Each spring, the majority of U.S. taxpayers get money back after filing their tax return. And while some families living paycheck to paycheck depend on these refunds to make ends meet, many people view it as a source of fun money. (Ever wonder why there are so many sales on large-screen televisions and other big-ticket items during tax season?)
Most tax refunds aren’t pocket change. The IRS issued nearly 112 million refunds last year averaging $2,800. If you’re getting a sizable refund, here are a few ideas for doing things a bit differently this year:
Take steps to avoid a big refund. A big refund usually means that you have had too much money withheld from your paycheck. It means that you’ve overpaid your tax obligation throughout the year and let Uncle Sam hold on to your money. A refund doesn’t sound so good when you look at it that way, right? If you adjust your tax withholding now, you’ll get more money in your paychecks throughout the rest of year instead of another big refund when you file your taxes next year.
Fund your retirement. Using a refund to establish or add to an IRA or other retirement account can be a smart move, especially if you’re a bit behind in your retirement savings.
Reduce credit card debt. Even many families that do all the other right things for their finances – such as saving for emergencies and retirement – can be guilty of letting credit card debt accumulate and grow. You may want to consider using your tax refund to pay down or off the balances on your credit cards so you can stop paying double digit interest rates.
