One motivation for getting your tax forms in early is the promise of the money you may in the form of a tax refund. The average tax refund should run about $3,000 this year. Many people look forward to that tax return all year, but what if your tax return could make a real difference in your life and your finances? Instead of applying those funds to a vacation, why not use them to pay off debt or to build wealth? Save and Earn with Your Tax Return
The typical tax return is a slippery thing, and before you know it, the extra money could slip through your fingers. Here is how to make that tax return more productive.
File as Early as You Can
Because of issues with the debt ceiling, it is possible that you may not get your tax return in a timely manner. Already the first day you could file was pushed back, and critics worry that there may be many delays in when citizens get their tax money returned to them. File as early as you can, so you can get any money owed back to you more sooner than later.
Be Proactive This Year
If you are getting a big tax return this year, yet you are struggling with high monthly expenses and debt, you might want to take a look at your withholding amounts. If you reduce the amount of taxes taken from your paycheck, then you will have that money available to pay off your debt all year, rather than letting it build up. Just be careful not to lower your withholding too much, or you may be left with a huge tax bill.
This is a way of making your return, or the lack of it, work for you throughout the year.
Pay Down Credit Card Debt
Once that refund comes in, apply it directly to your credit card debt. Credit card debt is high interest debt that can sink you. I know it is hard to give up that vacation, new furniture or whatever it was you were looking forward to spending the money upon, but chances are that living beyond your income brought the credit card debt on in the first place.
Attack your credit card debt this year, and get that monkey off of your back. If you have several credit cards, you can choose to pay off the one with the highest interest first, or attack the smallest debts to eliminate them completely.
Build Your Emergency Fund
No credit card debt? Congratulations! You can still put that tax refund to good use. Apply it to a special savings account that can cover three to six months of living expenses in the case of an emergency, such as a job loss. Having this security as part of your household can give you peace of mind and protect you from financial disaster. Statistically, most families suffer a financial emergency, it is just a matter of when and how much. Make your tax return work for you as a blanket of protection.
Build Your Wealth and Get Tax Credits
Did you know that if you have a low to moderate income, you can get a tax credit as an incentive to save money? It is true. Families who qualify got the Federal Savers Credit can claim a $1,000 tax credit when they contribute just $2,000 to an IRA! Plus, that contribution is also deductible, meaning that you could get up to $1,300 in tax refunds, all for saving your money. It is hard to imagine a better return for your tax refund money, isn’t it?