Author Topic: What to do with "Tax Money"  (Read 3210 times)

Roboturner

  • Bristles
  • ***
  • Posts: 491
  • Age: 30
  • Location: Colo-RAD-o
  • No Snacks, Just Math
What to do with "Tax Money"
« on: November 30, 2015, 11:28:51 AM »
I am currently working as a consultant, and thus "own my own business" for tax reasons. The good news is I can open and maintain a healthy i401k which is maxed on both ends. My question though is what do i do with the money that I have to set aside to gift to Uncle Sam? Due to my low taxes last year, I was able to exceed lasts year's taxes with my Q1 payment, thus no need to continue with quarterlies this year. I have the rest (about 20k) sitting around, is there something I can do with the excess until April? I'm afraid to throw it into an investment account due to short-term capital gains, am i missing something?


Thanks in advance!

keyser

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: What to do with "Tax Money"
« Reply #1 on: November 30, 2015, 11:45:09 AM »
I keep a tax accrual of money earmarked for taxes and keep it in 100% total market bond funds (75% US; 25% international). Bear in mind though that you are bearing some risk in taking this approach.

MDM

  • Walrus Stache
  • *******
  • Posts: 9551
Re: What to do with "Tax Money"
« Reply #2 on: November 30, 2015, 02:03:11 PM »
As keyser notes, it's a risk/reward question that only you can answer.

Some of the higher "no risk" options include these online banks: http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4908
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: What to do with "Tax Money"
« Reply #3 on: November 30, 2015, 02:23:13 PM »
I'm afraid to throw it into an investment account due to short-term capital gains...

This is a rather funny attitude. You're saying you would rather earn less money because you don't want to pay tax on the excess. Unless your marginal rate is over 100%, the prospect of paying tax on additional income is not sufficient reason to avoid earning that income.

Roboturner

  • Bristles
  • ***
  • Posts: 491
  • Age: 30
  • Location: Colo-RAD-o
  • No Snacks, Just Math
Re: What to do with "Tax Money"
« Reply #4 on: November 30, 2015, 04:06:48 PM »
I'm afraid to throw it into an investment account due to short-term capital gains...

This is a rather funny attitude. You're saying you would rather earn less money because you don't want to pay tax on the excess. Unless your marginal rate is over 100%, the prospect of paying tax on additional income is not sufficient reason to avoid earning that income.

That's a good point - I guess to elaborate, for short term, would the potential taxed gains be worth the risk of loss versus just a high interest rate online bank or something of the sort?

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4908
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: What to do with "Tax Money"
« Reply #5 on: November 30, 2015, 04:41:13 PM »
I'm afraid to throw it into an investment account due to short-term capital gains...

This is a rather funny attitude. You're saying you would rather earn less money because you don't want to pay tax on the excess. Unless your marginal rate is over 100%, the prospect of paying tax on additional income is not sufficient reason to avoid earning that income.

That's a good point - I guess to elaborate, for short term, would the potential taxed gains be worth the risk of loss versus just a high interest rate online bank or something of the sort?

This is more a question about your overall risk tolerance. If having the money go down in value would be an extreme hardship, you probably shouldn't risk this money in the market. If you know you're going to be saving up for tax every year, and you're willing to let it go down some years if it goes up most years (which it will), then maybe investing that money can be a good idea.

NoraLenderbee

  • Handlebar Stache
  • *****
  • Posts: 1255
Re: What to do with "Tax Money"
« Reply #6 on: November 30, 2015, 05:29:41 PM »
I have the rest (about 20k) sitting around, is there something I can do with the excess until April? I'm afraid to throw it into an investment account due to short-term capital gains, am i missing something?


You could just as easily have a short-term capital loss. If that happens, will you have enough money to cover your taxes?
If you will need the money within a year, you should keep it safe and liquid. April isn't even six months away. Don't gamble with your tax money.

use2betrix

  • Handlebar Stache
  • *****
  • Posts: 1723
Re: What to do with "Tax Money"
« Reply #7 on: December 01, 2015, 05:42:05 AM »
People often say it's risky investing short terms savings for a house down payment into the stock market. Investing your tax money that's due within a year is even more risky.
When I was a 1099 employee I always just looked for the highest interest savings account I could find (around 1%) and put the money in there.

Roboturner

  • Bristles
  • ***
  • Posts: 491
  • Age: 30
  • Location: Colo-RAD-o
  • No Snacks, Just Math
Re: What to do with "Tax Money"
« Reply #8 on: December 01, 2015, 02:17:43 PM »
Thanks for the input, I'm sure this is a thread somewhere, but MMM hasn't quite figured out the search function on the forums... any suggestions for high yield savings accounts?

Thanks

GizmoTX

  • Handlebar Stache
  • *****
  • Posts: 1373
Re: What to do with "Tax Money"
« Reply #9 on: December 01, 2015, 02:21:43 PM »
Synchrony, Ally, CIT.