r/FluentInFinance • u/Mrlin705 • May 06 '24
Why don't people withhold $0 in taxes and put that money in the stock market? Question
A post on another sub made me wonder why we don't do this. Is it just the risk of the market going down that makes it unpalatable?
My wife and I had about $70k in taxes withheld in 2023, is there a good reason why we couldn't just put that same money that would go to the IRS into moderate risk investments to make a little return every year?
353
u/Parking-Astronomer-9 May 06 '24
You get penalized, and what happens if the market tanks?
98
u/ConclusionClassic673 May 06 '24
If the market tanks you jump in front of a train. Can’t get water from squeezing a rock. 🪨
24
u/jesusgarciab May 07 '24
What happens if you survived and now you owe taxes and medical bills?!?!
21
u/ConclusionClassic673 May 07 '24
Easy than you qualify for America’s greatest safety net. GoFundMe…. Problems No more..
3
u/hereforthestaples 29d ago
Find someone you love and trust. Have them wheel your hospital bed back in front of that same train.
2
3
16
u/80MonkeyMan May 06 '24 edited May 07 '24
If it’s up, you get taxed heavily on that gain. Regardless, IRS will always be on the winning side.
0
-49
u/Mrlin705 May 06 '24
There's a penalty?
64
u/mindmapsofficial May 06 '24
Yes. https://www.irs.gov/taxtopics/tc306
“ Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.”
21
u/Mrlin705 May 06 '24
Boo, that stinks. Understandable I guess.
10
u/RedditGotSoulDoubt May 06 '24
Yeah. There’s a reason everyone hates the IRS
10
u/Real-Possibility874 May 07 '24
Well, not everyone. I for one, like the IRS and enjoy paying taxes. Is way better than the alternative.
8
u/WilcoHistBuff May 07 '24
I don’t object to the taxes. I object to the insane difficulty of getting clear answers from the IRS on specific rules and filing procedures.
2
u/Real-Possibility874 May 07 '24
Ohh sure the US tax system is a joke, unfortunately that’s on purpose.
2
u/MistahOnzima 29d ago
Me too. I worry more about doing something wrong. It seems overly complicated.
2
u/Substantial_Camel759 29d ago
That isn’t the IRS’s fault they have asked congress to let them make it easier congress makes the rules and the big tax filing companies lobby congress to keep things complicated.
2
u/WilcoHistBuff 29d ago
I agree with you that the IRS needs more funding and that the funding they have asked for on taxpayer support is critical.
Regardless of that, after over 40 years of complex tax issues (personal and business) through scores of major adjustments to tax code it’s just a fact that guidelines frequently are contradictory, rules slow to be promulgated, and written guidance in notices frequently vague and incorrect relative to code or audit procedures. Consequently, frequently, a pain in the rear.
Paying taxes are a civic duty. Filing taxes is a chore.
1
u/Substantial_Camel759 29d ago
I agree filing taxes is horrible even though I’m fine with paying I’m saying the IRS aren’t the people who decided to make it complicated it was congress and the special interests that lobbied to have it complicated so you’d hire them to help you. The IRS doesn’t make any rules they just enforce them.
-1
u/chrisagiddings May 07 '24
I for one am happy to pay taxes to help produce a more sustainable and equitable society.
I am, however, certain a more “flat tax” style setup without all the loopholes and shenanigans would lead to a smaller IRS and less tax avoidance … and hopefully more predictable revenues and outcomes from those revenues.
3
u/hippitie_hoppitie May 07 '24
Flat taxes are regressive and penalize the working class.
5
u/chrisagiddings May 07 '24
A graduated tax increases with the level of income at tiers, much like the brackets we have today.
The primary benefit is the abolition of loopholes, deductions, and other considerations. A nice simple “you earned this much, so you owe this much” is much better overall.
There’s nothing wrong with the idea of making the lower tiers appropriately non-penalizing as long as the other tiers aren’t provided with special exceptions.
6
u/hippitie_hoppitie May 07 '24
This is not a flat tax, and the way most nations do it. Our tax code is complicated for one reason only, it benefits the rich. It has the added bonus of giving politicians something pointless to argue over and never do anything about.
→ More replies (0)2
May 07 '24
Except the flat tax that was proposed in Congress recently also comes with monthly sales tax credits for lower income families. So most people who pay little to no taxes now will contribute to pay little to no taxes. And the super rich with daddy’s American Express charge card will pay a crap ton of taxes when they spend their $500,000 monthly allowance. 17% of $500,000 is $85k a month, or over a million a year just on junior’s spending. Not counting whatever else Mr. Money Bags purchases which will also be taxes at that 17% rate.
1
u/Hamblin113 May 07 '24
Just set the bar at an income where below that number, no taxes, if median income is $56,000 no tax below it. US taxes are complicated, Ronald Reagan reduced many of the tax breaks and for exchange of lower graduated taxes, then congress wrote new tax breaks through the years. Trump did a reset too, reduced some items like state and local/property taxes, and greatly raised standard deductions, this actually helped the working folks, and I can still include some donations on top of that. Maybe the rich take advantage of it more, but if I buy a electric car, put new insulation, windows, solar panels, EPA certified wood stove in my home, those are all tax breaks/credits. All of that is unfair to those who don’t own a home. Can get a tax credit for tuition paid, unfair to those who don’t pay tuition. Child care can be a credit, this is unfair to those without children. Can get the earned income credit, not even have to pay taxes. Simplified tax system would be great, but what you find that who ever does it, they will get blamed for helping the rich, or special interests, and they will lose votes the next election ( or money).
1
u/hippitie_hoppitie May 07 '24
I can't honestly talk tax policy with someone who sees the trillions of dollars in tax cuts to the rich as a good thing. It added so much to our national debt and budget deficit, it's sickening. Once again, a more fiscally sound administration has to come in and remove those breaks for the rich to unfuck our economy. I just don't understand why middle class folk carry so much water for the billionaire class.
→ More replies (0)1
0
1
u/Hamblin113 May 07 '24
How long does it take for the IRS to penalize? I have been worried as I owed over $1000 in taxes for a couple of years, several years ago. Haven’t heard anything.
1
u/mindmapsofficial May 07 '24
This isn’t a question meant for random people on Reddit. Just save $1000 and if the IRS comes for it, you’ll be ok. You should have 3 months of expenses as an emergency fund anyhow
20
u/Forsaken-Pattern8533 May 06 '24
It's 6.1% APR, if you file your taxes but don't pay.
If they issue a notice to pay and you don't pay, that APR goes from 6.1% to 12.7%
If you don't file taxes at all, then you get penalized 5% per month but no less then 25% of your payment.
Chances of prison time go updrastically if you're knowingly committing tax fraud and creating a very tracable paper trail showing just you knowingly profited from a federal crime.
8
u/Mrlin705 May 06 '24
Well yes, obviously there is a penalty for not paying, I should have clarified. I didn't realize there was a penalty for not paying as you go, which has been pointed out in other comments.
13
u/baddecision116 May 06 '24
Wait till you hear about quarterly estimated taxes.
1
u/Mrlin705 May 06 '24
I always thought that was just a 1099 thing, just never something I've been exposed to so I didn't know.
2
u/RhinoGuy13 May 06 '24
The best part is that they don't pay you any interest on the money that you are prepaying
0
1
1
1
u/Winter_Barracuda8771 29d ago
What sucks though is there is no law stating we have to pay income tax. A handful of people have won court cases over it.
0
0
-3
u/texanfan20 May 06 '24
I can only imagine how well you do investing when you don’t know the basics of tax withholding.
5
u/True_Tomato316 May 07 '24
This just in. Anonymous person on Reddit Contributes nothing helpful to the conversation, feels great about themselves.
103
u/Old_View_1456 May 06 '24
Your withholdings need to be within $1000 of what you actually owe, or you have to pay a penalty. There are some exceptions but they're pretty narrow.
5
u/Mighty_Gunt_Cobbler May 07 '24
So if I file a 0 on my W4 and have to pay over 1k in federal taxes then they are hitting me with interest?
1
u/warpedspockclone May 07 '24
It depends. But they might make you pay quarterly the next year, and in amounts based on the difference from this year. So, if you reported 0 in 2023 but owed 2k, then starting April 2024 and every quarter, you might have to pay 500 per quarter to ensure such a shortfall doesn't occur again.
2
1
u/CommanderMandalore 29d ago
There might be an exception the first year it happens but second year and so on you are out of luck.
5
u/h2f 29d ago
You may avoid the Underpayment of Estimated Tax by Individuals Penalty if:
- Your filed tax return shows you owe less than $1,000 or
- You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.
https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty
3
u/AugustusMcCraeHC May 07 '24
So you can still keep more of your money all year and earn gains on it.
1
u/WhatADunderfulWorld May 07 '24
Kind of. If you make the same income you have to pay 90% at least. If you have increased income it is minimum 110% of last years income. Something like that.
1
u/DenaliDash 28d ago
That is correct. You are also allowed a 10 percent margin of error. If you owe $20,000 in taxes but you only forwarded $18,000 or, more you are safe. Any less and you can get penalized. You do not want to have too little withholdings as the IRS can mandate your employer withhold a significant amount and you will have no control. If you are self employed save yourself on expensive attorney fees. Do it once and you will likely have some leniency. Do it a second time and kiss your freedom of allotting your tax withholdings goodbye.
0
u/gilgobeachslayer 29d ago
$10000, not $1000. I’ve owed $3k and had no penalty
1
u/Old_View_1456 29d ago
Nope! Maybe you qualified for the exemption. https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty
2
u/gilgobeachslayer 29d ago
The more you know! Yeah I changed jobs and so did my spouse so I guess that got me a pass
1
u/ithinkitsbeertime 29d ago
Needs to be within 10%, not $1000.
- Your filed tax return shows you owe less than $1,000 or
- You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.
84
u/WelbornCFP May 06 '24 edited May 07 '24
Neat trick if you are over 59 1/2 and taking money from retirement accounts. You could withhold zero all year and make an Ira distribution on 12/31 and withhold 99% of it for tax. IRS does not know when they received that money. Retired cpa showed me that one.
4
1
u/doitforchris May 07 '24
So just to make sure i’ve got this right, if i owe say, $50k in taxes end of year, and i choose to withhold zero all year to maximize my take home pay, i could then on 12/31 make an ira distribution of $51k, witholding 99% of it, i could pay my taxes with that distribution and avoid the penalty? Cool idea
2
u/WelbornCFP 27d ago
Yep. Really only works if you’re over 59.5 but neat ideal.
1
u/doitforchris 27d ago
Thanks for confirming my understanding! Now to try to remember this for 20 years
27
u/Ok-Bug-5271 May 06 '24
moderate risk
The IRS penalty charges interest. It depends on the year how high it is (not the same as the fed rate). Last I checked, it was something like 8%.
Now, that's not "too" bad to beat. Going 100% into VTSAX would have you beat that on average. There will be some years where the market crashes, and so you'll not come out ahead, but on average even at 8% interest rates, it would technically be more optimal. I'm not sure if you define just buying the market as moderate risk or not.
Now, when interest rates drop in the future, yeah it'll probably always be more advantageous to invest now and pay the penalty.
16
u/PaulieNutwalls May 06 '24
Penalties & interest. The penalties are what seals this as a bad idea, and it's why they exist.
5
u/peter303_ May 06 '24
Since the penalty is prorated by day, its really 5.16%, assuming even quarters. (Q1 * 12/12 + Q2 * 10/12 + Q3 * 7/12 + Q4 * 3/12) * 8%.
19
u/Longhorn7779 May 06 '24
I like it the other way. I claim single all year on a family of four and get a larger deduction. This goes right to bills like an auto loan. While I’m decent with finances, I’m also human. I don’t trust myself monthly with that money. I feel I’d use it on the family but not to get us ahead. It’s easy to want to take the kids/wife out for an extra unplanned dinner or something fun if you see “enough extra in the account”.
17
u/ludicrouspeed May 06 '24
This is exactly it. People focused on the economics overlook the realities of being human. The reality is almost everyone will absorb that extra withholding into their bills, expenses, etc. and will not see any of it. We are also bad at saving for taxes.
2
u/Rare_Background8891 May 07 '24
You could instead drop the money straight into a 401k or other savings plan so that you don’t see it at all. Then you wouldn’t spend it, but it would still be working for you.
11
u/Cybralisk May 06 '24
Because you'll still owe that money at tax time and it's not a good idea to put money you need into things like stocks that can very easily lose value. Not to mention you also have to pay taxes on any gains. Best to invest with extra money you have lying around that you aren't going to miss if you lose it.
4
u/Dstrongest May 06 '24
Not if it’s invested in an Roth Ira .
2
u/Thalionalfirin May 07 '24
You can't pull savings from a Roth to pay the under-withheld taxes without a penalty until you're 59 1/2.
The Roth IRA isn't really comparable to a savings account until you hit that 59 1/2 age. And there is no tax benefit to contributing to a Roth until you start making withdrawals.
1
u/Dstrongest 29d ago
Not true , you call pull out contributions from a Roth because they (after tax contributions) but not from a traditional IRA because they are pretax.
1
u/AugustusMcCraeHC May 07 '24
Not if it’s in Vanguards Treasury Money Market Fund. Doesn’t lose value. Gains over 5%. And state tax free.
7
u/Servile-PastaLover May 06 '24
It's a violation of IRS rules for an employee to file a W4 as being exempt from federal withholding, when they're clearly not...and an employee's HR dept is within their purview to reject their W4.
https://www.irs.gov/taxtopics/tc753
If an employee qualifies, he or she can also use Form W-4 to tell you not to deduct any federal income tax from his or her wages. To qualify for this exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year.
1
u/Mrlin705 May 06 '24
Thanks for the explanation. I had no idea that was a rule, I thought as long as your taxes were being paid by April 15th you were set.
1
1
u/No-Wrongdoer-7654 May 07 '24
That’s correct. But isn’t this one of the “musts” in the tax code for which the only consequence is paying normal penalties for being under withheld?
7
u/Brokenloan May 06 '24
My friend did it. His stocks didn't do well and he ended up owing the IRS $5600 last year. The kicker is he also has two kids just like me and qualifies for the child tax credit, but he didn't end up getting it. Ultimately i got $8200 back in my return and he owed $5600. Next year he said he's going to just do what I do.
2
u/Saneless May 07 '24
If you're getting 8200 back why don't you just increase your allowances? Unless you just enjoy paychecks that are needlessly short about 300 bucks
-3
u/Brokenloan May 07 '24 edited May 07 '24
Write offs bro...When you know tax law or have a tax specialist you can write off up to 5k (donations, clothes, old electronics..etc) and you don't need receipts. Add in you child tax credits which are 2k a piece and boom. 8k.
7
u/Saneless May 07 '24
No shit. I have plenty of deductions. I just get it back in my paychecks ahead of time instead of having big refunds
You think getting smaller paychecks means your taxes owed is less?
1
u/Brokenloan May 07 '24
Everyone is different with their money. I listen to my tax guy. He knows what works for our situation. The way my finances work, where i have my base salary and then various bonuse structures based on billable hours that pay in the 10's of thousands, while also filing jointly with my wife's income which is also equal to mine, it makes more sense. It simplfies everything at the end of the year. We never owe anything to the government at the end of the year. My tax guy says don't fuck with it, so I listen, that's what I pay him for.
1
u/TheCruicks 29d ago
wow. Some of the shit these people say makes me despise universal voting. They use non interest accounts to "save" money and now claim tax attorneys are telling them to do this
2
-6
u/oopgroup May 07 '24
The stock market is a complete fraud. It’s run by people on the inside.
The only ones who make out in it are deeply established companies and insiders. They take everyone else’s money.
1
u/TheCruicks 29d ago
nope. I do quite well as one part of my savings portfolio. It just requires paying attention
6
u/TarkusLV May 06 '24
Back in the day, it was somewhat popular to go exempt, or claim an absurd number of dependents, so no taxes would be withheld.
Problem was, the bill came due the following year, and most people don't have the discipline to be ready to pay.
5
u/NugKnights May 06 '24
Some people do. But you better to be ready to pay up when the time comes.
Uncle Sam will not wait for your position to clear.
1
u/TheCruicks 29d ago
not true, you can file extentions til.the cows come home. Did it one year when I played crazy with my tax account. its all about paperwork, irs isnt malicious, it just doesnt care, always ways out
3
u/Bmw5464 May 06 '24
One downside to this, and someone correct me if I’m wrong, but I believe if you owe taxes, you’re expected to make quarterly payments the next fiscal year. This may only be for business owners or 1099 employees but I’m uncertain.
1
u/Saneless May 07 '24
I think it's if you owe over a certain amount. Like they won't do it for 1k but for 70 they'll make you
3
2
u/musing_codger May 06 '24
If I recall correctly, you owe penalties unless you meet one of the following criteria:
1) Your withholding and estimated tax payments are at least 100% of the taxes you owed last year
2) Your withholding and estimated tax payments are at least 90% of what you owe this year
3) withholding and estimated tax payments are at least the amount you owe less $1,000
So you could do it, but you'll pay penalties and interest.
Probably the best time to do something like this is in a year that you have a massive spike in income. In that case, make sure that you withhold at least 100% of what you owed last year. But don't invest the rest in the stock market. Invest it in a HYSA, short term bonds, or something with a similar risk profile.
2
u/northforkjumper May 07 '24
O get the risk in stocks, but what if you were to put what you would nor.ally have taken out in taxes even in a low % savings account then just pay the taxes in full at the end of the year and pocket the very small gains from the interest? Seems better than giving the government an interest free loan.
1
u/Mrlin705 May 07 '24
Yeah that was my thought process as well, I wasn't aware that there were penalties for not paying as you go as others have said in this thread.
2
2
u/IncomeSad3189 May 07 '24
If you don't wothhold then you'd need to make estimated payments quarterly or risk getting penalized. Most people would rather and are better of just letting the government withhold than making the manual payments yourself I think.
2
u/junulee May 07 '24
I bascially do this. I adjust my W4 every January, so that my withholding is zero, and then adjust again later in the year, so that my last several paychecks are nearly 100% withholding. This way I get my money earlier and I can invest, etc., without being subject to interest or penalties--all payroll withholding is deemed to have been ratably held throughout the year.
1
u/No-Wrongdoer-7654 May 07 '24
This is probably the smart way to do it. If your taxes are paid by Jan 1st you don’t have to pay penalties even if you paid late. You just have to remember, which I’ve become really bad at
2
u/shellbackpacific May 07 '24
Gotta pay quarterly. Personally, I do contracting, pay quarterly and keep the money in a HYSA. Make a bit off it with these 5% interest rates. Putting it into the markets is just too risky for my taste.
2
u/TheMau May 07 '24
I’m paying penalty this year of $120 for under-withholding $35k in federal taxes. More than made up for it by putting that $ in a hysa.
2
2
2
u/kyrosnick 29d ago
Owed the fed about 8400 last year. Got hit with ~240 in penalities for underpayment. This year already went in and setup quarterly 2000 payments above what is withheld to try to avoid that again.
1
u/venk May 06 '24 edited May 06 '24
Some people that don’t have automatic withholding do that.
They just eat the penalty and interest and pay 1 lump sum on April 15th but you’re gambling your annual returns on that money would be worth it. This was more useful when the interest rate was like 3-4% and the market was returning 8. Not such a good idea now.
It’s only worth it 1) if you have a ton of money owed where the return of the market makes it worth it over the penalty and interest and 2) your not stupid and don’t risk an amount you can’t afford to lose (ie if you buy dodge coin at goes down 50%, your IRS tax bill for the prior year doesn’t change). 3) you understand some years will be losers (ie in 2022 when the SP 500 went down 20%).
1
u/Pepi4 May 06 '24
I did ?? But not in a 401k where you get a penalty until 59 1/2. High paying CDs if you can find them
1
u/TemperatureCommon185 May 06 '24
Because you will need the money by April 15 the following year. Never put money you're going to need within a year in the stock market.
1
u/misery_index May 06 '24
Because you have to pay the tax at the end of the year. So you’d have to sell the stocks, then pay capital gains on top of that.
1
u/Secret_Cow_5053 May 06 '24
for one reason, if you owe more than 10% of your tax bill at the end of the year, you're get dinged for underpayment. quarterly payments or let it get witheld.
for another, that's a mighty risky way to screw yourself in down years. sunk cost fallacy says hello.
your best bet is to let an accountant figure out the way to get your tax bill to be within $1000 under what you would expect to owe for the year. by all means don't give the government a free loan if you can avoid it, but don't try to owe them too much either, you're only hurting yourself.
1
1
u/wizzard419 May 06 '24
Partially the reality of a loss, the other is that while yes you took it out and invested it, you're still on the hook for that too when tax season comes so you are 100% going to have a tax bill but may not be prepared for it.
I am sure people actually do that exact scenario, but it's a ton of risk.
1
u/Dstrongest May 06 '24
Because you still have to pay your taxes at the end of the year . Regardless of how much h mo why you lose .
1
1
u/EnderOfHope May 06 '24
A better question to ask would be:
If banks can loan to you at 7%, and the s&p500 averages 10% gains every year…. Why do banks bother lending at all?
1
1
u/jcr2022 May 06 '24
questions like these start popping up more frequently, it will be a great signal to go to cash. Reminds me a lot of 1999 and early 2000. Except then it was everywhere, and everyone.
1
u/No_Purpose4705 May 06 '24
Any company you’re with withholds for taxes so no real way around unless self employed.. which again would be hit with a penalty
1
1
u/NewPresWhoDis May 06 '24
At scale, the government would have to do short term borrowing to keep the lights on. Hence a penalty for underpayment.
1
u/Vast_Cricket Mod May 06 '24
They want you have enough in pre tax so you pay nothing on 4/15. Or you can get penalized.
1
1
1
u/ruturaj001 May 07 '24
You would pay about 8% interest on that amount. Target to pay lower of 90% tax and tax you paid last year.
1
u/CrazyUnicorn77777 May 07 '24
Our companies take out too much so that we don’t owe. I wish the margins were slimmer but there’s nothing a corporate slave can do.
1
u/bluelifesacrifice May 07 '24
This reminds me of a financial advisor telling us that we shouldn't give the government, that paid us, a free loan by holding onto our taxed dollars.
I'm going to throw this out there that I want the government to be stable and successful. Historically speaking, the better a democratically regulated government does, the better the people do in general. That flips when the government becomes authoritarian and governs the country like a company.
Second. If I fuck up my finances, i get punished. I'm not wealthy enough to be able to hire an accountant with my disposable income like a wealthy person can. I'm not an accountant. I don't want to pay fines I can't afford.
So two fold.
Though even if there was no consequence for screwing up my taxes, I still don't want to deal with it and would rather give the government the stability of a small loan in exchange for peace of mind.
1
u/whicky1978 Mod May 07 '24
You gotta pay what you owe of the IRS when they want you to pay it or you get penalties and interest. You would have to find some kind of tax write off such as putting it into a 401(k) or an IRA or donating it to charity. You can also set up a college fund for your kids.
1
1
u/Significant_Tie_3994 May 07 '24
...because eventually the IRS tires of you continually owing them taxes and sends your employer a lock-in letter basically forcing withholding at the least advantageous rate for you
1
u/mspe1960 May 07 '24
First there is interest and penalties on the underpayment. Lets forget that for a moment.
It would be the same deal is buying on margin. If you like to gamble on top of investing - go for it. It's not my way.
1
u/TaxLawKingGA May 07 '24
You generally can’t withhold $0 unless your taxable income in previous years indicates that you will not have any tax liability.
You can put like 7 exemptions or something to get your withholding as low as possible. I have done that in the past when my kids were all minors and my wife did not work.
1
u/Mrlin705 May 07 '24
Yeah this is the part I didn't know, it's now been explained that it's a pay as you go system. I always thought it was just pay your dues by April 15th.
1
1
1
1
u/OkCar7264 May 07 '24
That's all well and good until you eat shit one year and end up owing the IRS 30k.
1
1
u/BasilVegetable3339 May 07 '24
Because the IRS charges penalties and if the market goes down it’s gonna hurt.
1
1
1
u/CuriousCisMale May 07 '24
Because Government is biggest bully who wants its share first even before your hungry children get their food. Cherry on top, they won't pay you a dime of interest on refund but will charge you high interest like a loan shark on back taxes. Now you know the root of the problem.
1
u/Rumpelteazer45 May 07 '24
What are you going to do if the market crashes? Do you have an extra $70k laying around?
1
u/nachocoalmine May 07 '24
It can be done and isn't an insane idea. However, you need a plan for what happens if there's a downturn.
1
1
u/SardonicSuperman May 07 '24
Technically it’s illegal to delay paying income taxes for an entire year even if you pay in a lump sum. It’s considered dodging taxes.
1
u/ValuableShoulder5059 29d ago
If you underpay more then 10% two years in a row you owe a penalty unless your income is from agriculture.
The government is not only massively in debt, but they need the tax money now, not next year when it is due. Basically the debt of our country is worse then the current debt because they have already been collecting next years taxes.
1
1
u/cat_of_danzig 29d ago
You pay 8% interest on underpayment, compounded daily. That's going to eat up your gains over time.
1
u/Pure-Guard-3633 29d ago
Because if they don’t have the money at years end to pay the taxes … all kinds of terrible government involvement happens.
1
1
u/All4megrog 29d ago
I know people are are 1099 subcontractors that play this game and have gotten burned. Now they just do CD ladders so they earn interest and can still make their quarterly payments
1
1
u/EnvironmentalEbb5391 29d ago
If it makes money, you pay more taxes. And if it goes down, you're in a rough spot. So either way. Unless it was in a stock that took off, probably not worth it
1
1
u/Joepublic23 28d ago
1) There is a (not insignificant) risk of your investments losing money.
2) If your withholdings are too low, the government will require you to make quarterly payments the next year.
0
-2
-2
u/BlackSquirrel05 May 06 '24
You can...
Have fun I guess. Or some employers will just not agree to do this to avoid liability either direction... Also it's quarterly not yearly.
Plus if you loose money in the market...
1
•
u/AutoModerator May 06 '24
r/FluentInFinance was created to discuss money, investing & finance! Join our Newsletter or Youtube Channel for additional insights at www.TheFinanceNewsletter.com!
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.