Federal and California income tax payments originally due between January 15, 2023, and September 15, 2023, are now due October 16, 2023, for taxpayers located in qualifying disaster areas. For more information, see our recent alert, Tax Deadline Extension Available for Disaster Areas in Certain States. Taxpayers can confirm the most up to date list of counties located in qualified disaster areas with the IRS and the California Franchise Tax Board to determine if they are eligible for a tax filing deadline extension.

For people holding cash earmarked for these tax payments, this puts renewed focus on the importance of understanding and navigating the risks and opportunities associated with cash management.

Tax payment deadline extensions have expanded the opportunities for qualifying California taxpayers to be more proactive about cash management. Rather than just holding onto cash, consider a six-month strategy to make the most of it. Learn more below about strategies to help protect and improve the return on your cash.

Cash Management Factors to Consider

Some factors to consider when it comes to managing your cash include interest rates, market and economic factors, and counterparty risk, in addition to the trade-off between risk and return.

Yields on Cash Investments

You can work toward structuring these cash reserves in a strategic manner that can drive additional income and potentially take advantage of opportunities to earn higher yields as interest rates have risen over the past year.

Financial assets have various risk-reward profiles. While cash carries minimal risk, it also has the lowest return potential. Depending on your risk tolerance, you can look to a variety of investments for greater income or appreciation potential.

Structuring cash reserves strategically often includes using various investments, such as money market funds, certificates of deposit, government and agency bonds, and corporate bonds, among others. These are some of your tools in this process.

No Investment is Truly Risk Free

Even cash holdings can involve risk. As always, consider the risk of the various investment vehicles along with the reward, as some cash-like investments, such as money market funds, are not insured or guaranteed by the FDIC or other government agency and have the potential to lose value.

Counterparty Risk Remains a Focus

As highlighted by the most recent banking failures, many individuals and corporate leaders charged with managing cash have been surprised by the risk that their bank could pose if that cash is frozen or lost in the event of a bank insolvency. Finding a secure place to custody your cash should be a priority.

The risks associated with bank accounts versus brokerage accounts is a key consideration when choosing where to hold cash reserves.

All financial institutions are responsible for the safekeeping of client assets. The specific protections depend on the type of account, by institution—and its respective regulatory agency—and by asset type.

For example, brokerage accounts have specific safeguards that prevent broker-dealer firms from using customer assets to finance their own proprietary business operations. This is designed to protect and segment customer assets from those used by the brokerage firm for their business. This shifts the risk from a bank to counterparty risk. For example, the counterparty risk is payment by the US Government when investing in Treasury securities.

We’re Here to Help

For more information on reviewing your cash management approach, contact your Moss Adams professional or send us a question below.