Tackling your own business tax issues? Bad idea

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Running a small business means wearing multiple hats — from salesperson to HR manager to collection agent. But should you add tax expert to your growing list of duties?

You may think preparing tax returns for your small business is no big deal. After all, there’s no shortage of tax software options and apps on the market that can help simplify the do-it-yourself route. But before you fill out the endless forms and scan a mountain of receipts, consider these three compelling reasons to leave your taxes to the professionals:

  1. It’s too easy to make a mistake. Even a small business tax return can span dozens of pages. And with so many figures and numbers, there are literally thousands of opportunities for an error to occur. Inadvertent blunders could mean hefty overpayments. Or worse, they could trigger an audit and tie your up business for months.
  2. If there’s an audit, you’re left to fend for yourself. The IRS is increasingly setting its sights on the small business community, and that means you have a target on your back. As an individual taxpayer, your chances of being audited are less than 1%. But as business owner who’s filing a Schedule C, the odds are far higher. Would you know how to proceed without the knowledge of a trusted tax professional?
  3. The tax laws are always changing. Even if you’re an expert on the current tax code, that expertise will not last long. Every new year brings a slew of changes, and many directly impact small businesses. If you rely on your own knowledge, you could miss a vital update that could save your firm money or get hit with a penalty that you didn’t know existed.

Putting a price tag on peace of mind
 Having your taxes professionally prepared can be one of the best investments you make this year. If you don’t already have a trusted tax professional on your team, give Magone & Company a call at (973) 301-2300.

Business location, location, location: The best and worst U.S. states to set up shop

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Whether you’re launching a business or expanding an existing one, location plays a critical role in the formula for success. Choosing where to open your doors can make or break your entire business plan — especially for smaller startups.

To give you a head start on identifying possible locations for your next venture, WalletHub recently published a study that ranks all U.S. states on the optimal conditions for new businesses. They compared all states across three elements: the overall business environment, access to resources and business costs.

How the states stack up
Texas claims the number one overall spot, also ranking number one in business environment, which includes the average length of the work week, five-year business survival rate and the number of startups per capita. While the Lone Star State earned a lackluster rating for costs from WalletHub, the Tax Foundation’s 2019 State Business Tax Climate Index reminded entrepreneurs that Texas doesn’t have an individual income tax or corporate income tax, lending to the state’s appeal for a startup.

Spending is a necessary part of building a business, but lower operating costs can of course help increase your profit margins and boost your bottom line. With costs in mind, Oklahoma and Mississippi were found to be the most affordable states for doing business, taking the number one and number two spots based on:

  • Office space affordability
  • Labor costs
  • Insurance premiums
  • Cost of living

Looking to stay in the New York tri-state area? New Jersey is 49th on the overall WalletHub list, ranking 50th in business costs and 44th in business environment. In terms of cost, New York clinches the 49th spot, but ranks 42nd overall. And thanks to New York City, it’s no surprise that the Empire State comes in at an impressive number six for access to business resources. Connecticut rounds out the tri-state, ranking 48th in business costs and 48th in overall business environment.

Choose wisely based on what matters to you
One survey isn’t going to dictate your business’s optimal location. Be sure to consider other factors that can play a pivotable role. Are competitors in the area? Is the location consistent with your brand’s style and image? Do the demographics match your ideal customer profile?

According to the Bureau of Labor Statistics’ Business Employment Dynamics, just 50% of businesses with employees make it to their fifth year in business. To increase your survival odds, do your research and pick a location that will work for your current and future needs.

Reaching a tax resolution: Is an IRS “Offer in Compromise” the right move for you?

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Like clockwork, tax season is upon us. But for taxpayers who owe multi-year payments plus mounting penalties, it’s an especially expensive and stressful time of year.

Owing money to the IRS can be frightening, to say the least. For each day that goes by, more interest and penalties may accrue, wreaking havoc on your finances. Even if you think there’s no hope in paying off what’s owed, there are repayment options worth exploring that can help you get out of debt for a reduced amount.

The Offer in Compromise
If you owe back taxes to the IRS or have years of unfiled returns, you may qualify for programs that can help pay off your debt faster and with minimal headaches. An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS, settling your liabilities for less than the full amount owed. While this option is widely known, it’s often considered a complicated part of the tax code.

Without an experienced tax resolution specialist to navigate the ins and outs of an OIC, the IRS may turn down your application, and the amount you’re obligated to pay could keep climbing. A tax pro also has extensive knowledge of other IRS programs and payment options, which may better suit your personal situation.

There’s no time like the present to get back on track
Few things in life are as frightening as owing money to the IRS, but the faster you move, the sooner you can work on paying off your debt. If you’re in tax trouble, reach out to our NJ tax resolution firm for guidance on how to best proceed. Contact Magone & Company today at (973) 301-2300.

Are you a business risk-taker? It could be hurting your company’s value

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Whether you’re looking to cash out now or planning a long-term exit strategy, a business valuation can offer an accurate calculation of your organization’s total worth. Like any business owner, you want to ensure you’re getting top dollar for your business and all of its assets when the time comes.

As with any company, you might discover there are risk factors that are contributing to financial loss or bringing your value down. While certain risks, such as the economy in which your business operates, are out of your hands, there are other factors that you can change to work in your favor.

Playing it safe with business risk
What are the risks in your business, and what can you do to reduce them? Before starting the valuation process, here are some ways your business can minimize risks to a potential buyer, improve finances and increase the overall value of your organization.

  • Stabilize your growth and earnings. Hefty fluctuations in year-over-year revenue are a sure-fire way to scare off buyers. Implement a plan to stabilize earnings and rate of growth over time to demonstrate your sustainability and staying power.
  • Diversify customers and suppliers. Does your business depend on much of its revenue from a single customer, or count on critical product components from a single vendor? To soften the blow of a major loss, develop your customer base and source alternative vendors for important purchases.
  • Ramp up your retention efforts. As key employees stay with your organization over a long period of time, your business can operate with less owner involvement, which can be attractive for potential buyers. To create a turnkey organization, you should incentivize your best employees to stick around.
  • Keep comprehensive accounting records. Your company’s books and records should be as thorough as possible to convey the full financial narrative of your business. This can help prevent any slip-ups or surprises that could come back to haunt you when your business is on the market. Consider an outsourced CAS solution to maximize your efficiency.
  • Carefully document policies and procedures. Documentation makes for a smooth transition for a new owner, and it’s also another way to maintain transparency. In the meantime, your business will benefit from increased efficiency and improved customer satisfaction, with standardized processes across the board.
  • Get patents and trademarks on your proprietary information. By legally safeguarding your intellectual properties, you can help ensure that your products and services can’t be replicated or stolen by the competition, instantly giving your business more value.

When you know the risks that are affecting your business, you can better understand their impact on its value. At NJ CPA firm Magone & Company, we can help uncover your risk areas, and determine what can be controlled or mitigated to your advantage. Contact us or call (973) 301-2300 to learn more.

 

The future of cybercrime — and what it could mean for your business

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By 2024, the cost of data breeches will reach an estimated $5 trillion. A huge reason for the hefty price tag is a 70% rise in cybercrime. Cybercrime is among the world’s fastest growing criminal offenses, and it shows no signs of slowing down.

Today’s cybercrimes can present themselves in various forms — from malware and phishing to denial-of-service (DoS) attacks. Here in NJ, ransomware attacks have crippled the state’s largest hospital system, an Essex County public school district and even a respected regional theater company.

Over the next 20 years, experts say cybercrime will evolve into one of greatest challenges faced by humanity, using increasingly sophisticated means to put your livelihood and your business at risk.

Here’s a glimpse at what the future of cybercrime may entail:

Email threats will be more advanced. Remember the Yahoo data breach of 2013 that affected over one billion email accounts? Email is no stranger to phishing techniques. But as hackers develop more crafty ways to steal information, it’s critical that you educate your front-line employees on what to watch out for.

Social engineering crimes will skyrocket. Carefully planned attacks via social media channels will continue to target users with “friendly” tactics, like posing as a friend, relative or fellow employee. These types of phishing schemes aim to gain access to passwords and other sensitive information that can bring your business to its knees.

Cryptocurrencies will become more commonplace. Cybercriminals will have more inventive means to mine your digital currency. And once the information tied to a digital coin is hijacked, the information can easily be released and multiplied in the marketplace.

Too much connectivity will create a playground for hackers. We’re not far off from a world where every product will be embedded with a computer or a sensor, wirelessly monitoring and controlling everything you own — from lights and appliances to routers. In the future, businesses will only have more of these types of equipment and devices synched, opening the door to advanced attacks and threats.

Putting cybercrime safeguards in place
As more businesses expand the use of AI-enabled and cloud-based technology solutions, the risk of becoming victimized grows. It’s up to your business to implement smarter cybersecurity procedures to prevent these occurrences or stop them in their tracks, including:

  • Developing in-depth knowledge of your risk factors, so you know exactly what you need to protect.
  • Carrying out periodic risk assessments, as risk management is a key factor in keeping key business insights protected.
  • Requiring employees to use two-factor identifications to access company accounts.
  • Investing in regular audits performed by cybersecurity consultants who are experts at data protection.

Take a step back and rethink your strategy beyond the solutions of today, and prepare your business for what the future may bring.

Can depreciation save your business money?

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Depreciation is a deduction from income tax that lets your firm recover the cost of property. Read on to see how the IRS allows for the wear and tear, deterioration or even obsolescence of items.

The depreciation of tangible property — buildings, machinery, vehicles, furniture, equipment and even cell phones — as well as intangible property, such as patents, copyrights and computer software, is allowed by the IRS in certain situations, and can be used to offset income from your business. Does your property meet these requirements?

  • You own the property
  • You lease the property and make capital improvements
  • You use the property in business and for personal purposes (In this case, you can only deduct depreciation for business use of the property)
  • The property has a determinable useful life of more than one year

However, not everything can be depreciated. For example, land is off the table because it doesn’t get used up and is not subject to wear and tear. Inventory is not depreciated either.

You depreciate an asset over time. When you place property in service to use in your business or trade or to produce income, that’s when depreciation begins. However, property stops being depreciable when you’ve fully recovered the property’s cost or other basis or when you retire it from service — whichever happens first.

There are different schedules for different items. For computers, office equipment, cars, trucks and appliances, the recovery time is up to five years. Office furniture and fixtures work on a seven-year schedule. Residential rental properties can be recovered over 27.5 years, while commercial buildings and nonresidential properties can be recovered over 39 years, depending on the year you acquired them.

There are three basic depreciation methods. Particular situations will dictate which ones are most appropriate for you. Keep in mind that you need to know the initial cost of the asset and how long you can depreciate it for.

  • Straight line — Depreciate the property an equal amount each year over its useful life
  • Accelerated method — Take larger depreciation deductions in the first few years of the property’s useful life and smaller deductions later on
  • Section 179 deduction — Deduct the entire cost of the asset the year it’s acquired

To ensure that you properly depreciate property, you need to consider:

  • The depreciation method for the property
  • The class life of the asset
  • Whether the property is “Listed Property” as defined by the IRS
  • Whether you’ve elected to expense any portion of the asset
  • Whether you qualify for any bonus first-year depreciation
  • The depreciable basis of the property

Use depreciation to decrease your company’s tax burden, as you are lowering your overall taxable income. Depreciation doesn’t affect your company’s cash flow or its actual cash balance — it’s a non-cash expense. But before making any decisions, remember to consult your tax professional.