While some Americans loathe tax season because of what they might owe Uncle Sam, many others wait for their tax refunds like children on Christmas Eve. If you’re due a refund this year, don’t blow it. Here are a few dos and don’ts to make the best use of your refund.
Use it to catch up on past due bills. Sure, you might have had your eye on a shiny new tablet or nice new furniture, but paying the bills you owe will have a bigger impact. You’ll stop late fees, get back in your creditors' good graces, and save your credit from further damage.
Don’t spend it before you get it. Avoid making solid plans for your refund until the money shows up in your bank account. And you should definitely avoid a refund anticipation loan, which will take a percentage of your check so you can receive the funds quicker.
Save or invest some of your refund. Use your refund to replace money you’ve spent out of your emergency fund or to jump start your emergency fund. If you already have a sizable emergency fund, consider investing some of the refund to increase the money.
Don’t blow it all on frivolous things. It’s ok to spend some of your tax refund on things you want, but limit it to a percentage of your refund and not the whole thing. Spend the majority of your refund on something with long-term benefits and a smaller percentage on short-term gratification.
Consider adjusting your tax withholding. If you tend to receive a large tax refund each year, you might have too much withheld from your paychecks. Talk with a tax professional about the correct tax withholding for your filing situation. You’ll have a lower tax refund next year, but more money in each paycheck.