Posted on 09/29/2023 5:17:56 AM PDT by Jonty30
I'm just curious for other opinions, who maybe are qualified than myself.
A young man gets his accounting certification as a certified public accountant. He gets a job, paying about $75,000/annum, in the IRS department. On weekends, he keeps books for clients, to which he makes about $30,000/annum. He has started an investment account, to which he will deposit as much as he can because he wants to transition living on the investment income and invest his other incomes into his investments.
I told him that it is probably best to have the government take 100% of his income, just to ensure his taxes are covered. Then, live on the weekend job as much as possible. As he gets money into the investment account, have the investment account pay out in March. As it increases, have the HR department subsequently lower how much he sends to the government each year until the time comes when he doesn't send any money to the government but cuts them a cheque in March to cover the tax owings.
Did I do well or is there something better that he could do?
He’s an Accountant.
Let HIM figure it out!..............
Um.. give 100% to the government to use, interest free?
What a dumb idea.
Where did ‘your friend’ learn accounting?
“I told him that it is probably best to have the government take 100% of his income, just to ensure his taxes are covered.”
Crazy suggestion
Only for the first year. Then cut back to zero as the investments start paying off. The idea is transition where you don’t send anything to the government, but pay everything from the investments as they grow.
We are in trouble when a CPA working for the IRS cannot figures out what he owes in taxes!
We are in trouble when a CPA working for the IRS cannot figures out what he owes in taxes!
It’s temporary.
When he gets his return in his second year, that money can be invested and the investment income the year after that can allow him to instruct the HR department to start reducing what he allows the government to take.
“He gets a job, paying about $75,000/annum, in the IRS department.”
Do you mean working for the IRS or working in the tax department of a private company?
The IRS.
I’m not an accountant, or financial adviser, or even very savvy with finances. However, between an interest free loan to the the gov’t and a >4% APY savings rate at most banks, I would take the savings rate.
His taxes on at most 105,000 dollars are not $75,000! Why make an interest free loan to Uncle Sam??
I can understand that, but my thought is to keep things simple. In a few years, if all goes well, he could cut the government out each pay period and just cut them a cheque come tax time because the investment covers that.
That’s how I’m looking at it.
He should put as much as he can into the TSP (federal equivalent of a 401k). This will reduce the amount of tax that he needs to pay now and the index fund options in the TSP are very good.
Thank you.
Second, let the IRS withhold the normal amount for his income there.
Third, file a quarterly return to cover the extra taxes that will accrue from his weekend work.
His investment of the extra money he makes are another matter altogether.
If he is new to investing in equities, I recommend starting with a benchmark ETF like SPY and then working to improve that return over the benchmark (such improvement is "alpha") by investing in things like QQQ. Once comfortable with QQQ, I recommend finding specific segments or individual stocks on QQQ (or elsewhere) that will outperform the QQQ ETF.
Real estate can be a good investment for tax purposes, but, if he is married, it is easy to let a home become a vanity item (as opposed to an investment).
if he works for the IRS, he’s part of the problem.
Most accountants are useless when it comes to business/financial decisions. All they know to do is follow the rules and fill in the forms.
Not very ‘creative’ are they?...............
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