What is a tax refund?
A tax refund is a return of the excess tax an individual pays to the government over a calendar year. It is estimated that nearly 8 out of 10 tax filers get a refund.
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Best ways to spend a tax refund
Save for emergencies
You can start off by adding to an emergency fund. This will come in handy when you’re faced with a sudden difficulty like a job loss or a car accident that could really jeopardize your financial situation. Experts believe that an emergency fund should have about six to eight month’s worth of savings.
Pay off debt
The best thing you can do is to pay off any high-interest debt. Also to pay off student loans, car loans, and credit card debt. This can save you hundreds of dollars in future finance charges.
Save for retirement
Contribute to an IRA or use the tax refund as an opportunity to start one.
Save for college
Another option is to put the money towards a 529 College Savings Plan to invest money with tax-free growth for educational expenses.
You can invest in either yourself, by furthering your education, or in stocks and bonds. Investing provides a good opportunity to potentially earn more money in the future.
Collect memories, not things. Experiences are much more valuable in the long-term than possessions.
Give to your favorite charity or cause. Not only is it tax deductible, but also a great opportunity to give back.
No matter how big or small the amount you get back, it’s always important to spend it wisely.
- Taxpayers in Connecticut, Nevada and Texas receive the highest average federal tax refunds.
- The smallest refunds go to taxpayers in Montana, Maine, Vermont and North Dakota.
- Many people put off doing their taxes until the last moment. Roughly 1/3 of American’s file their returns two weeks before they are due.
- The chance of being audited by the IRS is less than 1%.