Tuesday, February 26, 2013
To save or to spend: Tips for managing your tax refund
April 15 may seems far out, but it's never too early to get your finances organized.
Have you prepared your taxes? Even though April 15 is still several weeks away, most people are at least getting started. I spent several hours last weekend organizing records and completing the worksheet that my tax preparer uses. Every year when I do this, I swear that I’ll do a better job of organizing tax records. But, of course, I never do. At this point, I don’t know what the outcome will be but I’m hoping for a minimum payment ... maybe even a refund. I can always hope, can’t I?
Of course, a tax refund is always welcome. What are your plans if you get a refund? New computer? Vacation? Before you spend your refund, try to think through all the options, even the ones that aren’t as much fun.
Dr. Joyce Cavanagh, Associate Professor and Extension Family Economics Specialist with Texas AgriLife Extension Service, has three suggestions for smart uses for your tax refund:
1. Plan ahead before spending your refund. Without a plan, you may use your money on the first thing that you think and then later realize something else was more important. Plan ahead and involve the family so that you can identify all the possibilities and decide which ones are the most important.
2. Devote a portion of your tax refund to build long-term financial security. Should you make a deposit to your emergency savings account or open an IRA? Maybe you should pay off a debt such as a high-interest credit card. Do you need to save for something that’s coming up soon such as insurance premium or new tires? Maybe you need to save for a down payment for a new car or house. There are several options so decide which works best for you and your family.
3. Don’t throw away part of your refund on preparation fees and/or loan fees. Did you know that those companies that offer “quick refunds” are just giving you a loan? It’s a high-cost, high-risk loan. Look for free tax preparation programs like VITA and AARP’s TaxAide. Trained volunteers can assist in preparing your return and file it electronically for free. By using one of these free programs and having your refund direct deposited into a checking or savings account, you can get your refund in 7-10 days.
If your refund is more than $1,000, consider lowering your withholding tax so you’ll receive more take-home pay each payday. The additional dollars in your paycheck can be used to meet monthly expenses and could be the difference between making ends meet or not. Of course, you can always save these additional dollars each month and you won’t have to wait for a lump sum tax refund. To change your withholding, file a new W-4 with your employer.
While most of us think of a tax refund as a bonus or windfall, it’s a great way to have a little fun now as well as help out in the future. At my house, we always have a “wish list” just in case we get a refund. We decide how much we’ll save for future needs and how much we’ll spend now.
It’s always exciting to get a refund. What are your plans if you get one?
Carrie T. Brazeal is the County Extension Agent for Family and Consumer Sciences for Texas AgriLife Extension Service.