It’s always great to get a tax refund, especially if you have particular financial needs to address. If it turns out this year’s return is “extra” money, think of a good way to invest it and make it pay dividends down the line. Tax laws and deductions are continually changing, so to ensure you get the largest refund possible, use a professional agency like Citrine Accounting and Taxes.
Start a College Fund
According to Schwab Moneywise, if you have young kids, putting a chunk of money into a college savings plan can help you start to save for what can be a pricey education. In addition to adding to it yourself, you might encourage other family members to donate at gift-giving time. There are a number of different ways to establish something like this, so talk to your investment advisor or your local bank about options.
Create a Rainy Day Fund
We live in uncertain economic times, and setting aside emergency funds can give you peace of mind. Bankrate suggests individuals set aside the equivalent of three-to-six months of living expenses when possible. If someone in your family has a medical emergency, a car breaks down, or a job is lost, having a financial cushion can be a lifesaver.
Establish a Down Payment Fund
Consider setting aside your tax refund for a future down payment on a home. Keep in mind that it’s not always required that you put down 20 percent for a down payment. There are many loan programs available that require down payments of less than 20 percent, but know that your monthly mortgage payments will be higher the less you put down.
Start a Business
If you’ve always dreamed of starting your own business, invest in yourself with your tax refund and use it to pay for business startup costs. Begin with creating a detailed business plan that outlines your operations, your competition, your marketing strategy, and your budget. You’ll then want to secure a business license and determine the appropriate business structure. If you need help, review this great how to guide on starting a business.
Pay Down Debt
If you have revolving debt in the form of credit cards, using your tax return to pay them down – or off – can be a smart move. In addition to reducing what you’re paying in interest and monthly payments, your reduced debt-to-income ratio will improve your credit score. This, in turn, will position you for better interest rates on things like a mortgage and a car loan.
Take a Trip
Many people find value in buying “experiences” rather than “things,” so consider using your tax refund for a memorable travel adventure. Maybe you go on a solo journey or you take the whole family to a destination resort. Even renting an RV and traveling the country can be fun, and will allow you to stretch your budget. Do some advanced research to ensure you’re getting the best deals.
Make a Big Ticket Purchase
If you’re financially stable and your tax refund is indeed “extra” money, you might think about some large luxury or non-essential things you’ve been wanting to buy and treat yourself. Maybe it’s a big-screen TV, a hot tub, or a piece of artwork. Using your money in this way allows you to invest in something you’ll enjoy, and you’ll be able to pay cash instead of running up a credit card bill.
Donate to Charity
Tax refunds are great cash “bonuses,” and since they only come once a year, if at all, they should be used wisely. If you don’t have any needs, consider a donation to your favorite charitable cause – it will help reduce your tax burden in future years!
If you’re sitting on a tax refund, there are many ways to spend it. Whether you’re starting a business, saving up for a down payment, or taking a vacation, carefully consider which needs you can address.