I was wondering what is your way or strategy for putting aside they money required in order to pay the yearly state/canton taxes? I am asking because before I discovered FIRE this year my way was simply to pay in advance a lump sum usually at the end of the year approximating the total amount of my taxes based on canton online calculator. Compared to keeping this money in my bank account until the final taxes invoice arrives which gives me 0% interest my canton offers me a 0.1% interest rate if I pay them the money in advance until the final invoice arrives. It’s not much but better than 0%…
Thinking further about FIRE and taxes beginning of this year I thought there might be a better way of setting aside the money used for paying taxes. Here, I could think of at least these two possibilities:
Buy more of your favorite usual ETF (e.g. VT) instead of paying the taxes in advance and sell as much as you need in order to pay the final yearly taxes bill
Same as the above but using a specific ETF which might be better suited for that purpose
2 variant a) use an equity ETF for that purpose
2 variant b) use a bond ETF for that purpose for less volatility
But as you all quite well know when the final yearly taxes bill arrives you have 30 days to pay which means within that 30 days you will have to sell no matter if your ETF is doing well or not in order to pay that big bill. In the worst case you are selling at a loss in order to pay your taxes which does not give you a very good feeling. So maybe in that case variant 2b) which uses a bond ETF such as BND is better and safer.
Actually for the taxes 2020 I am testing the variant 2a) mentioned above by buying on a bi-monthly basis the UIMR ETF (https://www.justetf.com/ch/etf-profile.html?query=LU0629460675) on DEGIRO. This means that now that we are approaching end of 2020, I have nearly paid the whole amount of my 2020 taxes into the UIMR ETF and then as soon as I receive my taxes bill for 2020, which should be around May 2021, I will sell as much as I need to pay that bill and probably continue like that for the taxes of 2021.
What do you think about that? I would be really interested to read what people think and how you deal yourself with the money you put aside for your taxes…