Tax Returns: Taking Care of What's YOURS

Tax season is in full swing once again. For many people it’s a stressful experience of hair-pulling proportions. It’s unavoidable, but there is an enticement: the potential refund a taxpayer receives after filing their return. 

Tax refunds. It’s a term that can really stir people into a frenzy. And why not? We’re talking “free cash”. Think of what we can buy!

But careful. Notice the use of those quotes up there? It was for a reason. That cash isn’t free; you’ve already paid for it. A tax refund is simply a return on an overpayment made to the government the previous year. 

So a tax refund is money rightly returned to you. Great! So why put the brakes on spending it? 

Well, those tax returns are a gold mine for businesses. This is the time that money is coming in, and companies know it well. They’re on the lookout for fresh game during tax-refund hunting season. We’ve all seen the commercials encouraging taxpayers to use their refunds to take out loans - to build a pool, take a trip, etc. Need Lasik? Use that tax refund to fix your vision! Or use it to buy that expensive bag you’ve had your eye on for ages. 

The item of interest doesn’t matter, the message is the same: spend, spend, spend! Even worse—lots of tax services offer loans so you can get your refund money even faster. So, we are being encouraged to pay interest, to get our own money back, which we loaned interest-free to the government—REALLY? 

Let’s start a new trend—take care of your own money first. These companies aren’t advertising for your benefit. They want your money. And they know the urge to spend extra money in-hand can be incredibly tempting. 

But that tax refund is YOUR money, so why not treat it that way? Instead of spending, here are a few options to consider:

1.)  When filing, try to get the W-4 withholdings with your employerto result in a near-zero tax owed or refunded amount.

2.)  Keep your eye out for any promotion that encourages spending your tax refund, especially if it is in advance of the refund’s receipt. Saving your money is more important than paying a fee or spending it on something you otherwise might not have purchased.

3.)  When your refund comes in, use that money to start a separate savings account. 

4.)  After you’ve saved up some in that separate account (from the higher paycheck you get due to not expecting a refund), consider using it to increase your 401k or IRA contributions. Or use it to pay down debt. Anything that will effect you positively in the long run.

Remember, that tax refund is YOURS. That can’t be stressed enough. Take ownership of it; put it to your own good use. Don’t fall victim to the spending frenzy. Do what you can to stay out of the forest during this “hunting season” by considering the above ideas.