How can I best utilize my severance package to save on taxes?
February 2, 2022 | 45,00 EUR | answered by Fanni Siebert
Dear tax consultant,
I recently received a severance payment of 50,000 euros and now I am facing the question of how to best use it to save taxes. I have had a fixed income as an employee so far and I am unsure about the most effective way to use the severance payment.
My current situation is as follows: I have no other income besides the severance payment and I would like to use it in a tax-optimized way. I have heard that there are various options like pension insurances or tax-optimized investments to invest the severance payment. However, I am uncertain about which option is best for me.
I am concerned that a wrong decision could result in unnecessarily high taxes and lead to a loss of part of the severance payment. Therefore, it is very important for me to receive expert advice from you on the possibilities to use the severance payment in a tax-optimized way.
Can you make specific suggestions on how I can best invest my severance payment to save taxes? What tax aspects should I consider in my decision and what tax benefits could I take advantage of through certain investment forms? I would greatly appreciate your support.
Thank you in advance for your help.
Sincerely,
Paul Zornitz
Dear Mr. Zornitz,
Thank you for your inquiry regarding the tax-optimized use of your severance payment amounting to 50,000 euros. It is understandable that you are considering how to best invest this sum to save taxes and derive the highest benefit from it.
First and foremost, it is important to know that severance payments are generally subject to taxation. In the case of a lump sum payment like your severance, it is usually considered as extraordinary income and is subject to taxation based on your personal income tax rate. This means that the severance must be declared in your tax return and taxes must be paid on it.
However, there are various ways in which you can reduce the tax burden through smart investments. One option is to invest in tax-optimized investment vehicles such as a Riester pension or company pension scheme. These forms of retirement savings offer tax advantages, as contributions are tax deductible within certain limits and payouts in retirement age are tax-advantaged.
Another option is to invest in tax-optimized financial instruments such as stocks or investment funds. Here, you can benefit from the so-called capital gains tax, which is usually lower than the personal income tax rate. Additionally, through smart investment strategies, you can optimize your returns and save on taxes.
It is important, however, to seek advice from an experienced tax advisor or financial consultant before making any investments to find the right strategy for you. Each case is individual, and there is no one-size-fits-all solution that is suitable for everyone.
Therefore, I recommend that you consult with an expert who can analyze your personal situation and provide you with specific suggestions on how to tax-optimize the use of your severance. This way, you can ensure that you make the most of your severance and avoid unnecessary tax payments.
I hope this information is helpful to you and I am available for any further questions you may have.
Best regards,
Fanni Siebert
Tax Advisor
