Are you getting a tax refund this year? Maximize your refund!
UPDATED – March 26, 2020: If you’re getting an income tax refund from the IRS this year, it’s time to start planning what you’re going to do with the money. Here’s an assortment of ideas, some practical and some just for fun, or what you might like to do with your windfall!
Paying Off Debt
First, you might consider putting a dent in your credit card debt. This will save you money in the long run, since your monthly interest charges will be decreased.
Second, you can prepay your mortgage. Even if it’s just one extra month paid, it’s a positive step in paying off the principal faster, and can also help you to save on interest payments over the long run.
Third, why not apply it to paying off student loans, especially private student loans? Private loans usually have higher interest rates. Fourth, pay off some or even all of your car loan. Just make sure that your payment is going toward the principal.
Saving or Investing
Your IRS windfall could go into an IRA (Individual Retirement Account)
You can get tax breaks now with a traditional IRA, or tax breaks when you’re retired from a Roth IRA. You could contribute to a 529 plan, or qualified tuition plan, which will help to pay for future college costs.
Buy some CDs (not music, but Certificates of Deposits).
Start a CD ladder, where you invest the same amount of money in short-term, medium-term, and long-term CDS, which will then mature at different times. Put that money into a high yield savings account, which will earn you better interest.
Start building up some emergency savings.
It’s just common sense to sock away 6 to 8 months of emergency savings if you can. Invest a small amount in stocks. There are online trading accounts like TradeKing or Sharebuilder that aren’t that expensive to start up.
Now, For the Fun Stuff
There’s a million ways to have fun with some extra money, and this list starts off with the suggestion to plan a vacation.
First, bon voyage!
Whether it’s traveling somewhere fun, either with your family or alone, will give you memories that can last for a lifetime.
Second, finally check off one of your bucket list items.
think back on something that you’ve wanted to do your whole life, but could never afford. Perhaps that tax return could help you to fulfill something on your bucket list.
Third, invest in a new hobby.
Buy a sax or a keyboard, and learn how to play it. New outdoor hobbies could include buying a kayak, surfboard, or even a metal detector. You could invest in a 3D printer, a tablet, or a fancy new camera.
Fourth, why not upgrade your wardrobe?
Buy something a little expensive, and see if your boss or your coworkers start to treat you differently.
Fifth, use the money to spruce up your home.
Upgrade your appliances, buy some new furniture, or simply paint and renovate. You might be able to get some tax breaks if you do certain renovations to your home; plus, you’ll be increasing the value of your home if you’d ever like to sell it.
If You’re Not Getting a Return This Year
If you’re not one of the people that are getting a tax return this year, what can you do in order to get a return next year?
First, make sure to donate to charities or favorite organizations before December 31, so you will qualify for any tax credits or deductions.
Second, look into claiming tax deductions for travel or using your car for medical purposes, business purposes, or charity. If your medical expenses add up to over 7.5% of your wages, you might be able to deduct them.
Third, homeowners can get tax deductions for real estate taxes, setting up a home office, or by installing certain home improvements that are energy-efficient.
Fourth, there are even some lesser known tax credits for gambling losses! Whatever your personal situation might be, enjoy your tax return this year, and put that money to good use!