Is your tax refund part of your financial plan? If you're not using this financial tool to its greatest advantage in improving your finances, here are five tips to make it work harder.
1. Prepare Your Taxes Early.
Even though Americans are not generally required to file their personal income taxes until April 15 (or even later), you do well to schedule your tax preparation appointment as early as possible. This gives you plenty of time to plan before receiving that check or receiving a bill.
2. Plan for the Refund Before Getting It.
If you expect a big tax refund, take some time before authorizing the tax preparer to submit your taxes and trigger the check. This buys you time to decide what to do with it before the money is in your hand. Waiting until you have the cash handy could result in spending it less wisely.
3. Talk to a Financial Planner.
Before you decide what to do with your tax refund (or how to pay your tax bill), sit down with a financial planner. They will look at your overall financial picture and help you consider all the options. You may, for example, want to pay off a particular debt but your planner could see that it is at a low-interest rate or that you could get a better return by investing it.
4. Consider Your Retirement Plan.
Want a way to make your tax refund work doubly hard? Discuss with your financial planner the value of contributing to your retirement account. The contribution helps your retirement funds grow faster and uses the power of compound interest. And you'll get an additional tax deduction next year if you put that money into a tax-advantaged retirement fund.
5. Rethink Getting a Refund.
For many taxpayers, a tax refund isn't necessarily a requirement. You may be able to adjust your withholding to have less taken from each paycheck instead. This could free up more money in your monthly budget not only for daily expenses but also to build savings, make higher monthly retirement contributions, or plan for large expenses. This could make an even bigger impact on your long-term financial goals.
By preplanning how to use that refund, putting it where it will do the most good, and discussing it with a qualified financial planner, you will use it in the savviest way possible. Make an appointment with a financial professional who specializes in tax preparation today to get started.