9 Smart Ways to Use Your Tax Refund
If you are expecting a tax refund this year, give some thought as to how you can make the most of it. Save it? Use it to pay down debt? Here are some ideas.
1. Pump up your retirement savings.
Could your retirement savings use a boost? If so, consider directing all or part of your tax refund into your retirement savings for an instant boost. One way to do this is to deposit your refund into an IRA, a type of retirement account for individuals that offers certain tax advantages. (IRAs have limits on how much you can contribute per year so be sure to check how much you’ve contributed so far this year before depositing your tax refund.)
Or you could simply deposit your refund into a regular brokerage account earmarked for retirement. Either way, the money you invest has the potential to grow over time, perhaps to a sum far greater than the amount of your tax refund.
2. Save for a rainy day.
Unless you already have an amount equal to a few months’ worth of expenses stashed away for emergencies, consider adding your tax refund to your emergency fund. You’ll be glad you did if you ever lose your job or have a large, unexpected expense.
3. Pay off credit card debt.
If you are carrying balances on your credit cards, use your tax refund to help pay them off. The high interest rates charged by credit card companies can take a big bite out of your income, making it difficult for you to save for your goals. Consider paying off the card with the highest interest rate first.
4. Fund a college savings account.
If you have young children or grandchildren, contributing your tax refund to their college funds may be a smart move. Education savings accounts that allow tax-free earnings and withdrawals for qualified education expenses may help your contribution stretch further.
5. Have a will drawn up.
Although this may be the least exciting thing to do with your tax refund, it is an important thing to do, especially if you have young children. That’s because a will is where you name the person you want to act as legal guardian to your children if you should die while they are still young. Drawing up a will now can help ensure that your wishes are carries out later on.
6. Hit the road.
Rather than spending your tax refund on “stuff”, why not spend it on an experience that you will remember forever? As long as you are on track to your financial goals, consider using your refund for a long weekend away or some item on your bucket list.
7. Invest in yourself.
Your health and your ability to earn an income may be your greatest assets. Consider using your tax refund to improve the return on those assets by spending it on fitness activities, learning a new skill that can benefit your career, or funding a business you have dreamed of starting.
8. Find your financial direction.
If you are unsure of how to make the most of your tax refund, consider using a financial advisor who can help you prioritize your financial goals and create a financial plan designed to move you toward those goals.
Copper Leaf Financial, LLC is Davis & Hodgdon’s affiliated financial planning firm. Copper Leaf is a fee-only, registered investment advisor, serving clients nationwide from offices in Williston and Rutland, VT. We bring true wealth management to successful business owners, professionals and families seeking tax-aware, holistic, evidence-based planning and advice. Clients tell us they appreciate our broad experience, professional expertise and focus on their personal goals. Interested in finding out more? Call 802. 878-2731 or visit www.copperleaffinancial.com for more information.
9. Give to charity.
Receiving a tax refund presents an excellent opportunity to make a gift to a charitable cause you care about. Be sure to get a receipt for your charitable gift if you plan to claim a tax deduction for it.
TIP: If your tax refund is large, you may want to adjust your withholding. Reducing the amount of tax withheld from your paycheck allows you to put your money to work for you as soon as you earn it rather than waiting months for a tax refund.
To reduce your withholding, fill out a new Form W-4 for your employer.
Questions or need to plan a tax planning strategy session? Call our office in Williston 802.878.1963 or Rutland 802. 775-7132. Davis & Hodgdon Associates CPAs has been assisting individuals and business owners with tax consulting and strategizing for more than 25 years.