McKonomics

Corporations: Good Time for Tax-Wise Transactions (Take Advantage of Historically Low Rates Now)

If you own shares in a closely-held C corporation, you probably know the 2010 federal income tax rate structure is quite favorable for these reasons:

 

· If your company pays you a taxable dividend this year, the maximum federal income tax rate is only 15 percent; and

 

· That same 15 percent maximum rate applies to 2010 corporate payouts or stock sales that generate long-term capital gains. 

 

Dividend and Capital Gains Taxes Are Almost Certain to Go Up

 

With the passage of the massive healthcare bill, odds are the current taxpayer-friendly picture will only last through the end of this year. Unless Congress takes action to extend the status quo, higher taxes on dividends and long-term gains will kick in on January 1, 2011, when the "Bush tax cuts" are scheduled to expire.

New Case May Create Refund Opportunity for Severance Pay (Court Rules that Severance Payments Are Not Wages)

A recent U.S. District Court case may provide a unique tax-saving opportunity for employers who have been forced to lay off workers during the recent economic downturn.  In a surprising move, the Court said that severance payments made to the workers do not constitute "wages" for payroll tax purposes. Thus, the company was able to collect a refund of more than $1 million!

 

In the wake of this new case, you can file a protective refund claim for open tax years if your company previously paid the full amount of payroll taxes on severance payments. But you may have to act fast to file a claim for the 2006 tax year.

 

Let's start with some basics. As a general rule, "wages" that are subject to income tax withholding are also treated as wages for employment tax purposes. For 2010, an employee must pay a 6.2 percent Social Security tax on the first $106,800 of wages and a 1.45 percent Medicare tax on all wages. The employer must also pay its corresponding share of these employment taxes.