10 Best Ways to Use Your Tax Refund

If you’re like most people, your eyes probably lit up when you heard the words “tax refund.” We get it—free money is exciting! But instead of splurging on a shopping spree, why not use that free cash to help set yourself up for financial success?

What to do with your tax return depends on your financial goals. Putting your tax return towards something that benefits you, in the long run, is a smart move.

Let’s be real. Although saving isn’t as enjoyable as spending, what if I told you that setting aside your tax return annually allows for exciting possibilities to have more money available to spend year-round? Would this pique your interest enough to learn more?

Every year my husband and I have always figured out our budget WITHOUT any tax refund money. When we started our debt payoff any money we got back form our tax refund would go to our debt. Once our debt was paid off we would put any tax refun in a savings account.

Whether you are a on debt free journey or trying to figure out the best way to use it we’ve got some smart ways for you to uset aht tax refund.

10 Tax Refund Tips That Will Change Your Life

By understanding the power of delayed gratification, a family of four with even a modest $1,500 tax refund can stretch those funds. That amount might sound insignificant at first glance but you may be surprised by its potential!

The average refund in 2021 was $3,039 according to this source. Most likley this scenario is less than what you may be averaging which means your total below will be more! Saving money is key to financial freedom.

This $1,500 could provide

a nice vacation for a family of four, including hotel lodgings, fun, and meals, OR
an action-packed staycation at local attractions, museums & theme parks OR
an elegant night on the town (or two), OR
a down payment for a newer, nicer car on a trade-in.

But what if that same $1,500 was used to pre-pay your family’s electric bill (average $150/month) for 10 months? That would provide instant cash access of $150/month for 10 months!

Imagine all the fun your family could have each month with that additional money. Discover new museums, attend a movie and dinner night out, or save up for several months to explore local attractions! You can even get rid of an existing bill every month and create a dedicated budget item – “FUN!” Be sure to seize those moments of joy with your loved ones today.

Alternatively, you could pay off a debt, freeing your family of the burden of monthly payments and opening up that money for spending.

You could also save or invest that money and see real dividends! That same $1,500 saved, or better yet, invested, could provide you with some real earning potential over just a few years.

Here are ten money-smart things to do with your tax refund:

1. Start an Emergency Fund

Emergency funds are essential for unplanned financial situations and can act as a cushion when times get tough. Starting an emergency fund with your tax refund will give you peace of mind and help you weather any financial storm.

This is key and if you are new to buiulding up an emergency fund check out this post here.

2. Invest in Your Retirement

If your employer offers a retirement plan, putting part of your tax refund into a retirement account will help grow your nest egg faster. This is also a great way to benefit from compounding interest over time.

The easiest way for us to start investing money was through my husband’s employer and then through mutual funds. If you are new to the stock market the first thing I can tell you to keep in mind- it’s a long term investment. Don’t get caught up in all the cycles of the up and downs.

We watched a really great beginner video on Right Now Media called Multiply: A Biblical Guide to Investing. It exaplins a traditional ira, roth ira, high yield savings account and investment risk. Once you have a basic understanding of putting money into these type of investments you can dig deeper into each one sepratley.

For a relatively conservative example, let’s say that your family invested $1,500 in a return that yielded 4% compounded annually. The first year you would have $1,560.00. Doesn’t sound like much, does it?

Imagine if you continued to invest $1,500 annually for the following 3 years. You and your family would have accrued a total of $6,369.70 in just 4 short years!

On top of that, 10 years down the line you would be sitting on an impressive sum of $18,009.16. That’s something worth getting excited about – think of all the amazing possibilities with such savings! Do you still want to spend your tax refund?

3. Pay Off Debt

High-interest debt can be a considerable burden and chipping away with your tax refund can help you become debt-free sooner. Alternatively, you could pay off a credit card debt, student debt etc. freeing your family of the burden of monthly payments and opening up that money for spending.

You could also save money or invest that money and see real dividends! That $1,500 saved, or better yet, invested, could provide you with some real earning potential over a few years. Your future self will thank you!

4. Build Your Credit Score

Paying off credit cards or any loans in good standing will improve your credit score over time.

5. Invest in Yourself

Use the money to upgrade your skillset with classes or training to help you advance in your current career.

6. Set Aside Money for a Big Purchase

Whether you’re saving up for a down payment on a house, car, or another big-ticket item, putting some of your tax return towards your goal can make the purchase much more attainable.

For more tips on how to save money on everyday expenses check out these posts:

7. Strengthen Your Savings

Put some of your money into a savings account. Having cash reserves to turn to in an emergency can help you stay on track with your financial goals. Consider a money market account at your bank or credit union. To learn more about money market accounts read this.

8. Start a Side Hustle For Extra Money

Spending money to start your own side hustle and make extra income brings a whole new sense of satisfaction compared to retail therapy! You can put that money towards more investments or enjoy spending it on something special.

My favorite side hustle that has now turned into a full time income is blogging. But I’ve shared other ways for you to make money on the side here.

9. Invest in Real Estate

If you’re brave, use your tax refund to purchase rental properties. This takes time and effort and the most money – but if done right can help you build wealth over time and add to that retirement fund. In 2022, we bought our first investement property.

We are still in the beginning stages and once I’ve got a few more months experience I will share it with you all. I will say, it’s not for the faint of heart.

10. Give Back

With all of the financial struggles this year, why not use your refund check to support a cause you are passionate about? Donating to charity can be extremely rewarding and help give back to those in need.

Checklist for Tax Deductions

1. Gather all documents that report taxable income, such as Forms W-2, 1099, and K-1

2. Compile receipts and statements for deductions or credits you plan to claim

3. Add up your deductions to determine if itemizing is better than taking the standard deduction

4. Research any new tax laws or provisions that could affect your return

5. Double-check for any errors and make sure all Social Security numbers are correct

6. Submit the proper forms to claim credits, such as the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC)

7. Make sure to include all necessary documents and forms

8. E-File or file your return by the due date

9. Consider filing for an extension if you need more time to complete the form

10. Don’t forget to check for any updates before submitting your return!

Things to Include in a Tax Return

1. Completed income tax return forms: Be sure to include all necessary documents, such as Forms W-2, 1099, and K-1

2. Proof of deductions and credits: This can include receipts, statements, or other proof of expenses for things like medical care and charitable donations

3. Bank account information: If you’re expecting a refund, be sure to include your bank information

4. Dependent information: Include any Social Security numbers for children or other dependents you are claiming on your return.

5. Records of estimated tax payments: If you paid estimated taxes throughout the year, make sure to include records of those payments.

6. Records of capital gains or losses: If you sold any stocks, bonds, or other investments during the tax year, include records of those transactions.

7. Taxable income from gambling winnings or alimony payments: Be sure to list these items as taxable income on your return.

8. Documents for taxation of foreign accounts : If you held foreign accounts in the past year, include documents that explain how any income from those accounts will be taxed.

9. Tax Return Transcript: You’ll need to provide a copy of your tax return transcript if you filed an amended return or are requesting a loan.

10. Payment for taxes owed: Don’t forget to make a payment for any taxes you may owe!

How Much Do You Have to Make to File Taxes?

The Internal Revenue Service (IRS) requires you to file a tax return if your income exceeds certain thresholds. Generally, the amount of income required to be reported depends on your filing status, age, and type of income.

For example, if you are single and under 65, in 2022, the minimum for single filing status if under age 65 is $12,950.

We have always used Turbotax in the past for our tax returns. Until my blogging business started to take off, it was easy and efficient. Now with the company and rentals, it is easier for us to have a tax professional.

We found the best deal to get Turbotax was when it goes on sale at BJ’s or any wholesale club. Turbotax is free for military personnel.

Using your tax refund wisely is the best way to ensure financial security. Even if it’s a small amount, think of ways to use the money to further your long-term goals or help those in need.

With this list of smart things to do with your tax refund, you can make the most of it and start planning for a brighter future! Good luck!

Note: Please note that this content is only meant to be used as background information. It should not be copied verbatim. Always advise with a tax professional.