Many tax filers stress over completing the return on time and mailing it before incurring any penalty from the IRS, so they often do not consider all of the options available to smartly spend or save any refund. The Pennsylvania Institute of Certified Public Accountants (PICPA) offers a few suggestions that will allow you to enjoy your refund for years to come.
- Invest in something you enjoy. If you have an interesting hobby, such as collecting memorabilia, putting your refund toward your collection may significantly increase its value down the road.
- Make home improvements. Tired of old, drafty windows? Purchase energy-saving improvements and be rewarded with a lower energy bill and possible tax credits.
- Pay down high-interest debt. Breathe easier and pay off credit card debt or take a chunk out of a college loan.
If you receive a large refund, you may want to change your withholdings on your W-4 so you have more money in your paycheck instead of "loaning" it to the government. And if you haven't started saving for retirement, don't worry. It's never too late. You could use some or all of your refund to open up a retirement account. For more money management ideas, visit PICPA's consumer Web site.
The Illinois CPA Society published these additional tips for using a refund wisely:
- Pay-off Your Credit Cards. If you've only been paying the minimum on your charge card bills use the refund money to make larger payments or pay off the balance on a card with the highest interest rate.
- Build a Rainy Day Fund. Put aside even a portion of the refund for an emergency or a seasonal expense like holiday shopping. If you know you have a special event like a wedding or graduation, or a major purchase like a car or a home in your near future, the money can be the start of a special fund.
- Start an IRA. No matter your age, it's always a good idea to invest in your retirement. Consider opening or adding to a traditional or Roth IRA.
- Save for College. Use your refund to start or add to a 529 college savings plan or other savings programs.
This year there's also a tax rebate to look forward to, so it makes sense to weigh all your options for this new found money to make sure you make the best use of it. However, if the money is really burning a hole in your pocket, treat yourself to a splurge purchase with half the money and save the other half.
Visit the Consumer Section of the Illinois CPA Society site for more information and resources to help you take control of your money.