Must be a valid email address.
Password must be 8-64 characters.
Must be a valid phone number.
Recession incoming? Here’s how you can prepare.
Daily Capital
Home>Daily Capital>Taxes & Insurance>How to Get the Best Return on Your Tax Refund

How to Get the Best Return on Your Tax Refund

According to the IRS, the average tax refund this year will come in around $3,000 per person. And going by a recent poll by TD Ameritrade, of those anticipating a refund, 63% plan to save or invest at least part of the money they receive, 51% are planning on paying down debt, 48% expect to pay for necessities like food or utility bills, and only 14% said they would use the money to splurge on luxuries like a new mobile phone or travel.

How does that stack up against smart financial strategy? Here are some financially astute ways of spending your windfall from the IRS:

Bolster your emergency fund

Use your tax refund to start an emergency fund or replenish an existing fund that may have been depleted over the past year. The old rule of thumb — enough cash to cover up to six months of living expenses. But some suggest even longer. The financial crisis left some out of work for a year or more so having enough to pay your monthly expenses for 12 months will be a good cushion if the worst happens. For example, if your expenses are $10,000 a month, you would need $120,000. No small sum. Remember, your emergency money isn’t just for if you lose a job. A sudden illness can come out of nowhere and be very costly if it keeps you out of work indefinitely.

Reduce debt

AARP suggests using your refund to pay down a bill or to prepay part of your mortgage. “Reducing your debt load can improve your credit and also lower your monthly payment obligations,” the website says. The first step may be to set up a realistic debt repayment plan. Set specific goals for yourself. And most importantly stop using your credit cards once you get them under control. Overwhelming credit card debt is also a sign of the times, says Talking Cents.

In those years when Americans were more flush with cash, they may have put their refunds towards a retirement account or college savings. But with many Americans drowning in credit card debt, paying overdue bills has become a higher priority.

Make some smart home purchases (now Nicole Lapin’s webpage) says to start ticking off those items on your to-do list that are piling up. Energy-efficient windows? That’s a big money saver in the long run. Insulating your home? That will save you from getting hit with a big heating bill. Pouring your tax refund into a big project will save you money down the road and give you that feel-good feeling that comes from knowing you did the right thing.

Invest a little in yourself

Now may be the time to get that extra certification in your field or go to that conference you’ve been meaning to go to for the past few years, advises AARP. Joining a gym may be worth the money as well. The key is to invest in yourself. The money will be well spent and the return on your investment could be a raise, a new job, or added years to your life.

Make changes to avoid a big refund next year

Reminder: Your money can’t do much for you while it’s sitting with the IRS. Money Talks News founder Stacy Johnson suggests changing your tax withholding amount on your W-4 so you get to keep more of your pay year-round and won’t have that lump sum once a year that you’re more likely to spend.

More tax planning ideas and strategies on Daily Capital.

Note: You can subscribe to our Daily Capital e-mail distribution list to get all the latest posts sent right into your inbox. Furthermore, consider Liking us on Facebook and LinkedIn

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

We at Personal Capital have one goal in mind: to build a better money management experience for consumers. That’s why we’re blending cutting edge technology with objective financial advice. We believe this is the best way to empower individuals and their money. Subscribe to our blog and join our empowered financial community.
Icon Close

To learn what personal information Personal Capital collects, please see our privacy policy for details.

Ask Us Anything

We want to hear from you.

What finance question is burning a hole in your pocket?

Thank you for sharing what’s on your mind!

Our team will be in touch shortly.