Better use of money being put aside for yearly taxes


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:

  1. 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

  2. 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 ( 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…


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If you don’t have to pay in advance in your canton, and in the case you have diversified sources of income, you can invest early and then when the bill is due, you invest less that month. In the case you don’t have those diversified sources of income and investing that money would mean selling your investments after a year, I would either pay the taxes in advance or find a better savings account.

What if it dropped in value by 30% or more?


I also get 0.1% skonto for advance payment.
What has a bigger effect is that by paying before year-end is it’s not part of my Vermögen any more on 31.12.
My Canton has shitty Vermögensteuer, I pay >0.5%.
So on a p.a. basis by paying on 30.12.2020 instead of when it becomes due (30.5.2021) I “earn” >1.3% risk-free.
Just another way to look at it / consider.


I think this is the right strategy (even overpaying can be useful)

I was having the same question, as this is the first full year I will be taxed non-QS.
And I cannot just guesstimate on previous year because I was not taxed fully until now (and haven’t received anything back yet for the “partial” 2019 during which I received my C permit - covid I suppose).

But I see the timing and rules quite depend on the canton.
In Basel you need to pay by end of [March-wrong] May the following year.
After that the interest they charge you is 3%.
And most probably the final calculation of the exact amount is not returned to you by then - so you cannot just “wait until they send you the final bill and pay then”, because it can cost you not insignificantly (unless it’s 3% pro-rated?).

So this (first) year I am probably paying “my” estimated account by the deadline, and then learn along.
But I am curious to hear how do people with similar canton rules proceed?

I also pay in advance the amount required or more if I know (guess) it will be so.

I take it out of my emergency fund (6 months of living expenses) and proceed as followed to refund my EF:

  • EF > 6Mo: no need to refund, invest 100% of income
  • EF>3 mo: 50% of income goes into EF, 50% into invest
  • EF<3 mo: 100% into EF.

I would not invest and eventually have to sell at a lost. I think sometimes it is better to be sure not to lose big time than to try to win a bit.


No, in BS the “Kant. Steuern 2020” are due on 31.5.2021. Thereafter 3%, and surely pro-rata…?

But yes, you only have a “pretty good estimate” which the Steuererklärung software gives you by end May, not the final Rechnung.

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Thanks for the correction, May indeed.

First, thank you all for your input it’s very interesting and allows one to change course for better optimal use of this money.

That’s exactly what I don’t like in the two possibilities I suggested. So for my point of view my two suggestions are interesting in terms of possibly higher return on investment but not optimal in case of market downturn.

I totally forgot about that point and this in my opinion is a very nice aspect. I want to get rid of this type of money that I have to pay anyway by end of the year in order not to get taxed on it for nothing. Of course this is capital tax which is not very high but as you mention it’s risk free…

Actually I checked in the Akontozahlungen letter I received last year from the Kanton BS and the interest rate in their favor in case you don’t pay by the deadline of end of May is 3.5% and not 3.0%. You definitely want to avoid that. No clue if it is pro-rata taking in account what you already paid though but I would assume by fairness that it is.

I thought about this strategy but did not dare mentioning it as a possibility but I must say I like it as long as I would refill my emergency fund as soon as possible. Mine is around 5 months of living expenses.

For now I found out that based on my assets allocation I have too much cash so I might simply use that cash end of the year to pay in advance my taxes for 2020 and keep my UIMR ETF.

Last question maybe, are there any advantages in paying the yearly taxes in advance on a monthly basis throughout the year compared to at the end of the year in a lump sum?

I guess one “advantage” could be - in case you are drawing it from your emergency fund - the maintenance of EF is a bit easier / less risky - i.e. you don’t draw out several monthly expenses at once which you then have to refill. :slight_smile:

But I do that anyway through an “interim” savings account, i.e. set cash away for taxes and then lump sum it in 1-2 gos.

Can’t you just list it as debt, similar to the federal taxes?

Correcting myself here, 3.5% was for 2019 and it is so that Kanton BS lowered it to 3.0% for 2020 as I just read it right now in the Akontozahlungen letter for 2020.

That never occurred to me. Why not, indeed? A quick search came up with this, from Canton Bern, but it should be applicable everywhere(?)
Good tip.
In that case my “early payment” before 31.12 is not necessary to save Vermögensteuer on this amount.
Only thing is, do I list under Schulden the estimated tax due from the Steuerrechner? I suppose so, that should be accurate enough.
Can 1 or 2 people maybe confirm that they do it this way & there are no “challenges”.

I know you can do that with a GmbH but with a private person I wonder … else everybody would be doing that right?

Check your tax office, I thought it’s pretty standard (I pay my cantonal taxes before the deadline, and I haven’t cared enough about the federal ones to do it yet given it’s much less than 100 CHF difference in the end, but I don’t think it would be an issue).

I have listed money owed to tax authorities in the debt section of the tax return based on the estimate from the tax return software I use and I have also claimed the interest paid to the tax authorities as a deduction from revenue. Both have been accepted.

If you have an account at Interactive Brokers and you have a short term cash need you can borrow CHF at about 1.5% interest rate as a Lombard loan. The interest is also tax deductible

I don’t have that money put aside. I just take it out of my monthly wage in the month I have to pay one of the rates. I’m not yet sure if I’ll invest in ETF monthly (different amount in tax months) or quarterly (less difference). But as you can’t time the market what does it matter when you invest anyways?

This means that you either have a massive monthly wage or very cheap taxes :wink: My taxes account for around 2-3 monthly wages as I live in a tax hell canton so for me it’s not possible to pay the full amount of my yearly taxes with one single monthly salary.

To be fair he did mention “one of the rates”.
Not sure if these are well defined.
I suppose one pays as much as one wants; as long as the full due amount is covered by the “deadline”?

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