The information in this article is current through tax year 2019 (returns filed in 2020).
Millions of taxpayers receive tax refunds each year and debate ways to use the extra cash. Impulsive purchases make money disappear as quickly as it hit your bank account. Before you fill up your cart, think about how you could enhance your financial security in the long run.
Here are some of the wisest ways to save it or spend it:
- Pay off debt. Use your tax refund to put a dent in your debt. Start by paying off your high-interest loans. It can be a long process, so it’s vital to figure out your most efficient course of action to save you as much time and money as possible.
- Invest in your retirement. Saving for retirement is challenging when you need your income for expenses in the present. It is highly recommended to put your tax refund toward retirement savings if you are able. Read Tips on Planning for Retirement for information on how much you should be saving to retire.
- Boost your other funds. That college fund and emergency fund are important, too! Like retirement, college costs and emergency expenses may not be an issue right now, but they can hit hard in the future if you’re not prepared.
- Start your own business. Have you been dreaming of opening your own business? Or even simply turning your passion into a side hustle? Instead of getting a loan, invest your tax refund to start your own small business. Not only will this help you to fuel your dreams, but it can also be a great investment for the future.
- Work on your fixer-upper. Home improvements will make your home more enjoyable, increase its value, and reduce taxes when it’s sold. Make sure you invest in capital improvements, such as building a deck, installing a hot water heater, putting in a swimming pool, or building an addition – anything that adds value or lengthens the useful life of a home. Remember to keep track of improvement costs. They will come in handy when it’s time to sell.
- Buy something you need. A lot of expenses get pushed to the side – like the car trouble you keep avoiding or that dental work you were supposed to get a year ago. Use your tax refund to remove one of your financial burdens.
Read Tax Refund Do’s & Don’ts for more suggestions on how to use your tax refund.
Are you waiting on your refund? See when you can expect to receive it here.
Still need to file your tax return? Start for free today with TaxSlayer.