Tax season is finally over. Some of you might have filed the tax on time over internet and already got your refund from Uncle Sam. Some of you might have filed in paper and waiting to hear from IRS which might take few weeks. Obviously some of you might filed for an extension since you didn’t have enough time to get through with it. It would be good to file taxes soon as possible and get it over with it and avoid paying penalties or avoid giving interest free loan to IRS if you expect a refund.
Plan ahead for next year Taxes
Anyway, if you are among many Americans who filed early and got your refund, good for you. It is not a good idea to leave your money with IRS which is interest free loan to the government instead you could earn interest on the money. Also many think, getting a refund is a good thing. Not really and not always. If you planned properly ahead taking advantage of tax codes and deductions and filed your W4 with your employer to deduct the proper amount, you wouldn’t be recieving the refund now instead you might got more money on every paycheck which you could have saved regularly. Try to plan ahead atleast this year and submit updated W4 if there is a change in your household or income and not give IRS interest free money.
I know people like me who are self employed or don’t have standard income every year and also have deductions all over the place, they won’t be able to easily judge their regular/estimated tax payments and end up paying 100% of your last tax amount to be on safe side and sometimes we end up getting reasonable amount of refund back taking all deductions. As of 2009 IRS tax stats card, IRS paid out on average $3000 as tax refund to individuals.
So going back to the actual topic, if you got your refund check, what are you planning to do with the lumpsum money?
I plan to spend part of my $1200 refund for home improvement by adding hardwood or laminate floor which will reduce carpet maintenance and good if I want to rent out later. Another part, I plan to put in a savings account for now and decide later.
What are you going to do?
I googled and found some usual answers like some are planning to buy a big screen TV or new gizmo like iPad, some thinking about exotic cruise or vacation in carribean and some planning to buy/upgrade your home appliances and some planning to put a downpayment for their new car. Here are some ideas which every financial guru will suggest which works for your favor.
Things you can do with your refund
1. Pay off your high interest credit cards or atleast reduce the balance if you a big one which will save you interest in the long run.
2. Put in Roth/Traditional IRA for your retirement.
3. Try to save for your kids college education in 529 plan or Coverdall Plan or open a new CD.
4. Make a value added improvement to your home so you can get better return when you sale it at later time.
5. If all above seems lot of work, just take a CD from ally bank or SmartyPig or any other bank which gives some good rate of return and make the decision later. It can be either used for future car or home or business venture. Don’t just throw your money for something which doesn’t yield a return.
You can also find more options at Bankrate.com. Credability has conducted a contest and I am hoping to get some good ideas from consumers. I will post the some them when they release the results in few weeks. Until then, you can either put the money in savings account or follow some the above mentioned ideas.
Are you interested to know how your tax dollars get spent by the government? Check out WhereDidMyTaxDollarsGo.com and enter your income. It will split out the propotion of your tax dollars spent on different categories.
image courtesy: 2010.TaxCalculators.com