Are you expecting a income tax refund? Whether you have already filed or not, chances are like many Americans you are eager with anticipation. The grand question is, how should you use the money? Refund season is an exciting time that people look forward to every year. Whether you decide to spend or save, before you preorder the next generation of iPhone or start taking bids on swimming pool installations, here are some great ideas on how to put that refund to good use.
Do You Need an Emergency Saftey Net? Have you planned for the inevitable?
You never know what unforeseen expenses the future may bring, such as unemployment, a car repair or an illness. Having a little extra money saved will help financially prepare you for these type of events. Ideally, the rule of thumb is to have a 90 day emergency fund to cover the unexpected. Though your return might not cover that entire amount, it gives you a cushion and a little peace of mind.
If you are already finacially prepared for the unexpected, you might consider preparing for the inevitable; using your refund to fund your retirement. Reitrement accounts such as IRAs and 401ks offer many diiferent investment options and tax deferred growth. If your employer offers a 401k with a matching contribution, this is almost always the best route, and you may be rewarded with a tax credit known as the Saver's Credit. The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A)
Pay Off Your Debt
Consider paying off debt with that large amount of money. Credit card balances are one of the leading contributers
to debt. According to the website Value Penguin, the average American Household Debt is$5,700, with the average for balance-carrying households being $16,048. Freeing yourself of this financial burden can give you a lot more freedom throughout the year, and even if you can't completely erase your credit card debt, paying off the cards with the hihest interest rates first can save you big bucks in the long run.
At Home Is Where The Money Is
There are a few paths you can take with your home. You can finally complete those ambitious projects that you started a while ago, or make those home improvements that you have only dreamed about. This is a great opportunity to finish a home energy audit to evaluate your home for changes you can make to reduce your energy consumption. From curb appeal to money saving improvements, reinvesting in your home is an excellent idea.
Pay It Forward
You may have all of your bills paid, maximized your retirement contribution, and have no other necessities to spend your tax refund on – good for you if this is your situation! Consider paying it forward. This is a perfect time to make a donation to a charity that you hold dear, not to mention reduce your tax liability for next year.
Not sure if you should expect a refund? If you'd like Eric J. Pelton, CPA and his team of experienced professionals to your handle your tax filing preparation email him here or call 423-622-3156 today and schedule a free consultation. He'd be happy to help.