Tax Return Errors — And How to Fix Them Before it’s Too Late

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Mistakes happen — even when it comes to tax returns. But very often, errors aren’t caught until after your return is submitted to the IRS.

To avoid raising any red flags, it’s important to know what to look for and how to right any wrongs.

What not to do
Here are the three most common mistakes that taxpayers make:

  1. Not reporting all your income. No matter how much or little you make, report it all. Unless you run a strictly cash business (which may also raise suspicion), the IRS knows exactly what you’re bringing in. Copies of every W2, 1099 or other forms you receive are sent to the IRS to ensure that your numbers match theirs.
  2. Overstating business expenses. If you’re a business owner, you’ll most likely have legitimate deductions. But don’t try to claim deductions that are way outside the norm. Consult with your tax professional and stay current with tax laws, so you’re not padding your tax return with write-offs that are shaky at best.
  3. Bad math. If things don’t add up — even an honest mistake inputting numbers — the IRS will catch it. Make sure to double check your returns and have a qualified tax professional assist you. A math error won’t necessarily get you an audit, but it might get you some unwanted attention.

Filing an amended return
Luckily, the IRS routinely processes a significant number of amended returns each year.

Individual income tax returns may be amended up to three years after the due date of the original return by filing an IRS Form 1040X. Even if you always e-file, a 1040X must be filed physically as a paper form. Keep in mind:

  • A separate 1040X is required for every year that you’re correcting. Be sure to mail each form in its own envelope.
  • On the back of the form, explain the changes you’ve made and reasons for making them.
  • Schedules, forms or any other documentation that’s affected by your changes should also be mailed in.
  • If the corrections made to your federal form affect your state taxes, send in a corrected return for that as well.

Save yourself the trouble, literally
The longer you wait to fix a mistake, the more it will potentially cost you. One small misstep could leave you on the hook for significant interest and penalties. The CPAs at NJ accounting firm Magone & Company can help keep you in good standing with the IRS. To schedule a no-obligation confidential consultation, give us a call today at (973) 301-2300.

Does the Competition Hold the Key to Your Success?

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Sometimes even the obvious is worth re-stating: The better you understand your competitors, the better chance you have of beating them — especially in business.

In order to know what your competitors are doing, you have to study them. A competitive analysis is a system of researching and collecting data on a rival business to help your business grow and gain an edge in the marketplace. If you’re not routinely performing a competitive analysis, you’re missing out on a goldmine of information that you can use to your business’s advantage.

Know who you’re up against
Understanding the competition starts with identifying them. Who are your biggest rivals?

Direct competitors sell products or services that are very similar or identical to yours. Indirect competitors offer different, but related products and services that target the same groups of customers to satisfy the same needs. For example, two coffee shops downtown are in direct competition with one another. But they’re also indirectly competing with the diner on the same street.

Think about why a customer may choose a direct or indirect competitor over your business. Maybe they value price points, and the competing business offers a better deal. Or perhaps the other business has more convenient hours or locations. See which geographic or service areas your competitors are focusing on and identify the gaps that your business can fill. Maybe their ecommerce shopping site is top notch, but their brick-and-mortar service experience leaves a lot to be desired. This could be an avenue where you can grow your customer base among those who prefer to shop in person.

Whether it’s in-house or outsourced, utilize available resources to gather pertinent data about the competition, so you can stay a step ahead.

The power of competitive analysis
How does the competition use social media? What does their branding look like? How do they engage with their customers?

The more information you collect, the more advantages your business will gain:

  • Know where you stand. How are your price points, your conversion rates and your online sales? How do they compare to others? Identify what makes your business unique, so it can stand out in the crowd. Consider investing in benchmarking data to see how you stack up across various metrics.
  • Enhance your marketing. If more customers are choosing a competitor’s brand, pinpoint what they’re doing differently to win business, and how you can do a better job. Consider all the possible ways your customers’ needs can be satisfied.
  • Think big picture. Don’t be afraid to develop ideas based on your rivals’ successes and failures. Learn from their mistakes to avoid making the same in your business.
  • Discover where your business can shine. Are there potential areas that the competition doesn’t serve? New markets for your brand? Look for opportunities to branch out and win new customers.

Solidify your position as the industry leader
Without a clear picture of the marketplace, businesses can fail to adapt. If you have a vision of where you want to take your business, NJ CPA firm Magone & Company can help. Contact us today at (973) 301-2300 to learn more.

Bigger Tax Savings in 2021: 4 Tips for the Self-Employed

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Being self-employed has its benefits, for sure. You can enjoy the freedom and flexibility of working from where you want, when you want. Plus, you can build your own client list and reap the profits from your hard work.

But there’s also a downside — and it has to do with self-employment taxes. If you had a rude awakening filing your 2020 return, here are some strategies that can help keep more hard-earned cash in your pocket next year.

  • Open a SEP-IRA. This is one of the simplest ways to shelter your self-employment income and save for the future. The SEP-IRA works just like a traditional IRA; the main difference is that this program is designed specifically for the self-employed.
  • Invest in a solo 401(k). The solo 401(k) is basically the self-employment equivalent of a traditional 401(k), but you control the money and how it’s invested. Best of all, the contribution limits for solo 401(k) plans are even higher than those for traditional 401(k) plans, and maxing it out could help reduce your taxable income.
  • Contribute to a health savings account (HSA). Many self-employed workers save on health insurance by purchasing a high-deductible plan. With such a plan, you may be able to reduce your taxes by pairing it with a health savings account, or HSA. An HSA lets you set aside some money, tax-free, to spend on care or care-related costs.
  • Push payments into the following year. If your clients are willing to go along with it, deferring payments until the next calendar year is one more way to reduce your taxable income. You will need to settle up with the IRS eventually, but this strategy can work well if you anticipate next year’s income to be significantly lower.

Achieve the best of both worlds
Working for yourself can be great, but it can also be quite taxing. That’s where tax planning comes into play. Ask your tax advisor or reach out to us for assistance.

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 situation.

A Global Mindset Inspires Success in the C-suite

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In Part 1 of our C-suite series, we discussed some of the necessary skills by title as well as across-the-board attributes of successful executives. Part 2 touched upon the importance of communication and collaboration. To wrap up the discussion, we’re looking at the need to develop a global mindset in the C-suite.

Even if you don’t plan on expanding into international markets today, a global mindset is still necessary for your organization to achieve maximum potential,  as noted by the Harvard Business Review.

Keeping an eye on the larger picture allows you to examine trends (whether in supply chain innovations, successful employee retention efforts or novel technology applications, for example), spot opportunities others may overlook and avoid cross-cultural mishaps with strategic partners, new hires and other key relationships.

C-level executives who develop global mindsets have the ability to see and understand different perspectives. They are able to develop trust. And, most importantly, they recognize opportunities for effective collaboration.

Global mindset traits of successful C-suite executives
The Lausanne, Switzerland-based International Institute for Management Development suggests that executives who achieve success working across cultures demonstrate qualities such as:

  • Using cross-cultural knowledge to cultivate context-specific actions
  • Bridging cultural gaps by managing differences among people and cultures
  • Leveraging differences and integrating them into effective strategies
  • Playing more of a coordinating than a controlling role and encouraging cooperation among various elements of a team

Steps to developing a global mindset
How do you begin to develop a broader mindset as you enter the C-suite? Various sources suggest these actions to get started:

  • Value ongoing learning. Get out of your comfort zone by recognizing your own cultural values and biases and actively building strong intercultural relationships. Developing self-awareness fosters a non-judgmental perspective on differences.
  • Expand your circle of influence. Instead of surrounding yourself with people who look, think and act like you, seek out global networking opportunities to connect with C-level executives who face similar challenges. This provides the chance to openly discuss cultural differences with global colleagues to build trust and develop strategies for mutual success.
  • Commit to diversity at all ranks of your organization. This requires far more than communicating a statement of support about a social cause; you need to commit to meaningful goals and complete the actions that will fulfill those goals. Focus not only on hiring and retention efforts, but also helping diverse talent move up the ranks into leadership roles.

If you’re a CEO, consider endorsing global mindset as an official corporate value. By fostering “bigger picture” thinking across the board, you’re helping to ensure organizational longevity  as well as a steady stream of diverse thinkers and leaders who’ll be ready for the C-suite sooner rather than later.

 

CFO Tips for Communication Success

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In Part 1 of our series on the essential qualities of C-suite occupants, we discussed some of the necessary skills by title as well as across-the-board attributes of successful executives. This post dives a little deeper into the importance of communication and collaboration in the C-suite, especially for those new to the CFO role.

Why C-level communication skills are so important
The Wharton School of Business ranks communication and presentation skills close to the top of its list of management skills needed to succeed in the C-suite, second only to leadership.

It may have served you well enough in more junior roles to be adept at talking through a presentation. However, C-level communication skills are more complex and performed at a higher level. You have to be able to understand what’s going on in every department, and how that potentially impacts the organization’s financial, strategic and competitive positions.

In turn, you must be able to communicate departmental concerns clearly and effectively to other members of the C-suite. Your communication skills must be honed to foster understanding and persuasion.

Steps to sharpening your communication skills
Learning how to best communicate at the CFO level doesn’t have to be daunting. These simple action steps will go a long way toward getting you where you need to be:

  • Ask clear-cut, thoughtful questions. When speaking with department or business unit management, learn their concerns, ask for recommendations and understand what shapes the basis of their suggestions.
  • Listen in a way that makes others want to share. Hear what is being said rather than immediately interjecting a response. An effective communicator encourages open dialog.
  • Get to the point. Breaking things down to their simplest terms establishes your knowledge and communicates your message clearly and successfully. Being succinct also best utilizes your time and your managers’ time.
  • Know your audience. How you say something is just as important as what you say. Understanding your audience allows you to set the proper pace and tone.
  • Consider taking a course in neurolinguistic programming, which can help you understand non-verbal cues and emotional states and lead to a deeper perception of others.

The importance of collaboration
A recent Gartner survey concludes that cross-collaboration among C-suite executives is more significant than it’s ever been, and suggests three methods of honing CFO-level collaboration skills:

  • Coordinate your priorities with those of other departments. Doing so can strengthen the impact across the business.
  • Learn about and empathize with other departments’ challenges. By doing so, you’ll have a better understanding of the overall business and be better able to participate in overcoming obstacles.
  • Communicate interdepartmental dependencies to other C-suite executives to help influence outcomes across all departments.

The role of the CFO has broadened in recent years far beyond number crunching, budgeting and compliance. To be successful today requires using your organization’s financial data to inform and influence operational decision-making. Because that’s more strategic rather than numbers based, you can see why strong communication chops are more vital than ever.

Need an objective opinion from our business advisory team? Reach out – we’re here to help.

Editor’s note: Watch for our final post in this series, A Global Mindset Inspires Success in the C-suite.

 

The Proposed Tax Hike’s Effect on Families: Even Those Not Considered “Rich”

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President Joe Biden’s address earlier this week confirmed many of the plans that were being laid out in the preceding months; specifically, as they relate to real estate, capital gains and estate taxes.

Although the proposals have a long way to go before becoming law, a Democratic majority in the House and a tie-breaking vote in the Senate held by Vice President Harris creates a scenario in which the proposal will pass — provided the Democrats are able to hold their members in line.

There are three provisions which affect real estate in the Biden administration’s tax proposal.

The first, which has been talked about extensively, is the increase in the capital gains rate from 20% to 39.6%. This proposal is directed toward households making over one million dollars.

In the northeast, it doesn’t take a lot to push households to this level given residential and commercial real estate prices. This could mean an individual could pay as much as 43.4% in federal taxes alone and possibly over 50% when factoring in state taxes.

The second is the proposed elimination of the 1031 tax-free exchange when gain on a property is greater than $500,000.

This tax break allows owners of investment and business real estate to defer the gain by enabling them to purchase like-kind property within 180 days of the sale of the original property. This has been an often used technique to allow property owners to defer the entire gain on the sale of their property.

Finally, included in the tax proposal is the elimination of the “step-up“ in cost basis for inherited property.

Although we’re speaking about real estate, this applies to all property such as stocks, bonds, etc. The concept of stepping up the original cost to the fair market value at the date of the death of the owner has been in the tax law for decades, and ensured that beneficiaries who sold inherited property paid little if any capital gains tax on the immediate sale of the inherited property. This substantially reduced the tax burden for beneficiaries upon sale of the property.

Based on the likely passing of the above in some form, if you are contemplating a sale of investment or business property, careful examination should be given to the tax effect.

In prior administrations, when the capital gains rate was changed there was a cut-off date established for gains subject to the new and old rules when passed in the same year. More importantly, review your current will to ensure it is tax efficient, and consider further planning to take advantage of current estate and gift laws prior to potential changes.

Now is not the time to delay sales of property you may have been considered selling, especially real estate with a 1031 exchange.

The above is not tax advice. Please consult with your tax professional for guidance specific to your particular financial circumstances.