7 Smart Ways to Spend Your Tax Refund
It is tax season again and the date to file your taxes is rapidly approaching. Some people dread tax time but many people actually look forward to this time of the year since they receive large amounts of money back from Uncle Sam. Consumer spending increases dramatically during tax season and many blow their tax refund before they even get it. Instead of spending your tax refund on a new big screen television, an expensive vacation, or using the money for a liability that only takes money out of your pocket, consider ways to use the money to improve your financial health.
Pay off/Pay Down Debt
If you have a high interest credit cards, car loans, or pay day loans, they should be paid first. Some people are paying 20% or higher on credit card debt and it is extremely toxic to your financial health. If you have multiple accounts with high interest rates, pay off the smaller balances first for rapid debt reduction. If you are a homeowner, consider putting a chunk down on your mortgage to reduce your principal.
Home Improvements
It is wise to improve the value of your house or investment properties by doing improvements with your refund. It is a good idea to spend money on parts of the house that will increase the property value like the kitchen or bathrooms. You will not increase your property value by building a sun room onto your house, or putting in a pool, or building a $30,000 stone patio set (I’m sure you’ve seen these monstrosities)
Hire a Better Tax Professional
If you did not get the tax refund you were hoping for, it might be your accountants fault. You get what you pay for many times and the cheapest is usually not the best. It might be a good idea to interview accountants and make sure they are a good fit and that they understand your business so you get the proper deductions every year.
Open/Increase your IRA
An IRA is an extremely powerful investment vehicle. You want to open an IRA that is self-directed so that you are in control of the way that the money is invested. If you open a ROTH IRA, you will pay taxes initially but the money that grows in the IRA will be completely tax free.
Invest the money into Real Estate
Even if you only get a few thousand dollars back with your tax refund, you can still use that money to invest in real estate! Real estate investing is one of the few investments where you can leverage a small amount of money. You cannot go to the bank and get a loan to buy stocks, but you can go to the bank and leverage money to purchase an investment property 5 times the down payment.
Invest in Your Children’s Future
Instead of opening a CD for your child’s college fund that only gets a 1% a year growth which doesn’t even keep up with inflation, invest in Real Estate. You might even consider buying your kids a rental property in an appreciating market! It will teach them responsibility and you will be able to sell it before they graduate to help pay for their tuition.
Tax Deductions
If you must spend the money on do-dads and liabilities, make sure they are items that are relevant to your business and that you can write off. Examples of this would be a new laptop or a new laser printer.
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