Sunday, March 15, 2015

Why You Shouldn't Get a Tax Refund

A tax refund is the amount of money you over pay in federal or state taxes or both each year.  A tax refund is just another way to help the government make money.  The money each taxpayer pay during the year is put into a high interest bearing account and the government keeps the interest.  The money given in tax refund is small compared to the money earned each year from the millions of taxpayers in the U.S. 

There are only a few instances when you should overpay: if you are trying to pay down debt or want to pay off your mortgage or car loan off faster. You are forced to pay taxes and there is no way around that.  If you work hard all year long why do you make yourself wait to get back money you earned?  You can get your money upfront by adjusting your tax withholdings throughout the year.  Consult a tax professional to make sure don’t end up owning money at the end of the year.

Unfortunately, many Americans get excited when they find out they are getting a tax refund.  However, for many Americans getting a tax refund means it will be spent as soon it is received.  If you are struggling to pay bills or need to get out of debt your tax refund can be a lifesaver.  But, it is up to you to determine how to spend it.  If you do get a tax refund this year here are 8 smart ways to spend it but start now by adjusting your tax withholdings so you can get more money in your paycheck this year.

  1. Get current. If you are behind on any bills, use the money to catch up.  Make sure you get current on all utility bills and car payments and your mortgage.
  2. Pay down debt.  Pay off collection accounts, judgments, and liens first, and then pay down current debt.
  3. Create an emergency fund.  Create a savings account to cover your monthly expenses for 9-12 months.
  4. Invest it. Start a retirement account.  If you don’t have a retirement account with your employer sign up tomorrow.  You can also start you own individual retirement if your employer does not offer one.
  5. Save for your children's college education. If you haven't already done so start saving for your children's college education.  College tuition increases at 3 times the rate of inflation.  Put the money in a 529 plan or comparable college savings plan.
  6. Purchase a home. Now is a great time to buy a home because interest rates are low.  Use the money to put towards down payment and closing costs.
  7. Increase job skills. Take an inexpensive class to boost your skills at work. This can help you find a job or increase your chances of staying employed.
  8. Donate. Make a tax deductible donation which you can write off on your taxes next year.

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