The hectic holiday season has come to a close, and the beginning of the New Year has finally begun. With many major celebrations over for the year, most consumers find themselves resolved to approach their lives differently. From mental and physical health to personal financial wellbeing, the time to begin living differently starts with strong, decisive action. On April 15th, taxpayers will have a chance to do just that. Receiving a tax refund is an experience that many filers look forward to every year. With refunds averaging about $2,781, the boost of wealth that accompanies a yearly tax return is enough to set a sure course towards financial freedom.
What Is A Tax Refund?
In the most concise terms, a tax refund is an official remittance of excess paid income tax from the IRS to the taxpayer. This includes taxes paid to both the State and Federal Governments and is often removed from a taxpayer’s income through withholding a certain percentage or specified sum from a paycheck. Tax refunds are returned to consumers through a check, a U.S. Savings Bond, or a direct deposit to a personal bank account. The amount of the refund can be higher or lower according to base income, marital status, and refundable tax credits or deductions of filer. Tax refunds are typically received 21 days after submitting the yearly income tax forms, no later than April 15th (or Tax Day, as it is commonly called). This is an annual occurrence that millions of Americans count on every year.
4 Ways To Answer “What To Do With A Tax Refund?”
Tax refunds offer consumers many ways to use their hard-earned money. However, deciding what to do with a tax refund can sometimes pose an intricate or difficult question. No matter how much money you plan to receive from your tax refund, ensure that it performs exactly the way you want by choosing from four categories.
1. Save It
As the old saying goes, sometimes it is best to pay yourself first. Placing your tax refund in a high-interest Share Savings Account is an excellent way to instantaneously create an emergency fund that covers high-cost expenses in the near future. Saving your tax refund for birthday trips, holiday gifts, weddings, vacations, and other known events helps to reduce impending stress and create expectations for the road ahead. Not sure where or how you want to save your tax refund? Check out current Deposit Rates here.
2. Use It
Tax refunds are sometimes used best when spent towards a need or want that will increase the quality of your life. A need, including vital repairs, medical procedures, or household bills, should be given the highest priority, whereas wants should only be considered if there are no pressing needs. Using your tax refund to reduce personal debt is an excellent use of your annual remittance. Lowering debt can help to decrease your interest rates, raise your credit score, and ultimately increase the reach of your salary towards your financial goals. If there are no pressing needs or significant personal debts, consider spending the money on a quality of life item. Examples of these include a vacation, a new vehicle, or a shopping spree.
3. Invest It
The best way to reach financial success is to invest your money in various stocks, savings bonds, and personal retirement accounts. The spread of particular accounts you choose to invest in should reflect your personal financial goals, as well as the risk tolerance of the investor. If you are not already contributing to a Roth IRA or a Traditional Retirement Account, you should consider investing the majority of your refund towards your future. Retirement is a financial number and not an age, especially in today’s rapidly changing world. The money you invest now can grow to enormous proportions if curated effectively. In fact, investing the average tax return amount of $2,781 in an Individual Retirement Account can grow to $325,081 between the ages of 30 and 65.
4. Donate It
Many taxpayers discover that their yearly remittances would be made sweeter by sharing it with those who need it most. There are thousands of eligible charitable foundations in the United States alone, fighting to provide for the most vulnerable members of society. Contributions can be made in many ways, including the monies received through a tax refund. However, it is important to remember that items purchased can help a charity in more diverse ways, such as stocking a food pantry or providing furniture or mattresses for a homeless shelter. Not all donations must be done through an organization. Keep your eyes open for needs specific to your community. Who do you know that could use your financial support?
Discover What Else You Can Do With A Tax Refund
Tax refunds can be used for dozens of purposes that allow you to achieve your dreams, no matter the amount you receive. Careful stewardship of your funds, along with an organized plan of action, will allow you to accentuate your success in all possible ways. No matter how you choose to use your tax refund, be sure that you maximize this yearly benefit by investing in the people, places, and accounts that matter most to you.
Want More Ways To Save And Prepare For Your Tax Refund?
• Use Our Savings Goals Financial Calculator
• Prepare With Financial Education Tools
• Apply For Membership With Best Reward Credit Union