Can I avoid tax disadvantages if I invest my severance pay in a start-up?
April 21, 2022 | 40,00 EUR | answered by Edith Hartmann
Dear tax consultant,
my name is Otto Schulz and I am facing the decision of what to do with my severance payment. My situation is as follows: I have been terminated by my employer and will receive a severance payment of 50,000 euros. Now I am considering whether it would be financially advantageous to invest this severance payment in a start-up, instead of simply transferring it to my account.
My concerns are that I may have to pay a high tax rate on the severance payment and therefore could potentially lose a large portion of the money. I have heard that there may be tax benefits to investing a severance payment in a start-up, but I am not sure if this applies to my situation.
So my question to you is: Can I avoid tax disadvantages by investing my severance payment in a start-up? Are there specific regulations or ways to reduce the tax burden? What risks and pitfalls should I be aware of in this process?
I look forward to your expertise and support in making this important decision.
Sincerely,
Otto Schulz
Dear Mr. Schulz,
Thank you for your inquiry regarding your severance package and considering investing it in a start-up. I understand your concern about the tax implications and your desire to optimize your financial situation. I am happy to provide you with some information and tips.
It is important to know that severance packages are treated as taxable income and typically fall under the category of other income. This means that your severance package is subject to your progressive tax rate, which may result in a higher tax rate than regular income. However, there are ways to avoid or reduce the tax disadvantages.
One way to benefit from favorable tax treatment of the severance package is to invest in a start-up. In Germany, there are various funding programs and tax benefits for investments in start-ups, such as the ability to offset losses from the investment with other income or tax relief when selling the shares later on. However, it is important to carefully research the tax regulations and conditions beforehand to avoid unexpected tax payments.
One potential risk factor of investing in a start-up is the uncertainty and the risk that the company may not be successful. In this case, your investment could be lost, and you would still have to pay taxes on the severance package. Therefore, it is advisable to invest only a portion of the severance package in a start-up and securely invest the rest.
Additionally, you should consider other investment options to diversify your portfolio and spread your risk. Professional advice from a financial or investment advisor can help you make the right decision for your financial future.
I hope this information helps you with your decision. If you have any further questions or would like a more detailed consultation, I am at your disposal.
Best regards,
Edith Hartmann, Tax Advisor
