know that a qualified charitable distribution (QCD) can fulfill your RMD obligations while avoiding taxes on the distribution?

The ABCs of a QCD

A QCD refers to a taxable distribution that is paid directly from an IRA to a qualified charity. According to the IRS, this includes nonprofit groups that have a charitable, educational, religious, literary or scientific purpose, or that work to prevent child or animal cruelty.

When a QCD is directly paid from your retirement account to an eligible charity, it’s not included in your taxable income, meaning the distribution is tax-free. The giver must be at least 70½ at the time the QCD is made.

Because it’s tax-free, you cannot deduct the QCD on your Schedule A as an itemized deduction. In order to claim that charitable contribution deduction, your total itemized deductions must exceed the standard deduction. Keep in mind, the increased income resulting from the distribution could impact your eligibility for certain tax credits and push you into a higher tax bracket.

Questions regarding qualified charitable distributions? Let us help you with tax planning to minimize your tax burden and make the most of charitable giving. Reach out to the tax experts at Magone & Company or call us today at (973) 301-2300 for an evaluation of your tax situation.

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.

CPA vs. Tax Preparer: What’s the Difference?

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Once the calendar flips to a new year (and you’ve barely had a chance to recover from the busy holiday season), Uncle Sam will come knocking at your door to get his share of your taxable income.

Tax season will be here before you know it. But unless you’re a mathematical savant who revels in the joy of crunching numbers and interpreting tax laws, chances are you lean on the sturdy shoulders of a tax professional.

While both Certified Public Accountants (CPAs) and tax preparers are professionals authorized to prepare and file tax returns, their training, certifications, expertise and scope of services vary greatly. So who’s the right candidate?

Here’s a quick rundown to help you hire the ideal tax professional:

Tax preparer

Tax preparers have no college degree requirement, and many lack tax-specific training. In fact, the only pre-requisite for obtaining the required (PTIN) to file taxes on your behalf is the completion of a simple form — one that takes about 15 minutes to fill out.

Why choose a tax preparer? If you or your small business only need assistance filing simple tax returns, they’ll typically apply the most common deductions and tax credits to your return — things like deductions for educational expenses and health care costs, as well as earned income or retirement tax credits. But what they may not do is research more unusual tax credits and deductions.

You can count on them to:

  • Collect relevant financial records and input applicable tax data
  • Determine basic deductions, refunds and payments using federal state and local tax laws
  • File documents with the IRS
  • Offer best steps to take to reduce your tax liability for the coming year

CPA

CPAs, on the other hand, must undergo extensive education and ongoing training to obtain their certification and ensure they’re responsible fiduciaries:

  • Completion of bachelor’s degree program, including 150 credit hours with a concentration on accounting, business and general ed
  • Passing of the AICPA (American Institution of Certified Public Accountants) exam, covering business concepts; accounting and reporting; auditing and attestation and regulations, within 18 months of completing their undergrad degree
  • Licensure by their individual state(s)
  • Annual completion of 40 hours of continued education

Because they have advanced training, CPAs are authorized to represent their clients before the IRS. They also tend to have greater insight into complex tax positions and are well-equipped to assist clients well beyond the tax return, with investments, audits and financial planning.

In addition, CPAs can provide the following services:

For individuals:

  • Estate planning expertise
  • Wealth preservation
  • Budget management and analyses
  • Investment strategy and asset allocation
  • Charitable giving strategies

For businesses:

  • Bookkeeping duties
  • Forensic accounting
  • Cost segregation analyses
  • Financial reporting
  • Audit and assurance services

The choice between a CPA and a tax preparer depends on your unique financial circumstances. Whether you’re a self-employed individual seeking comprehensive financial guidance, a growing business that could benefit from tax planning, or a salaried executive with stock options, there is a professional who can meet your needs.

If you’re looking for a trusted CPA, the professionals at Magone & Company will consider every deduction, break and incentive in preparing your return. Call us today at (973) 301-2300 to schedule a confidential consultation.