It’s always nice to get that early Christmas present from the IRS, your federal income tax refund. Whether you’ve got it earmarked for an awesome summer vacation or plan to sock it away, it always seems like “found” money. The fact that you’ve earned every cent of it makes it all the more important to be smart with your refund, whatever you plan to do with it. Courtesy of Summit Tax Solutions, here are a few tips:
For a rainy day
Ideally, everyone should have a minimum of three to six months worth of living expenses in case of job loss, illness or injury. Unfortunately, many people don’t have anywhere near that much set aside. If you lack a rainy day fund, a hefty tax refund can provide peace of mind and the beginnings of a nice safety net. If a savings account isn’t your style, you can always see if a money market account will feather your nest egg a bit better, or do some stock investing and put the money to work.
Major home repairs
An emergency home repair can be a catastrophic financial hit for your family. A new HVAC system or roof can cost thousands of dollars - and those unprepared for the shock may have no option but to finance repairs and take on a loan. Seen in that light, a home repair emergency fund becomes an attractive option and a smart use for your refund.
On the other hand, if you've got a major home repair you've been putting off, now is the time to use your refund. For example, if your roof has been questionable as far as age or if you've been having problems with leaking or shingles, this "found money" can help pay for or supplement the cost of necessary repairs. Not only does this ensure you're protecting your house, but it can be a major selling point when the time comes to put your home on the market.
New car
If you’ve been putting off getting a new car due to low trade-in value and no downpayment, a tax refund is a perfect solution for helping you upgrade your vehicle. And with agencies like MyAutoLoan, you can quickly and easily tap into a new car loan with a great interest rate.
Debt relief
According to the Federal Reserve, the average American household has $137,000 in debt. A single year’s tax refund wouldn’t put much of a dent in that amount, but you may be in a position to make real progress with a tax refund. If that’s the case, paying down your high-interest debt can be a smart move. Or you could make paying off debt a yearly habit and move gradually toward a debt-free life.
Save for college
According to a report in Money magazine, Americans should plan on spending $57,000 to send a child to college. That’s a gargantuan sum for many people, and it’s only expected to increase in the coming years. If you’re behind on saving for your child’s college education, a tax refund can be a nice way to give the college fund a kick-start. Consider investing the money in a 529 plan and you may be eligible for a state income tax deduction.
Savings bonds
If you’re looking for tax-deferred growth, a U.S. Savings Bonds could be a good option for your tax refund. They won’t lose value if interest rates go up (like with a treasury bond), and if used for education costs, savings bonds may be tax-free. You can buy bonds for as little as $25 - they’re exempt from state and local taxes, and you don’t have to pay federal taxes on a bond until it’s been cashed. However, it’s probably not a good move if you’re looking for quick access to emergency funds since bonds can’t be cashed for the first 12 months. (You’ll pay penalties if savings bonds are redeemed within the first 5 years of purchase.)
There are many ways to make a tax refund pay dividends. If you’re determined to use yours as a financial tool, it’s an opportunity to make a new start, whether it’s for home repairs, a new college fund or a profitable investment. Or, if the time is right, splurge on that bathroom update or take the cruise you’ve been eyeing - it’s your money!
Need help preparing your taxes? Summit Tax Solutions can help. Call 435-214-0123 to learn more about their services.
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