It’s tax season. If you’re getting a refund, chances are you’re already making your list and checking it twice. But don’t just blow it all on something you don’t really need. Be smart. There are a few responsible things you should plan to do with that refund check. Check out some suggestions below for maximizing your tax return. If you’re looking for a few smart tips for maximizing your tax refund, you’ve come to the right place.
Tip 1. Plan Ahead for Your Tax Return
If you’re going to be getting a refund on your taxes this year, make sure you plan ahead for the best use of those dollars. As a homeowner, there are probably things around the house you might want to tackle. Make a list in order of priority. Include the associated costs and see which projects will add the most equity to your home.
You might be in the market for a new vehicle. Do your homework. Be sure to review price comparisons across multiple dealerships. Make sure you have enough set aside for a down payment, and think of your tax return as just bonus money to help you get a jump start on those monthly payments (as long as they fit into your normal monthly budget).
Planning a vacation? Maybe you can now use a couple hundred bucks from your tax return as your spending money.
Whatever your intentions are for the money, make sure you are prepared. Create a budget outlining exactly how much money will go to which things. Just like Christmas shopping, this will help keep you from getting too tempted to spend more than you’ve budgeted.
Tip 2. Choose Wisely Between Needs & Wants
A great tip for maximizing your tax return is to choose carefully between needs and wants. Sure, that basement home theater sounds totally awesome – you’d be the talk of the neighborhood! But if it’s really new siding you need, be practical.
It can be tempting to want to join your friends on a cruise, but perhaps a wiser choice would be to payoff your student loans so you’re no longer carrying that debt. Responsible decisions are never fun at the time, but so worth it in the long run.
If you’ve filed jointly with a spouse, sit down together with your wish lists and talk about the things that are really a priority. Chances are, you might have one or two things that are in both of your top five needs lists. That might be the time to get rolling on that master bathroom remodel you’ve both been talking about for years.
Tip 3. Save Not Spend
While it can feel like a bonus check when you get your refund, don’t spend it all. This is definitely not exciting by necessary. Save your tax dollars.
It might not feel like maximizing your tax return in terms of material things, but you’ll benefit down the road when you have that emergency fund well established. Depositing that money into your savings account will give you that feeling of satisfaction. Keep it in there long enough to earn a few extra bucks in interest. Plus, if something happens down the road where you need extra cash, you’ll be glad you didn’t blow it on that new designer bag you just had to have.
Pro tip: Another way to maximize your tax return is to find creative ways to get more money back in the first place. There are some hidden ways you might not know of that can add a little extra green to your bank accounts. Did you know you can deduct moving, storage, and travel expenses if you relocate more than 50 miles for a new job? Charitable donations are another big way to increase that refund. Keep track of the value of any clothing or cash donations, and even the cost of that box brownie mix you made for your son’s bake sale – those costs can be recorded as deductions, too. This will make your refund check bigger which means more money to put aside in your rainy day fund.
Tip 4. Privacy Matters
Keep your tax return to yourself. Not everyone has the same circumstances, so not everyone will receive the same amount back. In fact, some people won’t get a return at all – they might even have to pay more.
Common sense, sure. But if you’ve got a friend or family member who’s always looking to borrow $20 here and $10 there, you’ll be glad you kept a tight lip about the return you got back.
Tax returns are, of course, tied to your earnings, too. Just as you won’t go around asking people how much money they make in a year, don’t ask how much they got back in a tax return. A general rule of thumb is to only discuss tax-related matters with your spouse/significant other and the person preparing your taxes. That might be the same person if you file your own taxes. Point is, it’s not a conversation starter at a party.
You’ve Earned It
Quite simply, you’ve worked hard all year. You’ve literally earned your tax return. Don’t let it slip away on things you really don’t need.
Pro tip: Think about your tax return as just that – money you’ve earned through working hard. Do the rough math to figure out how many hours you would have worked to earn that amount of money. The number might shock you. This will help when you’re narrowing down the list of things you really need to spend your tax return on vs. things you want to spend your tax return on. For each item, ask yourself, “Is this really worth the number of hours I’ve worked to earn this?” Go with your gut on the answer.
While spending your refund check on a bunch of new stuff feels good in the moment (instant gratification), it might not feel so great in the end. It’s all about balance. As long as you have a plan and stick to a budget, you’ll be maximizing your tax return by saving some and spending a little on necessities.
If a new home is at the top of your need and wants list, consider using your tax return to invest in a new home for your family. Contact us at Colonial Van Lines for help finding that dream home and we’ll even throw in a free moving quote!