When it comes to tax time we ALL hope for a refund.
And if we’re lucky enough to get one, we are left with the big question = What do I do with it?
Before I get into that I’d like to clear up one confusing point regarding tax refunds. I find a lot of people do not realize exactly what their refund is. Or think it is money the government is giving them.
The most common way tax refunds occur is when you pay more taxes throughout the year through your paychecks than what you actually owe.
On your paystub you can see the withholding amounts taken out on each check. This amount is a guess…its purpose is to help you make sure you are paying enough in taxes.
Then any deductions or credits you can claim at tax time are taken into account and you may get some of that money back!
Using Your Tax Return Money Wisely
Because the money you overpaid to the government is really your money, it’s VERY IMPORTANT that you make wise decisions and use your tax refund wisely.
It isn’t really free money. It was yours all along!
So your goal is to use it wisely and not to spend your tax refund on wasteful, unnecessary items – treat it just as you should treat any other amounts coming into your bank account – with proper care and thoughtful consideration!
A lot of people ask me “what should I spend my tax refund on?” But I think there’s a better question in this scenario. A better question would be “How should I handle my money?”, which is the bigger question than just getting some tax refund advice. Let’s talk a little bit more about the tax refund in general and then we’ll get to the answer! 🙂
First of All – How Can You Get More Back On Your Tax Refund?
The BEST tax refund advice I can give you is to is to hire a professional! An easy way to get more back is to use a tax service.
Tax laws change pretty often, and these tax professionals are trained on which laws are going to affect you. This sort of personalized service can be well worth the cost of the prep since it will often leave you with more cash (and more options to spend your tax refund on!).
For example, if you spend $300 for HR Block to do your taxes but you get an extra $700 back, you still end up with a $400 profit. Not too shabby.
How do they do it? Rather than just submit one tax refund per year and hope for the best (like most of us do!) these tax professionals work on hundreds of returns per year. They do it all the time and know where to look for deductions or credits that you may have never even heard of, let alone applied for.
As a CPA, I have even been guilty of missing tax benefits due to me because I didn’t realize the laws had changed. If you’re not a practicing financial expert, I highly recommend using help to get your taxes done so you can receive and use your tax refund on the things you need.
I used TurboTax for many years and always had a good experience. I don’t mind spending a few hours entering all of my information, know that the software will guide me in the right direction.
An Easy Way to Save on Tax Prep – Use Cash Back Apps
An incredibly easy way you can save money around tax time is by using a CASH BACK website to purchase your tax preparation software or services.
Have you ever heard of Ebates? I absolutely love it.
I have been using it for the past 3 years and it has saved me money. It is SO simple to use. Here’s an example: go to the Ebates website and type in the word “tax”.
You will see multiple companies offering cash back rebates just for clicking through to their company link from the Ebates website or app.
As I write this, the going rates are between 9 – 7.5% cash back. I wouldn’t be surprised if that number goes up as tax day draws closer. And they are legitimate, solid brands—H&R Block and Turbotax are two very well-known brands that use Ebates to offer cash back.
After tax season, you can also use Ebates to save money on everyday purchases. Recently I was in Walmart trying to find a good DVD player. I found the one I wanted on the shelf, but instead of picking it up and taking it to the cashier, I opened my Ebates app to click through the Walmart link to make the purchase, and then just walked up to customer service counter and picked it up.
It was ready in about 15 minutes and I got $4 back into my Ebates account. Win-win!
I earn about $100 back each year, which is great since I was already going to buy those items anyway. Check out Ebates.com >> It’s worth a look around. They give you $10 after you make your first $25 purchase through one of their links, kinda like a nice welcome and thank you all rolled into one.
If you’re a dedicated Amazon shopper like me, you’ll really rake in the dough. It’s the way I earn the majority of my cash back rebates. And, if you are trying to figure out the best way to use a tax refund and you decide to buy something, buy it through Ebates to add even more money back in your pocket—it’s almost like a dividend.
Limited Time Giveaway!
I’m excited to say that just for WhatMommyDoes readers, Ebates has agreed to do a giveaway! Enter below for your chance to win a $250 gift card! There are several ways to enter – GOOD LUCK!
What to Do With Your Tax Refund Money
So after you prepare your tax returns and realize you sent a little bit too much money to the government this year, you will probably find yourself asking “what do you USE a tax refund for?”.
Before you even APPLY for your refund—stop! I highly recommend deciding what you will do before you actually receive your refund.
That’s because it’s easy to get caught up in the great feeling of getting some money in your pocket and make bad money decisions (ask me how I know, LOL)! Sit down and figure out exactly what you want to use your tax refund on.
If you have a spouse, bring them in for the conversation too—you both need to be on the same page about the best way to use a tax refund before that money lands in your account.
TAX REFUND ADVICE: I RECOMMEND SAVING SOME AND SPENDING SOME
Whatever percentages make the most sense to you is fine, but if you want to know how I personally use my tax refund wisely, I follow a 70/30 plan. Meaning, I save 70% and only spend 30%.
By allowing yourself to spend some of it, you won’t feel too restricted and still get the benefits of long term saving along with immediate gratification.
If you don’t plan to save a certain amount up front, then you will surely spend it. How you choose to allocate the part you save depends on your personal financial situation (like whether you have debt to pay or kids’ college accounts to fund).
An example of what this would look like:
- 15% Retirement Savings
- 15% Emergency Savings
- 20% College Savings
- 20% Debt Repayment
- 30% Spend/Splurge
That adds up to 100% total. The most important part of this equation is the 70% SAVINGS. If you want to put the entire 70% into a personal savings account, make sure to put it into one where you have a strict “DO NOT TOUCH” rule in place or you’ll be tempted to spend it in no time.
The Best Way to Use an EXTRA LARGE Tax Refund?
There have been a few times where I get a much larger tax return than I expect it to be. So what do you use a tax refund for when it is way bigger than expected?
A lot of people ask me this because, again, it can feel like you got a major accidental windfall (even if it’s really your money in the first place).
What I recommend in this situation is to err on the side of SAVING more.
What I mean is this – if you thought you were going to get $1,000 back, but you actually got $2,000, then treat that unexpected $1,000 difference like extra savings. So using my numbers as an example, you would save $1000 extra + $700 = $1700 and put that in your savings account.
Then you would allow yourself to spend the $300 of the original $1000 that you expected to get…it is learning how to use your tax refund wisely.
If you REALLY truly can’t stand to have that much and not spend more, then I’d say max out at spending half of the additional amount. That way you are guaranteed to pad your savings account very nicely with money you didn’t realize you were going to get anyway!
What you do NOT want to spend your tax refund on is junk you don’t need while your savings accounts suffer. I like to look at tax refunds as opportunities to save more, not spend more. When you follow these simple “automatic savings” rules, you will amass a good amount of savings over the course of several years.
It’s a great feeling to know you have some extra cash to rely on when times get tough.
The Beauty of This Tax Refund Plan
The beauty of this tax refund advice is that it’s relatively simple and easy to actually implement.
To sum it up – be careful about what you use your tax refund for and what you spend your tax refund on.
Now that you have my official tax refund action plan, I wanna know – what will you do with your tax refund?