It’s good to be a taxpayer these days. Consider the convenience of filing your income tax return electronically. Consider, too, the speed at which you can access crucial information that allows you to save money. Think tax refund.
If you’re like most taxpayers (eight in ten people, according to the Internal Revenue Service), you can claim a tax refund. If you’re also like most people, you may see the refund as an opportunity to spend more. The need to spend is driven further as the holidays near, which is understandable.
Instead of losing money, though, why not use that refund so that it ends up making more money for you? Here are three ways to do it:
1. Spend the refund sensibly and look to the future.
You not only reduce income tax through tax planning, but you also identify ways to make your money work for your future. Planning your finances from a tax perspective allows you to save money through sharp investments.
The value of tax planning increases even further when you run a business because when you earn more, your taxes go up. Utah-based Sorenson & Company points out that strategic tax planning will diminish the impact of profits, allowing you to keep your revenue.
2. Pay off critical debts.
When you pay off credit card debt and student loans, you leave more room for savings. Unpaid high-interest debts, over time, work against your financial goals for the future. So take care of it now while you have that extra cash in your pocket.
3. Add to your emergency fund.
If you don’t have one, build one now. An unplanned major expense can do damage to your finances. From a stressful roof repair during winter to a devastating job loss with a family on the way, an emergency fund for life’s unpleasant surprises should cushion the blow to your wallet.
The average tax refund is $3,120, according to the IRS. Before you drive down to the mall with that much potential refund, think first about your financial future. Spend strategically. Pay debts. And build an emergency reserve.