Tax season is almost over and the IRS has just announced that it plans to issue refunds about as quickly as it did last year, when 9 out of 10 refunds were released in under 21 days. This means that now is the time to start considering what you’re going to do with your tax refund.
While the promise of a big check from the government always comes with some temptations (a new grill for the summer, a gift you missed out on over the holiday season) you should always make sure you’re investing that money wisely. While it may seem like a gift, and an easily spent one at that, remember that it’s mostly money from your other sources of income that you were never able to collect on.
Your tax return should be treated like any other money put away, safe from withdrawals for a long period of time; take your excitement at getting such a big break in the mail as incentive to be smart and save. Here are a few tips to get you thinking about putting some of your tax refund to work.
Save it! Invest it!
The importance of either putting some of your return into a savings account or investing it cannot be stressed enough. A good rule of thumb, at the bare minimum, is to take ~10% of every check you get and put it into a savings account or towards your investments. Before you know it, you’ll have a tax return a few times over waiting for you whenever you need it that can be used anytime throughout the year.
It’s too much and you don’t know what to do with it!
If it seems like you’re getting too much back on your tax return, get in touch with either a tax preparation specialist or financial advisor. In this case, you can see if there are any changes you can make to your tax documentation in order to get more of that money throughout the year instead of the one big chunk annually. Chances are if you haven’t already done so, you could be seeing a slight rise everywhere else and a reduction in your tax return check.
Alongside the 10% rule for saving/investing, it’s also a good idea to look at doing something long-term with some of the money, namely, putting some of it towards an IRA or other form of guaranteed retirement income (ask your financial advisor about the options available to you). Nothing is more valuable to someone right now than an investment in future stability. Consider asking your advisor, while you’re trying to shrink your tax refund, about recommended retirement investment opportunities.
While it may seem like something of a killjoy at first, making sure that the first thing you do with your tax return is putting some of it in a place that will give you access to it in the future is of utmost importance in tax season. Whether you’re saving, investing, putting it into a retirement fund or contributing to a child or grandchild’s education, just remember that it’s better if your short-term desires wait until your long-term stability is taken care of. Before you know it, they will have caught up to each-other, and you’ll have made some hefty gains in the meantime.