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Preserve tax refunds on severance

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in Small Business Tax,Small Business Tax Deduction Strategies

If your company has struggled in recent years, it may have been forced to lay off workers. Along with the pink slips, you might have handed out severance packages. Of course, your company deposited with the Feds all the requisite federal employment taxes on the severance payments.

Strategy: File a “protective claim” to preserve your potential right to a federal employment tax refund for open tax years.

According to a new case decided by the 6th Circuit, qualifying severance payments aren’t subject to federal employment taxes, so you could be in line for a big refund. But the IRS hasn’t thrown in the towel on this issue yet and probably won’t unless ordered to by the Supreme Court.

And no wonder—the stakes are high. In the new case, the IRS had to refund more than $1 million in em­­ploy­­ment tax deposits. (U.S. v. Qual­­ity Stores, Inc., CA-6, 9/7/12)

Here’s the whole story: Generally, wages that are subject to federal incom...(register to read more)

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