I was laid-off at the beginning of the month. My company gave those laid-off a 6 month severance package. Anxious to get back to work so I can pocket as much of that severance as possible, I aggressively interviewed and I'm starting a new job that is more exciting and pays better next week.
What I'm wondering is what will the taxes look like on that severance? I have invested some of it into my wife's photography business, but that leaves me wondering what to do with roughly 80-85% of it.
In terms of liabilities, all I have is two cars loans (approx. 16K worth) and my mortgage (which I am currently underwater on but we're comfortable staying in for a long time). Putting most of it into my home would put us above the water line on our mortgage, but I'm hesitant doing that when in 10-15 years (?) the market might just do that for me.
What is the best thing to do with this money in terms of tax liability or in general?
Sat Aug 27, 2011 1:17 am
coaster Senior Advisor
Cash: $ 1626.30
Joined: 11 Oct 2005
Well, that's definitely taxable income. You might want to go to the IRS web site and in the search box enter "Pub 4128"
Depending on how much it is; how much you're having withheld; and what you expect to gross, you MIGHT want to file estimated tax, so you don't get hit with an underpayment penalty next April if there was nothing withheld on the severance payment. Next tax payment date is September 15.
Congratulations on getting another job so fast.
Sat Aug 27, 2011 5:57 am
prioritytaxgroup Contributing Member
Cash: $ 5.05
Joined: 20 Jun 2014
You won't avoid tax entirely. You will pay 20% on the company's profits – in this case everything going into the company, and 10% "entrepreneur's tax" on the amount left in the trading company when it is liquidated. But say your take home pay was £200,000 a year over the three years, your bill would be substantially lower than had you taken the lot as income