I had a really good season fixing lawn mowers this year. As a result, I will have a pretty hefty tax bill come April.

I am ashamed to say the I did not save enough to pay this tax. I went on vacation, bought a couple of used Benzes, etc. --basically had a good time.

I am pondering a couple of ways to deal with this.

1. Fund the my SEP (simplified employee pension for the business) to the max. The max for my plan is $11,500. If I do this, it lowers my net income and the resulting tax becomes manageable. I do not have $11,500 lying around. I am thinking of borrowing it from my local bank (personal loan) and putting up collateral (common stock) and the rate is only 5% simple interest. It will take me a year to pay it back and pay around $500 in interest. If I do this, I will not have to pay about $4000 in federal taxes.

2. Just pay the tax. As stated above, I will owe about $4000 in federal taxes. I will have to sell stock or find another way to pay it.

When I called the local banker yesterday, he acted like he has never seen this done before (borrow to fund a retirement plan or borrow to lower a tax bill). So am I crazy for wanting a small tax bill but going into hock for it for a year?

__________________
Ben
1987 190d 2.5Turbo

It sounds like you have thought it through pretty well. If you have trouble paying the loan for some reason you can sell the stock, right?

But I am not an accountant.

I have stayed in a Holiday Inn Express recently though!

__________________
[SIGPIC] Diesel loving autocrossing grandpa Architect. 08 Dodge 3/4 ton with Cummins & six speed; I have had about 35 benzes. I have a 39 Studebaker Coupe Express pickup in which I have had installed a 617 turbo and a five speed manual.[SIGPIC]

..I also have a 427 Cobra replica with an aluminum chassis.

Note if you sell stock shares, you will have capital gains tax to pay. I would avoid taking out a loan. Sell some stock now (they are up, right?) to fund your SEP, then sell some more next year when taxes are due.

__________________
1985 380SE Blue/Blue - 230,000 miles
2012 Subaru Forester 5-speed
2005 Toyota Sienna
2004 Chrysler Sebring convertible
1999 Toyota Tacoma

Did you ever play one on T.V.?

__________________
For the Saved, this world is the worst it will ever get.
For the unSaved, this world is the best it will ever get.

Clk's Ebay Stuff BUY SOMETHING NOW!!!

__________________
2001 SLK 320 six speed manual
2014 Porsche Cayenne six speed manual

Annoy a Liberal, Read the Constitution

Your age would be a big factor in this calculation. If you will get your money back in a few years before inflation can eat the value, could be a wise move. Gonna hurt for a year though. Then you have to figure paying the loan all year plus making quarterly payments to IRS so you don't owe a boat load next year. It's your cash flow. And your banker ain't too bright if he has never heard of such a thing.

It is a good idea no matter how you look at it. PROVIDED that you can afford the interest and pay the loan back.

1) The money in SEP is always yours. You would save $4000 in tax. Assuming $500 in interest. That means you fund your SEP with $7500. Total outlay $8000 and you end up with $11K. A 37+% return in one year. Where can you get that kind of reurn.

2) If you invest wisely then the $11K will be more when you retire.

3) Sell some loss making stock and fund it. Save some more in tax.

4) Sell some profitable stock NEXT year to pay back the loan.

5) Can you fund the SEP for this year on or before Tax time next year?

Investing in yourself in SEP, IRA, ROTH IRA is the best way to save tax - as long as you can afford it. It looks like that you can.

__________________
Not MBZ nor A/C trained professional but a die-hard DIY and green engineer. Use the info at your own peril. Picked up 2 Infractions because of disagreements. NOW reversed.

W124 Keyless remote, PM for details. http://www.peachparts.com/shopforum/mercedes-used-parts-sale-wanted/334620-fs-w124-chasis-keyless-remote-%2450-shipped.html

1 X 2006 CDI
1 x 87 300SDL
1 x 87 300D
1 x 87 300TDT wagon
1 x 83 300D
1 x 84 190D ( 5 sp ) - All R134 converted + keyless entry.

Pay the $4k this year and plan better next.

__________________
1999 SL500
1969 280SE
2023 Ram 1500
2007 Tiara 3200

I don't have much faith in the short term stock market, so I would cash out half, or the full funding amount of the SEP, which ever is less. As ah-kay said you do want to check if you can still fund the SEP early next year for this year to time the tax on your profits. Then just pay the federal piper. Don't reward yourself with a loan bail out for bad planning. Then instead of repaying a loan, rebuild your stock portfolio and SEP, buying into the dips.

__________________
1985 380SE Blue/Blue - 230,000 miles
2012 Subaru Forester 5-speed
2005 Toyota Sienna
2004 Chrysler Sebring convertible
1999 Toyota Tacoma

Donate something to charity and get a tax reduction?

Never rob Peter to pay Paul.

__________________
1992 W201 190E 1.8 171,000 km - Daily driver
1981 W123 300D ~ 100,000 miles / 160,000 km - project car stripped to the bone
1965 Land Rover Series 2a Station Wagon CIS recovery therapy!
1961 Volvo PV544 Bare metal rat rod-ish thing

I'm here to chat about cars and to help others - I'm not here "to always be right" like an internet warrior



Don't leave that there - I'll take it to bits!

It's a shame you kept such good records...

Wait, did I just say that out loud?

__________________

1980 300TD-China Blue/Blue MBTex-2nd Owner, 107K (Alt Blau) OBK #15
'06 Chevy Tahoe Z71 (for the wife & 4 kids, current mule) '03 Honda Odyssey (son #1's ride, reluctantly) '99 GMC Suburban (255K+ miles, semi-retired mule) 21' SeaRay Seville (summer escape pod)