Most of us are excited at the prospect of getting a tax refund and will dream of how to spend that money. But while it is fun to contemplate a spring break trip or simply blowing it on fun stuff, it is essential to remember that the IRS is giving taxpayers back money because they overpaid.
Perhaps remembering this vital detail may cast a different light on it. Since it is the taxpayer’s money and not some lottery winnings, it may make more sense to put that money to good use. Indeed, some intentionally overpay their taxes as a way of creating a government-assisted approach to reaching savings goals for the year.
Put that money to work
There are a variety of options for putting that saved money to good use. These include:
- Paying down credit cards: Credit cards may have a window of low or no interest, but that is followed by skyrocketing interest on the balance.
- Start an emergency savings account: A special savings account can lessen the impact of losing a job or facing an unexpected illness.
- Start a retirement account: Whether picking an IRA, a 401(k) or some other retirement account, very few begin saving early enough, nor do they put enough money in these accounts.
- Invest in real estate: This can mean making improvements to the family home to raise its value or making a down payment on an investment property.
- Start a college fund: Parents who plan to pay for their children’s college tuition can use a section 529, which provides tax-deferred growth as well as tax-free withdrawals when writing the tuition check to qualifying institutions.
Tax refunds may not be enough
Those who have trouble saving money or find themselves facing insurmountable debt have limited options. While paying down credit cards is smart and trying to save money is important, families may need to look at their finances as they do their taxes to see if they can work their way out of debt. Bankruptcy may be the best or only option when the numbers do not add up. An attorney who specializes in handling bankruptcy filing can be an asset to help make this process go as smoothly as possible.