Tax Penalties: How to Get the IRS to Forgive & Forget

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Whether you didn’t file your tax return on time or didn’t prepare an accurate return, one thing is for certain: the IRS will come after you waving a penalty flag.

Mistakes happen, but the price tag per penalty varies. For example, the failure-to-file penalty is 5% of your unpaid taxes for each month that the return is late. If five months go by and you haven’t paid up, the failure-to-file penalty will max out, but the failure-to-pay penalty continues to grow until it’s settled, up to 25%.

There is some good news, however. If the IRS issues a penalty, there are circumstances that may grant you some relief:

Reasonable cause

The IRS may remove or reduce a penalty if you attempted to comply with tax laws but were unable due to conditions out of your control, such as:

  • Death or serious illness of a close family member
  • System issues that delayed a filing
  • A fire or other natural disaster

First-time abatement or other administrative waiver

A first-time abatement penalty waiver is the most common administrative waiver for individual taxpayers and businesses that receive their first tax penalty. To qualify, you must meet the following conditions:

  • You’ve demonstrated past compliance, meaning you’ve filed the same type of return for the past three years and didn’t receive any penalties during that time.
  • You’re currently compliant, having filed all required returns or filed a valid extension, and you’ve paid all other taxes due or are under a payment plan.

Statutory exception

According to the IRS, the following reasons may constitute what is known as a statutory exception:

  • Mailed a return on time but still received a penalty
  • Received incorrect IRS advice
  • Lived in an area affected by a federal disaster
  • Were stationed in a military combat zone

Wiping the slate clean

To apply for relief due to any of these reasons, your first step is to contact the IRS via the toll-free number on your penalty notice. If the IRS is unable to approve your request over the phone, you’ll be given next steps toward appealing your penalty.

Our advice? Don’t go it alone. A trusted tax advisor can help you sort through the IRS rules and ensure you have a case for penalty forgiveness. Reach out to the tax resolution experts at Magone & Company today at (973) 301-2300 for assistance.

Boosting Employee Morale During an Economic Downturn: Tips to Help Your Team Come Out on Top

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Inflation is high and the economy is down. Many American workers are overwhelmed by looming threats to their job security.

By the close of 2022, a surge of layoffs hit dozens of U.S. companies — from IBM to Capital One to Spotify — with no signs of slowing down. And employees holding on to their jobs report that their pay isn’t keeping pace with inflation.

A recent Society for Human Resource Management (SHRM) study revealed that nearly 48% of HR professionals are concerned about impending budget cuts, while 86% worry about how economic uncertainty may affect employees’ lives.

Says SHRM CEO Johnny Taylor, “Employers recognize that inflation has a major impact on the well-being of their team.”

What can you do to boost morale at your organization, despite all this uncertainty? Here are some tips to help keep your employees motivated and engaged:

Be honest. Employees don’t want false reassurances. Instead, keep the lines of communication honest and transparent, allowing them to feel a range of emotions.

Invite your team into the difficult conversations like navigating job cuts. Speak candidly about where your company is heading and ask for their input. They may offer some insight and visibility, presenting new ideas and opportunities you haven’t considered.

Show your support. Seventy-seven percent of today’s employees have experienced burnout on the job. A help little goes a long way. Be available. Check in with your employees regularly to lend your support and listen. Inquire about what you can do to better support them, and encourage them to take breaks.

If there’s a labor shortage, they may have an increased workload, as you’re forced to do more with less. Help them reprioritize their work to cut back on nonessential projects and focus on revenue-building initiatives.

Strengthen bonds. In trying times, do what you can to foster connections among colleagues. You don’t need to invest in employee lunches or happy hours. Instead, dedicate time for your team to talk about non-working matters.

At the beginning of your next team meeting, ask about weekend plans, share streaming recommendations or photos of your pets. Outside the office, consider organizing a team volunteer event where you can collectively work toward helping the local community. Bottom line, you’re all human and you’re all in this together.

Lead by example. Your employees are looking to you for guidance in how to persevere in the current business climate.

Don’t tell them, but rather show them through your actions. It’s important to demonstrate resilience in how you maintain perspective, and your team will be more likely to follow suit.

Success starts from the top

A Gallup study revealed that employees work 20% better when they’re motivated. But when they feel frustrated, discouraged and left in the dark, you can expect morale to plummet. Make sure your workplace is a safe and positive space for the people who keep your business humming.

While the future is uncertain, there are ways that businesses can restructure and recalibrate to best prepare for any challenges ahead. Learn how Magone & Company can help.

Business Trends for 2023: Strategies to Level Up Your Workplace

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The way we do business is constantly evolving. And when you consider the current economic uncertainty, the rapid development of new technologies and the repercussions of a worldwide pandemic, you can expect 2023 to be a year of great change.

At Magone & Co, we expect to see the following trends emerge over the course of this year:

  1. Combating the “Great Resignation.” Businesses continue to struggle with the aftereffects of millions of workers walking away from their jobs for more attractive working options. For employers, the challenge to keep and retain top talent is an ongoing trend as they strategize to offer the benefits, flexibility and work-life balance that today’s employees are seeking.
  2. Keeping pace with digital transformation. As AI and automation augment the workplace, employers need staff that can support the transformation and work together in this new workplace reality. For example, employers may focus on hiring talent with specific skillsets that can’t be delegated to AI, like creativity and critical thinking skills.
  3. Prioritizing the customer experience. Technology and customer experience continue to go hand in hand. That’s because in a saturated buying market, customer immersion has become essential in capturing customers’ attention. Technology can help create more immersive experiences by leveraging data to synthesize customer profiles for more precise personalization. The latest technology can even generate interactive ecommerce experiences with virtual reality (VR) platforms.
  4. Overcoming inflation insecurity. Supply chains are still operating, and the economy is expected to keep growing, but businesses are still dealing with inflation. This means organizations must most monitor costs closely, minimize exposure to supply chain risks and have a plan to protect their margins.
  5. Focusing on sustainability. Did you know that 79% of customers changed purchase preferences based on environmental impact, social responsibility and inclusiveness? An organization’s stance on social issues has become increasingly important to consumers and investors. That’s why having an environmental, social and governance (ESG) strategy can be effective in communicating a company’s core values and vigilance of the greater world, while meeting the ethical expectations of the audience.

When being “trendy” can improve your ROI…

With the majority of the year in front of you, take a fresh look at how your organization can benefit by incorporating these trends into your strategy. Need a trusted business strategist working on your behalf? Let’s chat.

6 Ways Small Businesses Can Reduce Their Taxable Income

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If you’re a small business owner stressing about taxes, you’re not alone. Seventy-seven percent of small business owners feel the burden of business taxes.

But you can possibly reduce your tax obligations — and potential headaches — with these money-saving opportunities.

Keep it in the family. If your small business is looking for an extra set of hands, have you considered hiring your spouse? If certain requirements are met, you can deduct contributions made to a qualified retirement plan on behalf of your employees, including your spouse. Plus, if you’re currently paying to cover your spouse under the company’s health insurance plan, you may be able deduct all the health insurance premiums the business pays on their behalf.

Save money on healthcare. Speaking of health insurance premiums, one of the easiest ways to reduce your business taxes is by using a Health Savings Account (HSA). An HSA is a tax-advantaged account that allows you to make tax-free contributions and withdrawals to put toward qualified medical expenses like copays, prescriptions and more.

Deduct marketing expenses. Are marketing expenses tax deductible? You bet — as long as they’re directly related to your business. Marketing expenses that are commonly deductible include:

  • Content development
  • Designing and maintaining a website
  • SEO services
  • Exhibiting at an industry trade show
  • Hiring a marketing consultant

 Make charitable contributions. By contributing to a cause that’s close to your heart, you may be able to deduct a percentage of taxable income. Keep in mind, contributions must be made to qualified organizations that meet IRS guidelines.

Revisit employee compensation. Offering your employees a competitive compensation plan can help you attract and retain the best. And it may also have an added perk of tax-saving benefits for your business. Employee salaries and bonuses are generally tax deductible and are exempt from Social Security and Medicare (FICA) taxes.

There are many variables that can impact your company’s tax circumstances, so be sure to consult with your trusted business or tax advisor before implementing any new tax-saving strategies.

The CPAs at Magone & Company can support you in making the most tax-efficient decisions for your business. Give us a call today at (973) 301-2300 to learn more.

Avoiding the Debt Trap: Bad Financial Habits That Can Derail a Small Business

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Starting a business requires a substantial investment from its stakeholders. But if you don’t see quick returns on your investment, debt can accumulate, crushing your plans of a successful venture.

According to a recent survey, 34% percent of small business owners report $5,000-$15,000 in personal debt related to business, while 28% report $15,000-$30,000 in debt. While some debt is unavoidable, there are notorious debt traps that can trap new entrepreneurs.

If you’re just getting started, beware of the following:

Failure to budget.  At Magone & Company, we recommend that most business owners have two to three different budgets — an internal planned budget, an overachievement budget and a budget that considers negative outcomes. Because even if your business is generating a profit, it’s easy to lose of track of where all your funds are going.

Sloppy bookkeeping. In the early stages of a new business, it’s critical to track all expenses, sales, operating costs and taxes. You need to know where your money is going and be prepared to make changes to operations if necessary.

Not separating personal and business accounts. Comingling accounts can mean big financial trouble. Why? Because you can’t get a true snapshot of the financial health of your business. Don’t mix business with personal — especially when it comes to your finances.

Credit card rewards. In theory, a business credit card may seem like a great idea for general business expenses — like supplies, office furniture, entertaining vendors or business trips — and earning points and rewards for every dollar spent. The catch is you have to spend a lot to earn a little. If you’re carrying a balance each month, you’re also accumulating interest, which means more debt owed. If you’re going to use a business credit card to take advantage of the rewards, be sure to pay your balance in full each month.

401(k) withdrawals. Tempted to borrow from your 401(k) until you generate more revenue? Remember, this hurts your retirement savings and long-term growth potential. And if you’re under age 59 ½, you’ll also have to pay taxes on the premature distribution.

Falling for high-cost loans. Business loans can come with interest rates as low as 3% — and as high as 150%. An ethical lender will only approve a loan that’s realistic to repay, but you can get lured into a bad deal. Be sure to read the loan contract, ask about origination fees and make sure you are clear on the annual rate before committing to the debt.

 Gain control over your bottom line

Take charge of your finances now — before it’s too late. The professionals at Magone & Company can help you navigate debt traps and implement smart debt management practices. Call us today at (973) 301-2300 for a specific evaluation of your situation.

A Chapter 11 Filing Doesn’t Always Mean the End

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In a roller-coaster economy, a struggling company might decide to seek a fresh start under Chapter 11 bankruptcy proceedings — especially if its leadership believes the business could eventually become profitable through debt relief.

Generally, filing Chapter 11 is done voluntarily by a company to protect itself from creditors. It differs from Chapter 7, which involves liquidating or selling off the assets of a business that’s closing its doors. Debts aren’t simply absolved by filing Chapter 11 — though they’re likely to be reduced or paid off over a period of years.

Instead, Chapter 11 allows the business to continue day-to-day operations, as it undergoes downsizing and liquidation. The goal of a Chapter 11 filing is to implement a more sustainable solution to pay off debts and reorganize the business so it may survive this process.

What to expect

There are five major steps involved in the Chapter 11 process:

Step 1. Once the appropriate forms are filed in court, the company is provided immediate relief — called an automatic stay — from creditors. A bankruptcy filing doesn’t always affect business operations, but it will likely influence the stock price of a public company and the borrowing costs for any business. The company continues to pay employees and provide benefits. It’s also able to keep dealing with suppliers and customers so that it may continue earning money.

Step 2. The bankruptcy court appoints a committee to ensure that creditors are dealt with fairly. Notice is provided to parties who believe they’re owed money by the company.

Step 3. The business proposes a reorganization or recapitalization plan. By law, the company has the exclusive right to propose a plan during the first 120 days of the Chapter 11 process. If the business proceeds in good faith, the period may be extended.

Step 4. Once the court collects all claims against a company, hearings are held to estimate the value of any disputed claims. And once the total value is determined, the business can establish whether its reorganization plan is viable. Sometimes, litigation over the priority or handling of creditors arises.

Step 5. A disclosure statement pertaining to all assets and liabilities is presented to the court. If the statement is approved by the court, creditors vote on a reorganization plan and the company distributes payments according to the plan.

Restoring your rep

Even though a business can overcome a Chapter 11 filing and thrive over time, its reputation with customers, suppliers and employees may take a hit. If your company is thinking about filing Chapter 11, be sure to clearly understand what’s involved and the potential impact on critical business relationships. Be sure to consult with your attorney and CPA to help ensure bankruptcy is the right move for a better future.

Don’t already have a trusted CPA working on behalf of your organization? Magone & Company has 30 years of experience assisting organizations during financial challenges. Let’s chat.