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.
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– 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%.