Even though the tax filing season is just around the corner, the terms like ‘Best Way to Use Tax Refund’ fail to catch people’s fancy.
It’s probably because post the Federal Government shutdown, 800,000 have been given unconditional leaves and there is hardly anyone present at IRS.
Sometime back, the news of tax filing likely to get delayed was doing rounds on the internet. However, after IRS declared that tax filing would begin from January 28, people have taken a sigh of relief.
It wouldn’t be rational on our parts to sit idle and assume that IRS would not live up to its promise.
Believers always find their way through
We all should be looking forward to a check from IRS in the coming months. Reports suggest that average income tax return for the taxpayers this year would be somewhere around $3k, that’s quite a lot of money.
We should look to make the most out of it and not just make a hole in our newly blown up pocket (shortly though). Here’s what you could do with your tax refund amid the turmoil of government shutdown:-
1. Escape the Clutches of the Dragon
No matter whatever point of your life you are at, there’s no permanently escaping the jaws of the dragon of debt. This dragon is at its worst when we have pant up credit card debt.
There’s a reason why financial experts suggest countering credit card debt with any fresh influx of money. It’s because you cannot build a financial fortress unless it lurks over your head.
If you move a step towards your financial goals, the credit card debt will drag you back by two steps.
Not only the progress is lost, but the ever-accumulating (compounding) interest of credit card debt relentlessly creates daunting situations around you.
So, the general wisdom says that you have to counter credit card debt with full thrust. With tax refunds, you ought to pay off the credit card debt as a top priority.
If you don’t have enough refunds to pay the balance in full, then pay whatever part you can and look to transfer the balance via a balance transfer credit card.
Balance transfer credit cards give you (more often than not) a 0% introductory APR for a set amount of time. This is probably the best time to pay off your remaining debt and any fresh stream on income should be dedicated to this noble cause.
If you don’t have enough credit score, look for a lower interest debt consolidation loan from National Debt Relief. They will work with you closely right from understanding your finances deeply to consolidating all your debt into a single and payable monthly obligation. This way they map out new possibilities for you.
2. Create a fortified wall to strengthen your fortress
Do you have problems dedicating a part of your income for future events which could go terribly wrong? Does it hinder your belief system?
You don’t wish to create provisions for unscrupulous developments? Then think of emergency fund as something to ward off evil; like a witch mark in the story of Moses and Pharaoh.
An emergency fund gives you huge resilience towards life events which would otherwise turn you to dust. A sudden job loss, medical bill, a cut in work hours by the ruling of the law or any event which is not music to one’s ears don’t come knocking.
Creating a provision for an emergency fund and keeping it in a separate bank account will ensure an influx of funds amid the turbulent times.
3. Conquer uncharted territories
Rome wasn’t built in a day and likewise, no one ascended to the throne in a day. If you want to build an empire of riches where you could immerse in riches, start investing today.
Even if you have no knowledge of the financial market you can start today itself with Betterment. Betterment Digital provides you with the opportunity to start smartly as an amateur by creating a mixed portfolio.
These diverse assets help you in benefitting from whole market gains in the long run.
Moreover, you just have to pay the fees which is as nominal as it gets – 0.25% of the assets managed. The best part is that there is no minimum balance requirement to start with.
You can start this year from a small chunk of money. For instance, you get a tax refund of $3000 and get and earn an average annualized return of 6% (However, the average annualized growth of S&P is usually 10%). You will have around $4500 in your account 7 years from today.
Earning $1500 in over 6 years might not sound enticing. The real beneficiaries are the people who will invest their refunds each year over the span of 6 years.
Moreover, compound interest and earnings add icing to the cake. They will have around $27k of savings plus interest in the span of 7 years from now.
If you want to Passively Invest and benefit from whole market gains, look no further than Betterment.
4. Arrange for your withdrawals
If you are employed, then it’s likely that you make contributions to 401(k) or other types of retirement account which is sponsored by your employer.
Both traditional and Roth IRAs are easy to open. You can make contributions up to $122,000 in Roth IRA if you are single or $189,000 if you are married and filing jointly. (Separate for retirees)
There are no limits for Traditional IRAs, nevertheless, there are income limits for tax-deductible contributions.
The major point of difference between IRA and Roth IRA is that you contribute non-taxed income to IRA and these contributions are taxable post-withdrawal.
Whereas, you contribute after-tax dollars in Roth IRA which allows you to take tax-exempted withdrawals amid the retirement.
Planning for retirement is always advocated because amid retirement it becomes hard for you to stream new sources of income because of several physical and medical constraints.
Moreover, you could be an empty nester in your retirement and have no one to supplement your income. Thus, it becomes vital for you to plan your golden years and secure them whilst you are still young.
Even if you choose to tap your savings in 401(k) and not open another retirement account, you can sign up for Blooom.
401(k) is the most common retirement account but its optimization is often overlooked let alone consulting Robo advisors for asset allocations.
Bloom does this for you. You can set up an account for free with bloom and benefit from its free critical analysis of your 401(k).
The best part is that Bloom manages all 401(k)s without the help of the employer and irrespective of where the account holder is based. This feature helps in dodging delays and hindrances.
5. Chase your calling
How many times do we see people who were strapped for choices at the starting of their career? Probably because they had an aging family member to look after, or they had an enormous student loan debt and had to start earning by whatever means possible. Quite a few times, right?
It is likely that you had a calling but couldn’t pursue it. Or it could be that after putting in so many years at your office desk, you have figured out a major lacuna in the demand and supply; a product or a service which masses at large need badly, something which will help them lead better lives.
Apparently, you don’t have enough money and are deterred by adding another line of credit. What if your idea doesn’t work?
You can shrug these inhibitions of and chase your calling fearlessly as Upstart is looking to fund dreamers like you.
At Upstart, you can get loans at a much lower APR and easier terms compared to other loan providers in the market. It’s possible because Upstart considers various factors before establishing a person’s credibility and potential to repay the loan.
Usually, lenders see a person’s credit score to assess his/her ability to repay the loan. However, the credit score does not give the holistic view of the probabilities of the debtor paying the loan back. Upstart has a very unique way of factoring in various aspects while assessing the person’s credibility.
They weigh:- Credit score, Years of credit, Education, Area of study and Job history and accordingly set APR and loan terms.
So, if you have been punctual in your employment and have performed decently well all through the years that add to your prospects of paying a loan back, according to Upstart at least.
This could be the time to unleash the entrepreneur inside of you and also the best way to use tax refund. Likewise, you can also raise money from Upstart for paying off credit cards and consolidating your debt.
6. Lock the money away in a savings account
According to a recent study by Federal Deposit Insurance Corporation, the average annual interest rates on savings account these days are 0.7%.
However, with a bit of a hustle, you can find interest rates which are higher than the average interest rate for the savings account.
If the heavens are kind enough and Uncle Sam happens to pay you anywhere close to $3000, you can buy that chic pair of jeans from the store down the lane and you will make more cash than its value (as interest) by the next year.
7. Spiff it up
No matter how much time you dedicate for the maintenance of your home, there is always something broken or non-functional looming over your head. Your house is arguably the most valuable asset that you own, besides, it has got sentimental value attached to it.
Thus, you shouldn’t be keen on repairing the stuff which gone unattended for long, for instance, the chimney or water damage etc. The more you procrastinate, the more the cost of repairs will add up.
8. Put the money toward your child’s college education
You know that you will have to search for colleges for your kids. So, it’s better that you start saving via the 529 plan now. The opening amount can be as low as $25 and one has the flexibility of contributing whatever amount one wants.
Starting this plan now will help you pay for your kid’s college in the future and will remove the burden of student loan debt from their shoulders. It is important to note that 44 million students are battling the student loan debt.
9. Invest in Karma
Truly, what goes around comes around. It is very easy for you to soak all your refunds in a matter of seconds. However, you will remain unacquainted with the true sense of fulfillment that comes when you support a cause.
Charity could possibly involve all of your family, for instance, shopping together for supplies that you intend to donate. It is possible that you may not have made up your mind on what causes you wish to donate to.
In that case, CharityNavigator.org introduces to various types of charities, should you be willing to donate.
10. Save for the thing you have been longing for
There must be something that you have set your eyes on, probably a lappy or maybe some other gadget. Either you haven’t been able to save enough money for it or you waiting for the discount season to grab hold of it. Whatever the case may be, creating a provision for a thing you long for always helps.
Have you and IRS had issues in the past?
You know that you and IRS don’t always get along well and there are times when not everything under the hood is good. Amid those times, it’s a smart move to take help of a professional tax consultant. But the question is whom to turn to?
Is there a tax service which offers all kind of IRS and Tax related service right from tax debt relief to offer in compromise to other tax-related issues?
The answer is YES. Community Tax offers premium tax services for all your tax needs. It’s a service which has years of experience in solving the most complicated tax feuds with IRS.
It helps individuals and businesses empathically and offers end to end service right from tax preparations to accounting services to tax filing to handling tax refund complications.
It’s hard to name a tax-related service that Community tax doesn’t offer. So, if you have any issues with the IRS, Community Tax will guide you through. Visit Community Tax here.
No matter how much money you receive as a tax refund, it’s your choice to put it to work for you. You can break the bank and grab something that you been longing for quite some time now, or you can use it to build your riches (at least start off with it).
A bit of indulgence is not hazardous either, however, you ought to put the major chunk of the money to best use. Your future self will be much obliged.