Author Topic: Saving for Taxes  (Read 3419 times)

andyp2010

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Saving for Taxes
« on: September 27, 2015, 06:53:08 PM »
So currently, I save 20% of anything I take out of my businesses in a savings account. This savings account gets 2.3%, which is quite low IMO but it does essentially lower my tax rate.

Has anyone put their taxes into something slightly less liquid or volatile? Like indexed funds?

Would be pretty great to knock taxes down a bit more by earning more on the cash but I don't know what I'd do if I couldn't pay my taxes.

seattlecyclone

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Re: Saving for Taxes
« Reply #1 on: September 27, 2015, 07:25:43 PM »
2.3% on a savings account is actually quite good. If you live in the US you should probably be paying taxes quarterly, so increasing your returns on this money really wouldn't make much of a difference.

andyp2010

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Re: Saving for Taxes
« Reply #2 on: September 28, 2015, 03:17:20 AM »
Ah, there's the difference. I pay my taxes annually and although 2.3% is about as good as it gets relatively speaking, on absolute terms 2.3% is pretty turdworthy IMO. I just feel like I can do better....

MDM

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Re: Saving for Taxes
« Reply #3 on: September 28, 2015, 09:59:28 AM »
I just feel like I can do better....
Sure you can - just take more risk.  Of course, that means you might do worse....

Vilgan

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Re: Saving for Taxes
« Reply #4 on: September 28, 2015, 01:59:02 PM »
Even if you are paying annually, most of the time you probably aren't holding stuff for the full year by the time taxes are due so they would be short term cap gains instead of long term. 2.3% may not be the "best" but its still really good. A year ago I dumped a chunk into a CD and now I'm up X% (5% in my case but 2.3% would still be great) instead of down 5% on that money. If you set aside tax money and then it loses 20% right before you have to pay taxes... ponying up that extra would be a bummer. I only get 1% on what I set aside for taxes, but knowing that it is set aside and won't go down lets me dump everything else into investments without worrying about how I'll handle a 20% loss if it happens right before taxes are due.

Cheddar Stacker

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Re: Saving for Taxes
« Reply #5 on: September 28, 2015, 02:34:42 PM »
Most people don't know because it's not advertised to my knowledge, but there's an underground market for tax credits. Bankers tend to finance huge deals in real estate development, in part due to the developer's ability to receive tax credits from the state or feds for the development. The bank then often brokers these credits to their customers, or CPA firms and their clients. I've brokered a few nice deals for clients, and I once purchased some from a client.

They tend to sell at around $0.90-0.92/$1. The savings can be enormous. If you work closely with, or personally know any bankers or CPAs it might be worth a discussion. However, they like to sell at $100,000 increments to reduce paperwork, so you sort of need to achieve "baller" status before you have access. The credits can be carried back and forward as well though, so you can use them over multiple years. The best thing to do is buy them at year end, use them for 2015, and carry them back to 2012-2014 in January 2016. This let's you get a bunch of refunds all at once reducing the time before you realize a return on the cash outlay.

protostache

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Re: Saving for Taxes
« Reply #6 on: September 28, 2015, 07:46:32 PM »
Most people don't know because it's not advertised to my knowledge, but there's an underground market for tax credits. Bankers tend to finance huge deals in real estate development, in part due to the developer's ability to receive tax credits from the state or feds for the development. The bank then often brokers these credits to their customers, or CPA firms and their clients. I've brokered a few nice deals for clients, and I once purchased some from a client.

They tend to sell at around $0.90-0.92/$1. The savings can be enormous. If you work closely with, or personally know any bankers or CPAs it might be worth a discussion. However, they like to sell at $100,000 increments to reduce paperwork, so you sort of need to achieve "baller" status before you have access. The credits can be carried back and forward as well though, so you can use them over multiple years. The best thing to do is buy them at year end, use them for 2015, and carry them back to 2012-2014 in January 2016. This let's you get a bunch of refunds all at once reducing the time before you realize a return on the cash outlay.

This is fascinating! How does the transfer work? If I bought $100k of credits for $92k, what kind of documents would be involved?

Cheddar Stacker

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Re: Saving for Taxes
« Reply #7 on: September 28, 2015, 08:00:08 PM »
This is fascinating! How does the transfer work? If I bought $100k of credits for $92k, what kind of documents would be involved?

I only have experience with credits in my state. You typically pay when you buy, so you front the funds and await your usage and return on the "investment". Here it's just a 2 page form to be completed with info on the credits, buyers info, and sellers info. It takes the state a month (ish) to process everything, then they send you a 1 page certificate with your tax credit # and total amount of credits. You put that data on your return, include the tax credit form when you file, and voila, money.

This is truly a case of the rich getting richer. You need access, and high taxes. We have 1 client that picks up $1M+ of state credits every year he can find some. $100k savings for him. Amazing.

protostache

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Re: Saving for Taxes
« Reply #8 on: September 29, 2015, 05:36:57 AM »
This is fascinating! How does the transfer work? If I bought $100k of credits for $92k, what kind of documents would be involved?

I only have experience with credits in my state. You typically pay when you buy, so you front the funds and await your usage and return on the "investment". Here it's just a 2 page form to be completed with info on the credits, buyers info, and sellers info. It takes the state a month (ish) to process everything, then they send you a 1 page certificate with your tax credit # and total amount of credits. You put that data on your return, include the tax credit form when you file, and voila, money.

This is truly a case of the rich getting richer. You need access, and high taxes. We have 1 client that picks up $1M+ of state credits every year he can find some. $100k savings for him. Amazing.

Amazing indeed. Thanks for the details. Not that I'll ever be able to act on it, but this kind of secret-but-not-really-that-secret stuff is super interesting for some reason.

Axecleaver

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Re: Saving for Taxes
« Reply #9 on: September 29, 2015, 10:55:46 AM »
Hey Cheddar, is that market just for state taxes or are there similar ones for federal taxes, too?

Cheddar Stacker

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Re: Saving for Taxes
« Reply #10 on: September 29, 2015, 11:26:00 AM »
Hey Cheddar, is that market just for state taxes or are there similar ones for federal taxes, too?

I believe there is a federal market as well, but I'm not as familiar. There's a lot of urban development credits where I live, and they're mostly state.