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.

Magone Managing Partner Named Man of the Year

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On March 18, 2023, Magone & Company Managing Partner Nick Magone will be honored as Man of the Year by the Milan Soccer Club of New Jersey. 

This nonprofit organization provides youth soccer development programs that foster teamwork, social development and respect. As a first-generation American, Nick is proud to be recognized for his contributions to the Italian-American community. 

Funds raised during the March event will support the club’s youth development efforts. Please consider supporting this worthy goal by attending the March 18 dinner or becoming a sponsor.

Gold Level: $500 

  • 4 email blasts to 6,000+ Milan Club subscribers with a link to your website
  • Company name/logo displayed on the Milan Club home page for 12 months with a link to your website

Silver Level: $300 

  • 2 email blasts to 6,000+ Milan Club subscribers with a link to your website
  • Company name/logo displayed on the Milan Club sponsors page for 12 months with a link to your website

More details can be found here. Thank you for your consideration.

Campania Wealth VP Reaches Career Milestone with Professional Certification

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Nicholas Magone, VP for Campania Wealth Management, has earned the designation of Certified Financial Planner (CFP®) from the Certified Financial Planner Board of Standards.

Campania Wealth Management is Magone & Company’s wealth management partner.

Long considered the gold standard for wealth managers, the six-hour CFP® exam tests a candidate’s ability to apply a wide range of financial planning knowledge in real-life situations. Of the 300,000+ financial advisors in the U.S., less than 30% achieve CFP® status.

“It’s akin to successfully passing the bar exam for attorneys,” says Campania Wealth President & CEO Nick Magone, himself a CFP®. “Just over half of candidates pass on their first attempt, and we’re proud to congratulate Nicholas on this career achievement.”

Nicholas has worked extensively in all facets of wealth management, from tax-efficient investment and estate planning strategies to college planning, life and long-term-care insurance, and lifestyle budgeting/retirement income generation. He also holds the designation of Chartered Retirement Plans Specialist (CRPS®).

Learn how Campania Wealth Management and Magone & Company work together on a holistic approach to financial wellness for individuals, businesses and families.

Securities Offered Through: TFS Securities Inc., Member FINRA/SIPC, A Full Service Broker Dealer located at: 847 Broadway, Bayonne, NJ 07002 • 201-823-1030. Investment Advisory Services Offered Through: TFS Advisory Services, a division of TFS Securities, Inc.

Boosting Your Working Capital: Small Steps for Big Gains

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The COVID-19 pandemic has had a drastic impact on the economy as the gross domestic product dropped nearly 33%. For small and medium-sized businesses, it created unprecedented cash flow challenges, as many struggled to maintain a steady stream of revenue.

But now, as the pandemic continues to ease, businesses should revisit their working capital plan to bolster their cash flow for the future.

Key drivers of healthy cash flow

By understanding all the ways you can increase your organization’s working capital and improve cash flow, you can best set your business up for long-term success. The following techniques can help:

  1. Carefully manage debt. Another side effect of the pandemic? High corporate debt. You can enhance your working capital by meeting your debt obligations in a timely manner, avoiding additional interest, fees and penalties. Find out if your organization qualifies for a more favorable interest rate to settle debt faster.
  2. Receive sufficient financing. Don’t let the fear of healthy debt keep you from making smart financing Short-term business loans can help supply enough liquidity to finance current operations without excessive risk. Take the time to determine your working capital needs, as well as your forecasted needs, before selecting any financing.
  3. Issue invoices on time. Limiting the time between your operating cycle (when you begin spending money on a project) and your capital cycle (when you finally collect money for a project) can help you earn a profit quicker and improve liquidity.
  4. Make sure you’re not overspending. Examine your budget, breaking down each component to see where you’re spending and what you’re spending. Are there areas of overspending or spending unnecessarily? Are business trips essential? By curbing the extras, you can improve your working capital.
  5. Take control of your inventory. Did you know that well-managed inventory is arguably the most powerful way to drive working capital increases? Avoid stockpiling product, improve turnover cycles and reduce slow-moving inventory.
  6. Grow your sales revenue. While this one may seem obvious, think about how you can generate more sales to earn higher profits. For example, examine your profit margin to determine if your prices are up to date. And explore new marketing channels to reach more customers.

 

The lifeblood of your business

Working capital is essential to your business — especially small and medium-sized businesses that often can’t raise funds as easily as large corporations. Reach out to the CPAs at Magone & Company to learn how we can help you maintain a healthy cash flow.