Periodically throughout the year, you should be using Tax Tips’ or Turbo Taxes detailed income tax calculator to estimate what you will owe, or be owed, when tax time comes around.
If you are lucky enough to get a refund instead of owing money, don’t spend it on frivolous pleasures. Do one of the following instead:
Make A Lump Sum Payment on Debt
If you have credit card debt or any consumer debt at all, you should consider making a lump sum payment on it with your tax refund so that you can stop paying interest on that loan.
Put It In Your Emergency Fund
If you already have a high emergency fund, don’t do this, but if you need to bulk it up, consider putting your refund into an account for unexpected and unplanned events. Many experts will tell you that you should have 3-6 months worth of expenses in your emergency fund just in case. For instance, a health issue might crop up or your car may break down. If you don’t have any cash, you could end up having to go into debt to fund the solution.
Go On a Trip
Obviously, this is tempting. If you are looking good financially, why not enjoy the cash that you gave to the government interest free for the year? Travelling is a great experience and one that you will never forget. If your refund is too small to make a large trip out of it, try going on a short weekend trip.
Further Your Education
Is there any way you can further your education with your refund to make yourself more marketable? If so, enroll in a certificate program or take a couple of courses. Lifelong learning is important, and can help you learn and grow as an individual.
What did you do with your tax refund, if you received one?
I’m going through this same internal debate. Probably going to split it on thirds. Part savings, part mortgage, part fun. And yes! I agree. Always better to be owed than owe – at least in the case of the IRS.
Boring!? Paying down debt is exciting. And congrats on doubling your salary! I did that once and it’s a crazy feeling.
Good job for putting your money toward your car loan! I put some of mine into my Vanguard fund and then the rest in to my Antarctica 2014 fund. Putting in a good chunk of money for a trip felt awesome!!
I’m putting mine towards student loans. WOOHOO! 🙂
For the first time, I’m owing a couple hundred dollars. I always like allocating my tax return because it feels like fee money, even though it just means they took more of your money than they should have. Oh well, I’ll plan better next year!
I did the same thing. All of it went to my student loans. It actually felt pretty great so I don’t regret it.
Our tax refund is going to paying off car loan and funding the house down payment fund.
So, once you reach the $5,000 savings goal, will you be automatically redirecting it to the car fund?
We got a whopping $40 back so I think I’ll be taking my wife out to dinner. Going towards something like a car loan is never a bad thing.
Our refund is going to go towards a new roof for our house. Very exciting stuff, huh?
Good choice Daisy! You’ll essentially make that refund worth more by using it pay down debt because of all the interest you’ll save. And you’ll sleep better too!
Our refund will be saved and probably used to help pay 2013 estimated tax installments. Strange, huh?
Ours covered a new dryer (didn’t want to touch the EF), and added the rest to savings. next year, I hope to not owe and just have a small refund, so I made adjustments. I agree that psychologically it’s more fun to get a refund, but I don’t want mine to be huge 🙂
Nice call on the putting it towards the car loan.
I am waiting on the final verdict from my accountant. I believe I will have to pay some tax for the first time. However, if I am lucky to get back a refund, I would save half towards my 2013 savings goals and treat myself on something with the other half.
Our tax refund is just about enough to pay the accountant for preparing them. Very convenient. =)
Mine is going toward the down payment/closing costs on the new house 🙂
I didn’t think I’d be getting a refund (last year I owed). But I’m actually getting $1000 back (which means I didn’t do a very good job with my deductions, but that’s another story). I plan on putting into my savings.
Good choice Daisy! Pay off that car!
We had the same situation that you did! $1000 is going into savings, and a little over $300 to whatever we want, which will probably wind up being takeaway Chinese food and then a big credit card payment.
That what was quite a large amount. It would be a wonderful idea if you pay it to your car loan.
Rebuild our savings! We just bought a car and have some other expenses coming up, so anything we get is going straight in the bank.
I’d totally do the same thing.
We are using ours to pay off our last credit card – after that we will be completely debt free! No mortgage, no car payment, no credit card debt. I can’t wait!
Our Tax returns in the UK are due back in April so gotta wait a whole month more 🙁 Ah well, should be nice when it comes in, and thanks for making something thats usually so boring sound fun. 🙂
Good call prioritizing the outstanding debts :). This go around I put 50% into a high-yield savings account since some of these were recently completed. Another “investment” I plan to make with some of this money is my health. That means buying more organic food, spending more money on fish and less on red meat. Spending money to better your quality of life is just as valuable as bettering your financial situation! What are you gonna do if you’re not around to enjoy your retirement funds!! Food for thought 😉