Every year a large percentage of people get tax returns. Some get a lot and some just get a little, but what you choose to do with your return may have a big impact over time. Different individuals have different plans for the return, including going on a shopping spree or buying something luxurious or even necessary for themselves or their family.
There are a few things to consider that will add to the value of your tax return. First, and perhaps most important, is to consider adjusting your tax withholding through your employer. You can add to your retirement or make an investment which will provide you with interest on the money throughout the year, something the IRS doesn’t provide.
In addition, you can use your tax money wisely by:
- Use all or part of your refund to pay off the balance on high-interest rate credit cards, and then avoid using the cards because they now have spending ability. You will literally be saving yourself the interest rate on the card times the balance and the time you would need to pay it off.
- Make a tax-deferred IRA contribution if you are not already contributing. This can be as much as $5,500 per person or $6,500 if you are over 50.
- Carefully review your insurance coverage based on your age and possible risk factors. You may also want to make any repairs on your home which may negatively impact your insurance coverage if you have to make a claim.
- Pre-pay for special events such as weddings, vacations or set aside cash for travel. This avoids having to carry a balance on your credit card, saving that interest amount.
- Make a charitable contribution which will be tax deductible if you are itemizing your expenses. You can also gift money to a family member for tax savings, just talk to your accountant.
You can also choose to start an investment or add to your current portfolio. Just be sure to understand which options actually end up saving you in taxes for your next tax year.