Workers Back On-site? That’s a Green Light for Transportation Benefits

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If all or part of your workforce is once again commuting to the office, they may be looking to save on mass transit expenses. In the past, certain transportation costs were tax-free to employees and deductible by employers, within certain monthly limits — until the Tax Cuts and Jobs Act (TCJA) eliminated the deduction for employers and established other special rules for tax-exempt organizations.

But your company may continue to offer this perk — clearly a plus to incentivize those who’ve been working from home during the pandemic — if you follow the new rules.

Transportation benefits may be provided tax-free, as long as they don’t exceed the current IRS limit of $280 per month. Check out the three main types of transportation benefits that apply:

  1. Mass transit passes. According to the IRS, this includes any pass, token, fare card, voucher or similar item. The pass must entitle someone to ride free of charge or at a reduced rate on mass transit or in a professionally driven vehicle seating at least six adult passengers. Mass transit may be operated publicly or privately by bus, rail or ferry.
  2.  Commuter highway vehicle expenses. A commuter highway vehicle seats at least six adult passengers. At least 80% of the vehicle mileage should be for transporting employees between their home and workplace, and employees must occupy at least 50% of the vehicle’s seats. A tax-free arrangement may also involve several forms of vanpooling. For example, your company might purchase or lease vans so employees can commute together to work. Or you might contract with a third party to provide the vehicles and pay some or all of the operating costs.
  3. Qualified parking fees. This benefit allows employer-provided parking for employees on or near the business premises. It also covers fees for parking on or near the location from which employees commute to work using mass transit, commuter highway vehicles or carpools (for example, at the parking lot of a train station). However, the benefit doesn’t extend to parking at or near an employee’s home.

Put the pedal to the metal

Aside from the three main transportation benefits, employers may offer reimbursements to employees who commute via bicycle. Under the TCJA, you can continue to deduct reimbursements of qualified bicycle expenses as business expenses, but the tax exclusion for employees has been eliminated.

 Check in with the tax experts

Whether you’ve been offering transportation benefits for years, or are just now introducing them, be sure to consider both the tax and non-tax implications they entail. Be sure to consult with your tax or benefits advisor for advice specific to your company’s needs and circumstances.

Don’t have an advisor? Reach out to the NJ CPAs at Magone & Co — we’re here to help.

Hiring Your Spouse in Your Small Business: 6 Tax Reasons to Say “I Do”

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Many businesses are having trouble recruiting and retaining qualified workers. According to a recent report conducted by the Society for Human Resource Management (SHRM), nearly 90% of employers reported difficulty filling open positions; 73% have seen a decrease in applications for hard-to-fill positions, and only 6% expect labor shortages to diminish any time soon.

If your small business is understaffed with no strong prospects in sight, have you considered hiring your spouse?

If he or she is already familiar with the job, hiring your spouse as an official employee can have many benefits — including various tax-savings opportunities. Here are six ways hiring a spouse may help chip in to lower your taxes.

1. Retirement savings. If certain requirements are met, an employer can deduct contributions made to a qualified retirement plan on behalf of its employees, including your spouse.

For example, if your company has a 401(k) plan in place, your spouse can elect to defer up to $20,500 ($27,000 if age 50 or older) for the year, in addition to any matching contributions by the company. This is a great way for your spouse to save for retirement independently.

2. Business travel expenses. Normally, you can’t deduct travel expenses attributable to a spouse when he or she accompanies you on a business trip. It’s considered a nondeductible personal expense.

But the tax outcome changes if your spouse is a bona fide employee of the company and travels with you for business reasons. As a result, your company may be able to write off your spouse’s business-related travel expenses, such as airfare or other transportation, lodging and 50% of the cost of meals. Plus, the benefit is tax-free to your spouse. The same basic rules apply if your spouse goes on a business trip alone.

3. Health insurance premiums. If you’re currently paying to cover your spouse under the company’s health insurance plan, you may be able to shift more of the cost to the company if your spouse is an employee.

The company can deduct all the health insurance premiums it pays on behalf of your spouse — just like it can for other employees. Similarly, you can deduct 100% of the cost if you operate a self-employed business.

4. Additional health-related breaks. If you operate a C corporation or you’re self-employed, a Health Reimbursement Arrangement (HRA) for your employees can offer even more tax savings if your spouse participates. If certain requirements are met, the company may reimburse your spouse for out-of-pocket medical expenses and health insurance premiums, while the costs are deductible by the company. This is a win-win situation.

Likewise, if your spouse is covered by a qualified high-deductible health plan, he or she can contribute pretax income to an employer-sponsored Health Savings Account (HSA) or make deductible contributions above the line to the HSA. Your business can also contribute to your spouse’s HSA. Alternatively, your spouse can redirect pretax income to an employer-sponsored Flexible Spending Account (FSA).

5. Vehicles. Although you may derive tax benefits for your vehicle’s business use, your spouse’s expenses are purely personal and nondeductible. But as an employee, he or she may be entitled to business deductions under a complex set of rules, including limits on so-called “luxury car” write-offs.

6. Group-term life insurance. An owner’s spouse is entitled to the same group-term life insurance coverage as other company employees (typically, equal to three or four times the individual’s salary).

Under long-standing tax rules, the first $50,000 of employer-paid group-term life insurance coverage is tax-free to the employee. Plus, any additional coverage is taxable at relatively low rates. Thus, having your spouse work for the company provides more insurance protection for your family.

A match made in heaven?

Before you hire your spouse, meet with a professional tax advisor to discuss whether this strategy would be beneficial for your business and your tax circumstances. The CPAs at Magone & Company can help you make the most tax-efficient decisions. Give us a call today at (973) 301-2300 to learn more.

 The above information is provided for general education purposes and should not be considered financial or tax advice. Please consult your accountant or financial advisor for advice specific to your business or tax situation.

How 3 New NJ State Tax Deductions Work

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Exciting news for Garden State residents who are struggling to pay for higher education! Relief is on the way through the New Jersey College Affordability Act.

Beginning in tax year 2022, three tax deductions are available to residents earning fewer than $200,000 a year.

1.     $10,000 in contributions are deductible through the NJBEST savings trust.

The first tax incentive is available to residents who participate in the New Jersey Better Education Savings Trust (NJBEST.) During the 2022 tax year, accountholders may deduct up to $10,000 in contributions that they make to their savings trust.

Plus, earnings from contributions to the NJBEST 529 College Savings Plan are not subject to federal income tax–provided funds are withdrawn for qualified higher education expenses, or up to $10,000 is paid toward principal or interest of a student loan.

Funds in an NJBEST account may also be invested, by the contributor, in portfolios that would meet the educational goals of the investor.

Depending on the market, this option can offer you significant advantages — especially if you’re walking the line between saving for a dependent’s higher education and saving for your retirement. Higher earnings in your NJBEST savings plan would, under some circumstances, allow you to add additional funds into a tax protected plan for your retirement. Consulting with an experienced tax expert will help steer you and your financial goals in the right direction.

2.     Up to $2,500 deductible in principal and interest for NJCLASS loans.

The second tax incentive offered by the state is the New Jersey College Loans to Assist State Students (NJCLASS.) It’s a loan program that’s used to shore up education expenses not covered by other aid, including Federal Direct loans.

NJCLASS loans are available to Garden State students who attend approved schools in- or out-of-state. The loans are also available to state students attending online classes or classes abroad. NJCLASS loans are also accessible to non-resident students attending an approved school in New Jersey.

Up to $2,500 of principal and interest paid on NJCLASS student loans may be deducted per year. Again, annual gross income must fall at or below $200,000.

3.     Up to $10,000 for in-state higher education costs.

The third tax deduction is for specific higher education costs for in-state schools.

State residents may deduct the cost of tuition, books, computers and other expenses associated with their higher education. The deduction may not exceed $10,000 and includes the costs of the taxpayer, a spouse or a dependent.

New Jersey Senator Sandra Cunningham (D-Hudson), Senate Higher Education Committee Chair was co-sponsor of the New Jersey College Affordability Act. According to Cunningham, “Our hope with this bill is that by providing tax incentives to families, we can assist with the financial burden they may incur sending a child to college.”

The bill was unanimously approved by the New Jersey Senate and signed into law in June 2021 for the 2022 tax year and beyond.

Check in with Magone & Co 

Saving for college isn’t easy — especially with the current economy and other financial demands, like assisting older parents or putting money away for your own retirement. Give us a call to see if our Family Advisory Services could be right for you.

Collecting Income from Online Payment Apps? $600 is the New Reporting Threshold

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If you use P2P (Peer-to-Peer) payment apps, such as Venmo, Square Cash or PayPal, you may be surprised early next year when you find an IRS 1099-K form in your mailbox.

Under the American Rescue Plan, a new law requires P2P providers to send you and the IRS a 1099-K if the gross amount of your business income is more than $600.

Previous guidelines required P2P providers to only send 1099-Ks when you had 200 transactions and $20,000 or more in income.

This new law decreases the income threshold by more than $19,000 and lowers the transaction threshold from 200 to one transaction! So whether you’re accepting payments for personal or business income, many more taxpayers will be receiving the 1099-K in early 2023.

How it works

If you sell items online for extra cash and earn more than $600, you’ll be getting a 1099-K. If you occasionally rent a property that you own and charge more than $600, a 1099-K will be sent to you. Or if a client asks to remit payment through PayPal, $600 or more will trigger a 1099-K.

Each year, hundreds of billions of dollars flow through third party apps like Venmo, CashApp and SnapCash. This new, tougher tax law is designed to make it harder for individuals to fail to report income on lower-cost transactions.

Suggestions for good record-keeping

Here are some ideas to keep a close eye on the tax implications of your P2P transactions:

  • Confirm the numbers. Mistakes happen, so check 1099-Ks against your payment receipt records.
  • Report the information correctly on your tax return. Include the numbers from each 1099-K you receive and ensure you report all income from all types of payments received.
  • Maintain detailed records. This can help demonstrate support for your income and deductions.

Also keep in mind the 1099-K does not account for fees, chargebacks or other costs and refunded amounts. The gross amount is unadjusted and, according to the IRS, is not to be adjusted.

What if the amount on your 1099-K is wrong?

Contact your P2P provider to request a corrected form. The name of the P2P and a phone number will be located in the upper left corner on the form.

If you are unable to get a corrected 1099-K, the IRS will allow an explanation to be attached to your tax return, along with the corrected amount of your income on the return.

Remember, if you use Venmo and several other P2P providers to accept payments, you could receive 1099-Ks from all of them, depending on which ones meet the $600 threshold.

Reach out to the experts

For more information on protecting your side hustle or small business from unexpected tax liabilities, give us a call at (973) 301-2300 to see if a tax planning session may be right for you.

Leveraging Third-party Consultants to Give Your Organization a Competitive Edge

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Lack of specialized knowledge, technology and resources can make it challenging for organizations to complete all essential tasks in-house.

So it’s no surprise that roughly 300,000 U.S. jobs are outsourced each year.

Depending on your needs, third-party consultants can lend their expertise to a specific project like a software implementation, oversee ongoing needs such as executing on a marketing strategy, or assisting with improvements like optimizing departmental workflows.

According to Indeed, the most commonly outsourced jobs include customer support, IT and HR.

Here are the top reasons that companies outsource:

  • Free up internal resources. In today’s business climate, time is a hot commodity. Successful companies would rather spend their resources on revenue-generating endeavors. By outsourcing routine or more specialized services, you can take back more hours in the day to propel the business forward.
  • Gain an impartial view. Tenured employees are valuable to any organization. But eventually, you may be looking for an outside perspective, fresh ideas and deeper insights. Third-party consultants can offer these benefits without adding to your headcount.
  • Access the latest technology. If your company isn’t on the cutting edge of technology, a third party can offer the best, up-to-the-minute technological advancements to improve your workflow, output and customer experience. For example, prior to the pandemic our firm invested in virtual meeting capabilities to allow us to serve more clients in diverse geographic areas — a system that allowed us to remain fully operational and keep clients and staff safe during the pandemic.
  • Save money. When outsourcing, you’re paying trained professionals solely for the services you need. You don’t have to worry about providing benefits and insurance or incurring onboarding and training costs. Instead, third parties often charge an hourly rate or establish a retainer for the assigned job duties.
  • Improve service. Outsourcing can help improve your service — from speed to efficiency to quality. If a task or function is not within your team’s wheelhouse of expertise, passing it along to a specialized third party can enhance overall results.

 What’s the catch? There’s always a risk

Managing third-party risk is an ongoing process. Consultants often have access to sensitive company financials or client data, so preventive measures are critical:

  • Carefully vetting consultants
  • Limiting shared data
  • Implementing network segmentation
  • Routinely monitoring accounts

By understanding the risks and creating a strong line of defense, your organization can maintain peace of mind while reaping the benefits of outsourcing.

Find out how Magone & Company can play a vital role on your team

Are you looking to fill a specific financial role? From bookkeeping to small business accounting to CFO services, Magone & Co can help organizations like yours operate more efficiently — without investing in expensive staff and technology infrastructure. Get in touch to see how we can help.

Getting Ahead of 2023 IRS Cryptocurrency Reporting Requirements

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Know those 1099-B forms that show up at tax time from your broker? Well, if you’re dabbling in cryptocurrency, you’ll soon be seeing more of them.

Starting in 2023, U.S. legislation now extends the same transaction reporting rules to cryptocurrency exchanges, custodians or platforms (e.g., Coinbase, Gemini or Binance), as well as digital assets, such as cryptocurrency (e.g., Bitcoin, Ether or Dogecoin). The same legislation also puts into effect cash reporting rules for payments of $10,000 or more to cryptocurrency. That means businesses accepting payments of $10,000+ in cryptocurrency will have to report those earnings to the IRS (using Form 8300).

How is this different than in the past?
The legislation, enacted in 2021, expanded the definition of “brokers” who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets (also known as virtual currencies) on behalf of another person (for example, cryptocurrency exchanges). Thus, any platform on which you can buy and sell cryptocurrency will have to report digital asset transactions to you and the IRS at the end of each year.

The cryptocurrency exchanges/platforms will have to gather information from customers, so that they can properly issue Forms 1099-B. But it’s not yet known whether an exchange/platform will have to file Form 1099-B itself (modified to include digital assets) or some other new IRS form.

Digital assets defined
For these reporting requirements, a “digital asset” is any digital representation of value recorded on a cryptographically-secured distributed ledger or any similar technology. The definition could also potentially include some non-fungible tokens (NFTs) that use blockchain technology for one-of-a-kind assets like digital artwork.

Separate from the broker reporting rules, a business that receives $10,000 or more in cash must report the transaction to the IRS on Form 8300. For this cash reporting requirement, businesses will treat digital assets like cash.

What to expect moving forward
If you use a cryptocurrency exchange or platform, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so.

Cryptocurrency exchanges and platforms, in addition to collecting information from their customers, will begin tracking the holding period, and the buy and sell prices of the digital assets in your accounts. Be aware that transactions subject to the new reporting rules will include not only the selling of cryptocurrencies for fiat currencies (government-issued currency, such as the U.S. dollar), but also exchanges of cryptocurrencies for other cryptocurrencies. 

It’s also good to keep in mind that the cryptocurrency exchanges or platforms may not have all the information they need to meet their reporting requirements under the new rules. So be patient, because it may be a challenging first year to get the information you need.