Best Ways to Use Your Tax Refund
For some, one of the main benefits of tax season is receiving a refund. In fact, some taxpayers eagerly wait for that bulk sum of money as soon as they’ve received the prior year’s refund! Basically, they are spending money that they don’t even have yet. Big mistake. While it is always good to plan when it comes to organizing finances, it is usually recommended to plan accordingly—when you actually have the cash on hand.
There are too many life circumstances involving tax filing that can alter the state of a tax refund, possibly even turning it to a payment. No one wants that! It is highly recommended to make sure your tax preparer has verified your refund with the IRS. THEN, you can start planning on how to spend that money. While it’s always good to treat yourself, it’s also advantageous to be smart with your finances and make it work for you, instead of spending it like there might be a hole in your pocket!
Understand Where Your Tax Refund Comes From
Your tax refund is money that you have already earned from the previous tax year. It is money that has been taken from your check. Sometimes, the government takes too much and gives it back to you once you have filed your taxes in April depending on any life changing events, credits, and standardized deductions that may apply.
What to Do With Your Money
Once the tax preparer or IRS has verified your tax refund amount, it is most helpful to start consider how you can spend this money rather than what can be bought with it. Here are some of the best ways that one might want to spend their tax refund:
- Save, Save, Save!
This might be the wisest thing to do. In these economic times, it is always best to have at least 2-3 months worth of income saved up. It is understood that not everyone is in the type of financial situation to do this. Yet, keeping something in your savings account is better than nothing, even if you are only able to save a little. Investing in an IRA is also a smart way to save.
- Use Your Federal Refund to Pay Your State Taxes, if You Owe
In most cases—not all, but most, one might receive a Federal tax refund but owe the state. If this applies to you, simply use your Federal refund to pay the state taxes. This way, it doesn’t seem like you are paying out of your pocket.
- Pay Your Tax Preparer
This is a bill that is often overlooked: Paying the tax preparer! Even if you decide to file your own taxes using a tax preparing software, there is always a fee. Count on it and plan for it. Often times, the tax preparer can arrange to deduct their fee from your refund. It is probably the best practice when filing.
- Pay Any Outstanding Credit Card Debts
Oh, this is a good one! If you have credit cards with a high balance or worse, agencies calling you to collect their money, use your tax refund as an opportunity to pay off any existing debt, or at the very least, reduce your credit balance. Credit agencies consider the credit limit as well as the balance amount when determining your credit score.
Success Tax Relief is a fully accredited nationwide tax defense firm. We have 30 years of experience collaborating with CPA’s, tax attorneys, financial analyst, case coordinators, tax preparers and consultants in order to provide you with the type of financial tax relief you need. Call us at 877-825-1179 to learn about other ways to make your tax refund work for you, or contact us online.