Parking $$ for future tax payment

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Silver Bullet
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Parking $$ for future tax payment

Post by Silver Bullet » Sat Jul 21, 2018 5:29 pm

I have a PE firm that's about to buy my business. As discussed in prior threads, this is kind of the golden parachute, so to speak. Excited to finally retire and enjoy like - although I may stick around for a year or so and help them transition our business into theirs.

All of this said, it'll be an all-cash deal and I'll have some significant CG taxes due in April. The question is: where does one safely park $3-4 million for the next 6 months? Do I split it up in $250k increments and put it in CD's, Money Market, or what else? Any concern about parking more than $250k in any one transaction (above the FDIC insured)?

I'll save the "what to do with the larger portion?" for another thread when the money changes hands. :happy

Thanks!

Fclevz
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Re: Parking $$ for future tax payment

Post by Fclevz » Sat Jul 21, 2018 6:01 pm

Rather than waiting for next April, wouldn’t the IRS be expecting quarterly estimated tax payments this year?

Silver Bullet
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Re: Parking $$ for future tax payment

Post by Silver Bullet » Sat Jul 21, 2018 6:26 pm

Fclevz wrote:
Sat Jul 21, 2018 6:01 pm
Rather than waiting for next April, wouldn’t the IRS be expecting quarterly estimated tax payments this year?
I've been making quarterly estimated payments throughout the year based upon our current profit projections. Deal will close around 9/30, so there may be some due in Q4.

kaneohe
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Re: Parking $$ for future tax payment

Post by kaneohe » Sat Jul 21, 2018 6:31 pm

If you meet the safe harbor of 100% (or 110%) of last yrs taxes, you could delay the rest till April next yr.

Silver Bullet
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Re: Parking $$ for future tax payment

Post by Silver Bullet » Sat Jul 21, 2018 6:43 pm

kaneohe wrote:
Sat Jul 21, 2018 6:31 pm
If you meet the safe harbor of 100% (or 110%) of last yrs taxes, you could delay the rest till April next yr.
Safe Harbor has already been met for 2018 FY.

Back to the question - where to park the $$ ?
Thanks!

57Ab90tH4
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Re: Parking $$ for future tax payment

Post by 57Ab90tH4 » Sat Jul 21, 2018 6:48 pm

Capitolone360 money market is FDIC insured (up to FDIC limits), 1.75%, NO fees. That is where I keep Uncle Sam's money and spare cash. If you must be fully insured, you may have to split up among different institutions. In practice, FDIC would find a suitor for a failed bank and close it on Friday and reopen Monday under the new name.
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Jefferson
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Re: Parking $$ for future tax payment

Post by Jefferson » Sat Jul 21, 2018 6:50 pm

Normally, I would say to only pay the IRS what and when you are required. However, if you’re worried about something happening to the money in the meantime, the IRS will be happy for you to add a few million to your next quarterly payment. You will have a massive overpay on your 2018 taxes, which can then be rolled to 2019.

That said, I wouldn’t do this. Your tax burden could always change and I wouldn’t want to request that much money back as a refund. And you would obviously be getting zero return on this money.

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welderwannabe
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Re: Parking $$ for future tax payment

Post by welderwannabe » Sat Jul 21, 2018 8:18 pm

Tbills. A six month bill (or bills) will mature in January of 2019.
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Tyler Aspect
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Re: Parking $$ for future tax payment

Post by Tyler Aspect » Sat Jul 21, 2018 8:55 pm

6 month T-Bills is one possibility. You can also look into purchasing Treasury notes from the secondary market maturing in March of 2019.
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mega317
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Re: Parking $$ for future tax payment

Post by mega317 » Sat Jul 21, 2018 11:30 pm

Yes treasuries is the answer. Unless the taxes due dwarfs is dwarfed by your taxable account, in which case I would just invest all you have according to your allocation and then sell what's needed when it's needed.
Last edited by mega317 on Sun Jul 22, 2018 9:46 am, edited 1 time in total.

drk
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Re: Parking $$ for future tax payment

Post by drk » Sun Jul 22, 2018 12:18 am

With T bills, you don't have to worry about FDIC insurance because it's all backed by the same full-faith-and-credit. The last 26-week auction ended with a rate of 2.193%. There's another one happening on Monday for bills maturing January 24.

Silver Bullet
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Re: Parking $$ for future tax payment

Post by Silver Bullet » Sun Jul 22, 2018 1:34 am

Thanks all for the comments. Sounds like T-Bills it is.

rkhusky
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Re: Parking $$ for future tax payment

Post by rkhusky » Sun Jul 22, 2018 11:14 am

HenrysCreek wrote:
Sat Jul 21, 2018 5:29 pm
All of this said, it'll be an all-cash deal and I'll have some significant CG taxes due in April. The question is: where does one safely park $3-4 million for the next 6 months? Do I split it up in $250k increments and put it in CD's, Money Market, or what else? Any concern about parking more than $250k in any one transaction (above the FDIC insured)?

I'll save the "what to do with the larger portion?" for another thread when the money changes hands. :happy
Not sure why you are worried about losing a few percent. Won't you have a boatload of money before you have to pay the cap gains?

I would just put it in one of Vanguard's bond funds - Prime Money Market if you are conservative, or Total Bond Fund and/or Intermediate Tax Exempt. Or you could just leave the funds invested as they are currently and, if the market drops, pay the taxes out of your windfall.

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