Timing tax payments

[Luk_nuts]

This question has been discussed already:

Timing tax payments

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, …

[San_Francisco]

I used to be paying the full amount as soon as possible.
With interest rates near zero or below, there wasn’t a point in delaying.

If I can get a higher interest rate somewhere else (at a bank or broker) than from the tax administration, I may reconsider.

[Luk_nuts]

@San_Francisco

With interest rates near zero or below, there wasn’t a point in delaying.

If I can get a higher interest rate somewhere else (at a bank or broker) than from the tax administration, I may reconsider.

In ZH it costs 0.25% p.a. to pay up to one year late. Even on my savings account I get more than what I pay there.
And IMO having that money invested and paying the tax bill by adjusting the savings rate shortly before the due date of the final bill, has a higher expected return than 0.25% p.a.

[jay]

@Luk_nuts

And IMO having that money invested and paying the tax bill by adjusting the savings rate shortly before the due date of the final bill, has a higher expected return than 0.25% p.a.

If you’re fortunate that your tax bill is low enough that you can simply adjust the savings rate shortly before the due date, sure.

That would not be possible for me, especially as my due dates for the final state tax bill and the provisional federal tax bill (which can’t be ignored) are only about a month apart. I certainly could tweak the timings of my investments to be slightly longer in the market in average. However, I don’t want to effectively leverage my portfolio. Especially as I’m self-employed, so my income is not as safe as it may be for others. That said, I currently transfer the tax owed monthly to a savings account as that pays more than 0.25% p.a.

[yetanothername]

I don’t think this kind of optimization is worth my time. I’m going for automatic solutions. A back of the envelope calculation for my case yields 200-300 per year, after tax. I don’t think that translates in a good hourly rate.

A few suggestions:

• Divide the expected tax bill into payments into monthly rates. This is what I am doing. It’s super easy to budget and time saving.
• Do the above, but stop your automatic investment during the months prior to the tax bill until you have accumulated enough to pay for tax.
• If you have a 13th salary, use that to pay larger chunks.
• If you have a bonus that you can count on, use that to pay the entire expected bill. A friend of mine’s doing it this way. He gets his bonus in March and uses it to pay his tax bill which arrives at the same time. Peace of mind.