I am software development consultant acting as a sole trader (self employed). My main expenses are ultimately paying my self and some hosting.

Every time I have an invoice paid I put a percentage into an account to later pay tax from.

This all works well enough. However I have lots of money sitting in an account for most of the year, not generating much interest.

Is there something better I could be doing with my tax savings?

With the caveat that losing (too much), if an investment goes sour, would be bad; as the tax office has nasty penalties.

Ideas I have had:

  1. Term deposit/CD (maturing at tax time)
  2. Invest in stock market with a savings buffer
  3. Invest in stock market with some form of derivative, to hedge downward movements
  4. Vegas! (Not really 😜)

*Any suggestion will be passed by an accountant, yada yada.

**Although this question used a scenario about tax on income, it equally applies to other large personal tax bills (Property tax etc)

  • Is this incorporated and paying business taxes? Or are you talking personal income taxes.
    – Joe
    Dec 22, 2016 at 19:49
  • 2
    I'm voting to close this question as off-topic because its more about running a business and less of personal finance
    – Dheer
    Dec 23, 2016 at 3:32
  • @dheer Personalised Dec 23, 2016 at 3:59

2 Answers 2


You'd want the money to be "liquid" and ready for you to use when tax time comes around. You also don't want to lose "principal", i.e. if you put it into stocks and have the value of what you put in be less than what you invested—which is possible—when you need the money, again, at tax time. That doesn't leave you with many good choices or an amazingly good way to profit from investing your savings that you put aside for taxes.

CDs are steady but will not give you much interest and they have a definite deposit timeframe 6 months, 1 yr, 2 yrs and you can't touch it. So, the only reasonable choice you have left is an interest bearing checking or savings account with up to 1% interest (APR)—as of this writing Ally Bank offers 1% interest in an online interest savings acct.—which will give you some extra money on your deposits. This is what I do.

  • What do you mean by a CD? Dec 23, 2016 at 2:30
  • 1
    It stands for "Certificate of Deposit". It is a bank instrument where you invest money for a fixed amount of time with a guaranteed return. However, your money is locked in during the time period.
    – JohnFx
    Dec 23, 2016 at 6:35
  • 1
    The money doesn't necessarily need to be liquid in the interim, though. The day when you will need the money is known well in advance; any investment that simply becomes liquid before that date could be a candidate. This goes well with the suggestion to use certificates of deposit; just pick one that matures before tax day.
    – user
    Dec 24, 2016 at 20:32

If you have a mortgage, making part of it a mortgage-backed overdraft (ANZ call theirs a Flexi loan) is worth looking at.

I'm in a similar situation, consulting since 2010. I pay GST and provisional tax every six months. If I've budgeted right, the balance on the mortgage-backed overdraft loan goes to zero right before I send the massive payment to the tax department in May and October.

One problem is that some banks don't like to give these accounts to sole traders. Using a mortgage broker may help get around that restriction.

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