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Posts tagged Tax Season

Taxing Severance Pay

Taxing Severance Pay published on

Many employers have typically interpreted their FICA (Federal Insurance Contributions Act) obligations (i.e., Social Security and Medicare) to extend to severance pay based on the IRS treating severance pay as wages, but that may change. Employers making severance payments may be entitled to a refund if the employers withheld FICA.

Severance PayThis year, the U.S. Supreme Court will hear a case regarding whether severance payments should or should not be subject to FICA. In the pending case, the lower court ordered that the IRS give a full refund of $1,000,125 to the employer. The lower court found that payments the employer made to employees who were involuntarily terminated due to business cessation were considered supplement unemployment compensation benefits (SUB payments) that are not taxable wages under FICA.

A ruling in favor of the employer would lower costs for employers. Employers would no longer be required to make FICA contributions on severance payments. Additionally, employers may be entitled to a refund on previous severance payments. Accordingly, employers should consider filing protective refund claims so that they can keep the statute of limitations on refund claims open pending review of the above mentioned case by the U.S. Supreme Court. Employees may also file claims for refunds.

If you are a member of Spiegel & Utrera, P.A.’s General Counsel Club and have questions about Taxing Severance Pay or Filing Protective Refund Claims, call (800) 734-9900 orclubassist@amerilawyer.com for assistance. Remember, as a member of the  General Counsel Club, you receive unlimited legal, business, credit and tax advice all year long.

Spiegel & Utrera, P.A. is a corporate law firm with its main offices located in Miami, Florida with offices throughout the United States. As a law firm, we do more than just help you form your business entity. We stand ready to help with the maintenance of your legal business entity! We will assist you withIncorporation Service, Trademarks, Copyrights, Estate Planning, Legal Counsel, Wills, Trusts, Agreements & Leases, Corporate & Company Changes.

 

The Home Office Deduction

The Home Office Deduction published on

Avoiding unnecessary tax liability involves understanding many of the business-related deductions the IRS offers entrepreneurs. If you run your business from your home, you may be entitled to a home office deduction on the square footage of your home being used exclusively for your business. The

image1“exclusivity” test is taken very seriously by IRS auditors. The section of your   home that you claim is used for business must be partitioned in some way and personal-use either by you or other members of your family must be nominal (according to IRS, allowing your son to do his homework in your home office is enough to disqualify the deduction).

The second requirement is that the home office must be used as a principal place of business. The office must be used regularly (and exclusively for business) or it must be an area that is used primarily for meeting with clients. This does not mean, however that if you use an outside office from time-to-time you are disqualified from the home office deduction. So long as the office is used to complete substantial administrative or managerial tasks for the business, the second requirement will be met.

The ultimate payoff is that a number of direct and indirect expenses that would otherwise be personal, nondeductible expenses can be converted to business write-offs and consequently lower your overall tax bill (this includes the cost of phones or internet service, the cost of repairing the office, a certain percentage of utilities, insurance, taxes and much more). A well-drafted Home Office Lease between your corporation or LLC and yourself would be a great place to start.

Visit our website for more information and to make sure your interests are protected.

 

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