The 3 Ways to Spend Your Tax Refund

Good morning, afternoon, or evening as the case may be! This months topic is tax related. What do you do with your tax refund?

First let’s talk about what a refund is just to set some perspective. Everyone I talk to gets so excited that they have a huge refund coming their way. Huge is relative by the way. Maybe the refund is $500, maybe it is $5,000, or maybe it is $10,000. The average refund is about $3,000. Many people receive this check in the mail and view it as free money fallen from heaven delivered from the mail gods. Let me just remind you that tax refunds are money the IRS is returning to you that you pre-paid, in excess, throughout the year. In other words, the federal government got to use your money throughout the year above and beyond what was due to them, and now they are giving it back to you. That is the mentality to look at your tax return with.

Now that we got that out of the way, what do we do with it? Here are some ideas:
1. Vacation – This is a very common option and I put it first because, let’s be real, this is the most fun. Tax refunds do go far towards a well-deserved vacation. Check out discount sites like Groupon and their air-inclusive travel deals. There are REAL discounts on flight/all-inclusive hotel packages. I personally want to book that trip to Paris and Spain for $799 in November.
2. Donate it – If you are anticipating higher income in 2017 vs. what you earned in 2016, consider donating it to a nonprofit organization for a tax write off when you file taxes in 2018. Plus it feels good to support worthy causes you care about. (insert shameless plug for Sierra Passport Rotary here)
3. Pay off high interest debt – Did you read the article in January? Please don’t pay down your mortgage with your tax refund… Do consider paying down high interest debt like maybe a credit card or a car loan. Start with the highest interest rate debt, not necessarily the smallest balance owed.

In closing, let’s talk about how to maximize your deduction next year. And by maximize, I of course mean minimize! Rather than setting yourself up to have a massive refund each year, consider working through (or hiring a tax professional) to calculate your right offs and adjust your withholdings on your W2 so that you have more cash flow all year long! My goal is to always have the smallest refund possible. I don’t know about you, but I like my money, and I like it working for me all year long rather than lending it to the federal government for free all year.

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