I’m going to pay my taxes last minute this year, just in time to avoid negative interest (4.5% in my canton!). I prefer being invested in the market instead of pre-paying taxes in return for the fairly low interest rate the government offers me.
What about you?
And I find it kind of hard to exactly determine my taxes owed in years where my salary fluctuates. That’s kind of annoying for the reasons I stated above: avoiding negative interest. You could always just pay too much taxes in advance, but I’d hate not to put that money into the market instead. The simplistic tax calculator in my canton does not allow for calculating details like deductions etc. exactly. It’s basically: “enter your taxable salary & wealth, and we’ll tell you the taxes owed” - rather not helpful…
In ZH you pay the 4.5% p.a. interest only if you fail to pay the final tax bill within 30 days. If you pay provisional tax bills later than recommended, you only pay 0.25% p.a. interest (and if you pay early you receive the same 0.25% p.a.). This seems like a fair system to me.
I pay the estimated taxes for the current year monthly. That way neither my monthly savings (and thus investments) nor the cash balance fluctuate much, which is convenient, in my opinion. It’s also easy to adjust the monthly tax payments if my income changes. This is for state taxes (canton and municipality). Federal taxes use a different system in ZH.
Thanks, very helpful hint, I didn’t know that, I assumed you owed 4.5% right from the beginning! 0.25% isn’t nice, but definitely not as draconic as 4.5%. Especially in case I estimate to little taxes owed.
It’s only about not paying provisional taxes, not about paying taxes by selling stocks.
I’ve only just started to delay tax payments this year. I don’t even want to know how much time in the market you’d have lost over the past bull market by paying too much taxes too far in advance
For me tax money is “lost” either way so I don’t think too much about being in the market with this money or not.
I can remember someone proposing in another thread to pay the provisional tax with a margin loan or something like that if that might be of interest for you.
I used to lump sum pay the taxes in advance, usually around end of the year. But seeing their interest rate for paying in advance going down I thought like you why not have the money invested instead. So the first year I tried that out I used a USD treasury bond to be on the safe side (VUTY.AS to be precise). It worked quite well as a store of value and I even got a small monthly dividend. I would buy this ETF every two month. Then I sold to pay the final taxes bill.
Next year, actually this year, I thought let’s go more risky and instead of a bond switch to equity and one which would give me a more interesting dividend with still not too much risk. I also wanted an ETF in CHF in order to avoid FX fees. So I chose the a Swiss Dividend ETF (CHDVD) but with that one being more risky than bonds I of course got less lucky and if I sell today I would roughly loose 8%. So if it is still at loss when I have to pay the taxes bill it would be a failed experiment.
I still have a workaround is that if I see not much possible recovery in the near future, I could always set the money on the side (not invested) or start paying in advance again and keep that ETF to be sold at a later stage when it would not be in the red numbers anymore.
So you see it is not really a reliable system but for me it is an interesting experiment. I might just change my strategy next year again to simple monthly payments. Or if I feel like experimenting further maybe chose another ETF.
Another ETF I was looking at is the Vanguard FTSE All-World High Div Yld ETF which has an interesting yield and is broader as it covers the whole world.
There were discussions about it already and in general I don’t think it is a good idea to invest money that you need short term in anything but cash, potentially in a savings account.
What I think is better is to spread your tax payments, as well as all other expenses, in monthly installments. If you can’t actually pay this amount, put it regularly on the side and budget it for the future expenses.
I did it with some other expenses. I was even considering calculating my estimated average “free cash flow” over next 3-6 months and invest the same estimated average amount every month, but then abandoned this idea. I just keep some L1 cache cash and invest everything that is left at the end of a month.
I used to pay the entire amount of taxes when the final bill came, but each year I was more sad of the big “loss” on my banking account (although I knew this money should go away one time or another). In my canton they automatically send you 12 bills to pay your taxes (in advance). I do that now and have a better view of the situation. So, no investing but spreading, as Dr.PI suggests.
Sorry for not adding much of value to the conversation, but
Loved this
My stance is similar to yours - not trying to invest the tax reserves.
It’s just that for the time being I do a rough “quarterly” payment, as I am still awaiting on my “real” tax report result after the new canton move last year.
In terms of accounting it makes no difference for me, no sudden drops in NW:
I try to keep it “realistic” with a monthly negative line MoM (approx. taxes / 12), and then amend it when I make the payment.
Every month I put a specific amount of money to my tax bank account (scheduled transfer). When the provisional tax bill arrives, I pay the full amount of the bill.
If I got a salary increase, then Ill update the monthly amount and request an updated provisional tax bill.
Therefore I have no tax suprises and the money is directly on a different account (away from my savings account).
Great, thanks a lot for this information, I didn’t expect the tax authorities to provide such a service. Indeed, my local authorities seem to provide it.
Same here.
I used to invest in stocks, then 3a pillar, then stash away money for the taxman.
But this kept surprising me due to some changes in salary and little windfall, plus: Tax bills in Bern are not evenly distributed across the year.
So I now replicate the taxation in most other countries, i. e. monthly deductions from the salary payment.
→ Every month, I set aside one 12th of last year’s overall tax bill in an separate account with my main bank.
Whenever there’s a salary increase, I adjust the monthly payment.
When there’s an unexpected payment, I transfer the approximate taxes to be owed for that additional payment.
I’ve been doing this for over a year now, and it make things simple.
For cantonal and municipal taxes: I know my approximate tax rate (X%), and each month I transfer X% from that month’s net income to the tax office (using the payment slip for variable payments). Then, when I finish my tax declaration in March of the following year, I make one extra transfer of the difference between the approximation of the software and what I have paid already.
And you get 0.25% on the money paid before end of September, much better than leaving them on the bank account like I do, I think I’ll start doing the same…
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