More Money, Same Problems: Understanding Lifestyle Inflation

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It’s the beginning of a new year, and maybe you landed a promotion with a generous raise. But before you start browsing new house listings or book a dream vacation for your entire family, here’s an uncomfortable truth we see at Magone & Company every day: Most people who get big pay bumps end up no better off financially a year later.

And this has a lot to do with lifestyle inflation.

Lifestyle inflation is when spending habits rise right along with your income, preventing you from building the wealth you thought that raise would bring.

With discussions around the One Big Beautiful Bill impacting tax policy and take-home pay, responding strategically to changes in your income has never been more critical. What you do with that extra money determines your financial future.

Here’s what we recommend:

First, cover the essentials. Before considering any big upgrades, make sure your priorities are handled. For example, build a fully funded emergency cash reserve to cover three to six months of expenses.

Maximize your retirement contributions to take advantage of compound growth, and take steps to eliminate high-interest debt that’s costing you every month.

Lock in savings. Treat raises like they don’t exist! As your paychecks grow, redirect a portion of each one to a savings account, retirement contributions or debt payoff.

So even as you spend some of your new income, you’re still protecting your building and protecting your financial future.

Set percentage-based goals. Commit to saving a consistent percentage rather than a fixed dollar amount.

For example, if you saved 15% when earning $80,000, keep saving 15% when you earn $100,000. This ensures your wealth building scales with your income.

Maintain visibility. Track your spending using apps or spreadsheets. Small expenses like extra subscriptions that you don’t use, or frequent coffee runs can accumulate quickly. But monthly reviews can help identify these patterns.

Implement a waiting period. Wait on the extravagant purchases. You may want to impose a three-to-six-month cooling-off period or even holding off an entire year. If you still need or want the upgrade after that allotted time, plan and set a budget rather than making an impulse decision.

Calculate the real cost of upgrades. So you’ve waited, and now you want to pull the trigger on financing a new car. But first, take the monthly cost and multiply it out.

A $300 monthly car payment increase costs $3,600 annually. Over five years, that’s $18,000. Seeing the true cost may help you figure out if the upgrade is really worth it.

Focus on experiences over possessions. A weekend trip with family or going back to school to learn a new skill may bring you more joy than another tech gadget or wardrobe makeover.

Experiences create lasting memories, connections and personal growth while the excitement of new purchases can fade quickly.

Make it count

Financial success requires balance. As your income grows, you can improve your quality of life, but not at the expense of your financial foundation.

Your next raise is an opportunity to make smarter financial decisions. Don’t hesitate to reach out to the Magone & Company team with any questions about your long-term financial health strategy.

 

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 specific to your business situation.

 

 

Self-Employment Tax Planning: Start Now or Pay Later

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Working for yourself can be great, but it can also be quite… taxing.

Being your own boss comes with incredible perks — like working where you want and when you want — but the tax side of things can be a bit more complex than when you had an employer handling everything.

To help avoid any unpleasant tax surprises, here are some key rules to keep you in good standing with the IRS.

You have to report income and expenses on Schedule C of Form 1040. As a self-employed worker, you’ll wind up owing taxes on your net profit.

The upside? Your business expenses get deducted against your gross income and not as itemized deductions. And if you have a bad year and lose money, you can usually deduct those losses against your other income.

You’ll have to pay self-employment taxes. For 2025, you’ll pay 15.3% on your first $176,100 of net earnings, then 2.9% on anything above that.

If you’re a high earner, you’ll pay an extra 0.9% Medicare tax once you hit $200,000 if filing individually or $250,000 if married filing jointly. The silver lining? You can deduct half of what you pay in self-employment tax.

You might qualify for a pass-through deduction. If your business generates qualified business income, you may be able to deduct up to 20% of it.

The pass-through deduction is applied after most of your other deductions, meaning it reduces your final taxable income. The good news is you can claim it whether you itemize your deductions or take the standard deduction.

Your home office expenses may be deductible. Working from your home? Your home office can be a dedicated room, part of a room or even a separate building on your property that’s used to conduct business.

You may quality for the home office deduction on all direct expenses, as well as part of your indirect expenses that are related to working from home.

You’re responsible for quarterly estimated tax payments. Since no employer is withholding taxes from your income, you’re on the hook for paying the IRS four times a year.

You can deduct your health insurance premiums as a business expense. This means you get to deduct 100% of your premiums, compared to the regular medical expense deduction that only kicks in after you’ve spent over 7.5% of your income on medical costs.

You must maintain complete records of your income and expenses. In order to claim the full amount of deductions you’re entitled to receive, be sure to keep careful documentation of your expenses.

Be aware that some expenses — like car costs, travel and meals — come with extra rules and recordkeeping requirements or limitations on deductibility.

You may consider setting up a retirement plan. This can be a great tax savings strategy, allowing you to deduct what you contribute now and only pay taxes when you withdraw the money later.

Look into retirement plan option like a SIMPLE plan or SEP IRA, which require less paperwork but still offer solid tax benefits. In 2025, business owners may contribute up to 25% of their total earnings or a maximum of $70,000 into their SEP IRA.

You’ll need to handle payroll taxes for your employees. Hiring a team to work for you? That means getting a taxpayer ID number and dealing with withholding, adding a whole new layer of administrative responsibility to your business.

Questions? The CPAs at Magone & Company can help support you in achieving the most favorable tax situation as a self-employed worker or small business owner. Give us a call at (973) 301-2300 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.

What Happened to Your State and Local Tax Deductions?

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New limits on state and local tax (SALT) deductions have created some serious tax planning challenges for many of our clients.

These limits are responsible for increasing tax bills for millions of Americans. And even if you’ve never heard of SALT deductions, you’ve probably still felt the impact, especially if you live somewhere with high property taxes or state income taxes.

Here’s what every taxpayer should understand about the changes.

Looking back on the “good old days”

Not too long ago, you could deduct pretty much all of your state and local taxes without worrying about limits. This included:

  • State, local and foreign real property taxes
  • State and local personal property taxes
  • State, local and foreign income taxes

What’s changed?

Starting in 2018, Congress put a cap on these deductions. All of those state and local tax deductions mentioned above are now limited to a combined total of $40,000 for 2025. If you’re married filing separately, you only get half that amount. And if your adjusted gross income is over $500,000, this limited deduction starts to phase out.

There’s an important exception: These limits don’t apply if you paid those taxes for business purposes or investment activities. So if you own rental property or run a business, those related taxes can still be fully deductible.

And there’s one area that got even stricter. If you own foreign property (like a vacation home in Italy), you can no longer deduct the property taxes you pay as a personal itemized deduction.

Minimizing the SALT cap impact

Feeling the pinch from these limitations or not sure how they apply to your specific situation? Contact the experts at Magone & Company or give us a call today at (973) 301-2300.

 

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 situation.

 

 

Taking Tax Advice from Social Media? Think Again

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If a tax credit or deduction sounds too good to be true, it probably is.

There’s been a dramatic spike in suspicious refund claims, thanks to misleading social media advice and criminals posing as tax professionals. In fact, social media fraud even popped up on the IRS’ “Dirty Dozen” list, urging taxpayers to steer clear of bogus offers or advice.

Social media schemes aim to fool innocent scrollers with deceptive content, ranging from non-existent Employee Retention Credits (ERC) to elaborate phishing operations designed to steal personal information. What makes them even more dangerous is how legitimate they appear, often using official-looking graphics as they prey on people’s financial stress and vulnerabilities with the promise of easy money.

Heeding the red flags

As CPAs, we’ve pretty much seen it all. Here are some false social media claims to watch out for:

  • Influencer endorsements without disclosure of paid partnerships
  • Cryptocurrency-related tax “loopholes” that promise to eliminate tax liability
  • System “glitches” that allow people to claim credits multiple times
  • Foreign tax haven schemes to avoid U.S. taxes
  • “AI-powered” tax strategies that claim to find hidden deductions

These scams tend to follow predictable patterns. They may post a universal claim like, “This is the credit the IRS doesn’t want you to know about!” Or they may offer an unrealistic promise like getting your refund in 24 hours. But any post that requests your personal information and the pressure to act immediately should be treated as a clear warning sign.

Putting up a solid defense

Social media is great for many things, but tax planning isn’t one of them. Always proceed with caution:

  • Research independently. If you see a tax strategy advertised online, research it through official IRS publications and consult with a qualified professional about its validity before making any moves. Remember, legal tax strategies require documentation. If someone tells you record-keeping isn’t necessary, walk away.
  • Don’t share information online. When it comes to taxes, the IRS will never contact you via email, social media or text. And legitimate tax professionals will only conduct business through secure, encrypted channels and established office locations — not over Facebook.
  • Always verify credentials. Only work with licensed tax professionals who are credentialed through state licensing boards and other professional organizations.
  • Trust your instincts. Nobody is giving away free money. Scammers rely on creating urgency and FOMO, so taking time to think things through is one of your strongest defenses.

Social media tax schemes can cost you big money, hefty penalties, damaged credit and even your dignity. Don’t hesitate to reach out to the tax professionals at Magone & Company for support.

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.

New Tax Break: Deduct Interest on Your Car Loan Through 2028

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Planning to finance a car, truck or SUV in the near future? There may be some good news waiting for you come tax time.

Thanks to a temporary tax break, eligible buyers can deduct the interest paid on qualifying loans on vehicles financed between now and 2028.

Before you head to the dealership, here’s a breakdown of what you need to know to take advantage of this opportunity.

How much can you deduct?

The new deduction allows you to claim up to $10,000 per year in interest paid on qualifying vehicle loans. It’s an “above-the-line” deduction, meaning it reduces your adjusted gross income whether you itemize or take the standard deduction.

If you’re eligible, you can claim the deduction annually for interest paid each year through 2028.

But if your modified adjusted gross income hits certain limits, you’re out of luck:

  • $100,000 for single filers
  • $200,000 for married filing jointly

What vehicles qualify?

To be eligible for this deduction, your vehicle must check the following boxes:

  • A new car, minivan, van, SUV, pickup truck or motorcycle
  • Gross vehicle weight rating under 14,000 pounds
  • Final assembly in the U.S.

What are the loan requirements?

The loan must be originated between January 1, 2025, and December 31, 2028, and used exclusively for personal use only (no business or commercial vehicles). Plus, you’ll need to list the vehicle’s VIN on your tax return when claiming the deduction.

Making the most of this opportunity

The requirements are specific, but the potential tax savings could be worth it. Be sure to keep detailed records of your interest payments and ensure your vehicle meets all requirements.

Need help keeping more of what you earn? Tax planning can help. Reach out or give us a call today at (973) 301-2300.

 

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 situation.

What the One Big Beautiful Bill Means for Your Business

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The One Big Beautiful Bill (OBBB) legislation represents an overhaul of the federal tax landscape, introducing dramatic changes to taxes, credits and deductions that will impact taxpayers across all income levels. And everyone from entry-level employees to Fortune 500 CEOs will be affected.

The good news is that once you wrap your head around these changes, your business may benefit from opportunities to optimize your tax strategy. Here’s what you need to know:

  • Paid family and medical leave credit. Now a permanent credit, employers can choose between two methods for calculating the credit: a percentage of wages paid to qualifying employees during family and medical leave, or a percentage of premiums paid for insurance policies providing paid family and medical leave. Additionally, employers may now elect to include employees with at least six months of service (reduced from one year).
  • Employer-provided childcare credit. Effective in 2026, the OBBB increases the credit percentage for “qualified childcare expenditures” from 25% to 40% for regular businesses and 50% for eligible small businesses. The maximum credit is $500,000 ($600,000 for eligible small businesses). Beginning in 2027, all amounts are subject to annual inflation adjustments.
  • Employee exclusion for employer-paid student loans. The OBBB permanently extends the employee exclusion for qualifying employer student loan payments. Starting in 2026, the current $5,250 maximum exclusion amount will be adjusted annually for inflation.

What’s next?

Stay in the know as additional guidance and regulations are released, and reach out to the tax planning experts at Magone & Company to get your questions answered.

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 business situation.