Tax refunds are given to individuals who have paid more in taxes than they should have. While a refund seems like a good thing, what it actually means is that you have been paying the government more than you needed to and they are giving you that money back. It also means that you have been providing the government with a zero interest loan.
So, while a tax refund sounds like a good thing, if you are owed money, you should adjust your withholding so that you get less taken out. The ideal situation would be one where you get as close to zero dollars back as possible, because that means you will have had more money in your pocket. A 2500 dollar refund is great, but that is 2500 dollars you could have been earning interest on all year.
Still, you have money owed to you, so let’s take a look at what to do with it. Once you have filed your return and received your money, the options are endless and you can either choose to blow it or use it for the greater financial good. Hopefully you use it for good.
Best Ways To Use a Refund
There are a lot of ways that you can use an income tax refund. You could choose to blow it, like most people do, or you can do something smart. Here are some smart ways to use the money.
Open A Retirement Fund
It is important to take the time to plan your retirement. It is also important to start preparing early. If you do not currently have a retirement fund, a tax refund is a great way to jump start one. Not sure where to begin? Find a qualified financial advisor to get you on the right track.
Start An Emergency Savings
Everyone needs an emergency saving account with enough money in it to pay for 3 to 6 months of expenses. If your monthly expenses are 3500 dollars, you should have 10,500 dollars to 21,000 dollars in savings. If you are just starting out, this can seem like a lofty goal but your refund should put a big dent in it. Remember, the longest journey starts with a single step, but a tax return can be a very big jump.
Pay Off High Interest Debt
Wouldn’t you like to have less credit cad debt? Your refund can help you accomplish this goal. Eliminating debt that is earning as much as 20 percent interest will make a big improvement to your financial outlook. In addition, paying off your revolving credit may make a major improvement to your credit rating, potentially reducing many of your other financial costs.
Invest Your Refund In The Stock Market
The world’s largest financial markets have seen an explosive growth in recent years, and many investors are interested in taking part. The stock market is a convenient and secure way to invest for the future and over the long run, it almost always shows gains. Just be sure to go in with a long term plan and try to avoid the get rich quick schemes.
Buy A Used Car With Cash
Paying monthly on a car loan? Now might be the opportunity to get out from under this loan and into a good used vehicle. Save every month by eliminating a costly expense. Buying a used car is a great way to save money, but it can be difficult to find the right one. Choose carefully and consider having a vehicle examined by a mechanic.
Buy A Home
Buying a home is one of the best investments you can make. However, financing your mortgage can be a costly process. Your IRS tax refund can make the process easier by giving you a good chunk of your down payment. Cash is king when it comes to home loans, so the more you have, the better your rate and terms.
Why You Should Have An Accountant File Your Taxes
In this day and age, it is easy to get lost in the sea of information. With so many different tax deductions and credits, it can be hard to know what you are eligible for. An accountant file your taxes will help you make sure that you are getting the most out of your tax return.
An accountant file your taxes will ensure that you don’t miss out on any deductions or credits that could save you a lot of money in the long run. They will also help make sure that all of your paperwork is organized and ready to go when it comes time for filing your return.
Although an accountant will cost money, they will often save you far more money than they charge. Nobody knows the IRS and tax laws better than someone who spends every day working with them.
How Much Does An Accountant Cost?
There is no one-size-fits-all answer to this question. Factors such as the accountant’s location, experience, and expertise will all affect how much an accountant costs.
The average cost for an accountant in the US is $100 per hour. So you would multiply that rate by the amount of time it takes to complete a tax return. If you have a relatively simple return and have your documents in order, it could only cost you 300 dollars or so to file. More complicated returns may cost more.
In many ways, you need to look past the cost of an accountant however. Most of them will make you far more money than they cost. In addition, they take the stress off your shoulders. Not having to sort through those government forms is a huge relief.
