Stay updated on all areas of tax filings and business processes affected by COVID-19Learn more
The best way to use your tax refund! SAVE
If you are receiving a tax refund this year, it can be tempting to buy items that are a bit more exciting than simply padding your savings account. However, as your rational brain will tell you, using your refund in one of the following ways can make a big difference in reaching your long-term goals:
Pay off debt.
The smartest use of a tax refund is to eliminate (or at least reduce) high-interest debt such as credit cards and other loans. You’ll not only feel less burdened by the debt, but you’ll be saving money in the long run by paying less interest.
Top up your emergency fund.
A tax refund is nothing more than a return of the tax money you set aside all year. So, don’t treat it like a windfall, but rather as your own hard-earned dollars. If you don’t have an emergency fund already, it’s the perfect time to create one and use your refund to start it. Such a fund will come in handy when any financial surprises hit, such as healthcare bills, car repairs or broken appliances.
Rev up your retirement savings.
Your future self will be forever grateful if you forgo short-term gratification for long-term savings in a qualified retirement account. You can also reduce your taxable income when you do (be sure to check with our firm for contribution limits). Even if your refund is just a few hundred dollars, the power of compound interest will help you grow your money without any additional effort.
Maximize contributions to education accounts or put it toward other long-term goals.
Consider adding your tax refund to any education accounts you have set up for your children or grandchildren. Each state has its own rules for education savings accounts, so be sure to check those out before determining how you want to proceed. Also, consider your long-term goals. For example, you could tuck your refund away for a down payment on a new car or house. You may even want to use it to fund a new business or expand an existing one.
Whatever choices you make about your tax refund, take the needed time to plan. Our firm can help you review your financial situation and your tax obligations to make sure you are making the most of your refund and minimizing any tax burden.