Even if you get a tax refund from Uncle Sam this year, you shouldn’t celebrate just yet. Aside from the fact that it was your money in the first place (not a friendly gift from the government), it may need to be adjusted before the next tax season begins.
If you’re taking too many deductions from your paycheck, you’re essentially lending money to the government for free. Even worse is losing time when your money could grow for you.does not mean A lump sum from the government doesn’t feel good. That being said, don’t get caught up in handling your refunds differently than your paycheck. Your money has value, and just like your salary, each dollar of reimbursement should be given a purpose.
According to the IRS, the average tax refund for 2022 was more than $3,039. If you’re one of those who got a tax refund this year, consider some ways to put that money to good use first before wasting your tax refund on vacations or another big-ticket item. please.
I have some suggestions on what to do with the tax refund.
1. Donate to emergency funds
Have you ever wondered what would happen if you were unexpectedly laid off from your job or faced with a large unexpected expense? We recommend that you consider withholding your refund.
We recommend an easily accessible “rainy day” cash for at least a few months. Although some financial experts say he needs a year of emergency cash from six months. However, how much you should save for an emergency depends greatly on your situation.
Read our full guide to emergency funding here.
2. Pay off debt
Worse than an unexpected emergency is the current emergency, also known as debt.
If you are one of the many Americans facing high interest debt, you should focus on cutting expenses and turning all your free dollars into debt. (we disagree, but you shouldn’t avoid paying off debt).
The logic behind this is that if you are already in debt and have run out of emergency funds, you have no financial option to borrow money. No, but it may be necessary in dire circumstances.
If You Have Student Loan Debt, It May Be Now no Now is the perfect time to pay them off (for all Covid-19 student loan programs).
3. Save more for retirement and other goals
If your finances are on track, you have a healthy emergency fund accumulated, and you have no debt, another option to consider for your tax refund is to invest it.
The average American doesn’t allocate enough money for retirement. Many financial advisors recommend investing 10% to 15% of his annual income by the time he retires, but given the time value of money, it’s clear that the sooner you invest, the better.
Even if your investment starts late, it’s never too late to close the gap. A $3,039 tax refund will definitely help you get closer to your goal. In fact, that amount will be half of what you can donate to the IRA this year.
4. Mortgage refinancing or home improvement
Mortgage interest rates are at an all-time low. If you are financially ready and ready to buy, there is no better time. If you already own a home, you can take advantage of these rates by refinancing and paying the surrender costs and fees with a refund. This will save you money immediately on interest payments.
If you’re really ambitious, you can keep paying the same monthly mortgage amount and reduce the principal you owe. Plus, if you have a big-ticket project you’ve been putting off, now might be the perfect time to cross it off your list. A home improvement project is a great way to add value to your home, and the benefits are usually immediate.
Related: The best places to refinance your mortgage online
5. Invest in taxable accounts
If you’ve already run out of tax-protected accounts, you’re definitely ahead of the curve and probably don’t need to hear this advice. is an excellent way to
These investments are fully taxable, so we encourage you to invest in low-cost investments and tax-efficient mutual funds and ETFs.
6. Donate to Charity
Depending on who you are, this might be number one on your list. A tax refund is your chance to donate to a charity of your choice.
Charitable donations may not be returned in the form of dividends or capital gains, but the profits generated by donations may be worth more than anything money can buy. can do.
7. Start your own business
If you have a business idea you’ve been putting off, a refund might be just what you need to get things back on track. This is a great way to see your return on investment and even small businesses can get tax credits.
If you’re not sure where to start, we’ve prepared a list of the 15 best online business ideas you can start at home right now.
Bonus: change withholding to avoid receiving refunds
An option you may not have considered is simply changing the withholding from your paycheck. That way you don’t get a refund, but rather you owe it. extra money You paid the IRS for the whole year. It’s your money!
Changing your payroll W4 withholding can help you receive more pay throughout the year. Then, at tax time, you will pay the outstanding balance. This is what most knowledgeable investors and wealthy people do. The IRS will never take extra money that belongs to you.
The only downside here is that you have to write a check to the IRS in April. If you don’t save money or have no money, you may be in trouble. So before you adjust your tax withholding, make sure you have a plan.
Regardless of the amount of the refund, even if you do receive it, it should be treated at the same value as any other dollar you earn.If nothing else, you should handle it like more valueare basically paid for their work throughout the year.
Whether a refund was expected or not, it should be used in the most favorable way wherever you are in life. Like all hard-earned money, it’s tempting to indulge yourself in the things you want, but investing in something to reach your goals is more rewarding than any item you can buy at the mall. Much better.
What other investment ideas do you have for tax refunds?