The 2020 tax season opened on January 27 this year and the initial numbers from the Internal Revenue System (IRS) point to a rather slow start. It seems American taxpayers aren’t so eager to do their taxes, which is completely understandable. A lot of people find filing taxes difficult because you need to be careful with the details you submit to the IRS, though firms like Tri-merit.com can assist you.
Still, it pays to be a punctual taxpayer. Literally. Early taxpayers who pay more taxes than their liability get a tax refund early as well. In the first week of the tax season, the IRS has already issued 4.29 million tax refunds with an average amount of $1,869.
If you’re one of the many awaiting your tax refund, keep in mind that it’s your money and not a bonus check the government sends. This is why you may want to spend it wisely, as you would your normal paycheck. Here are a few things to consider spending it on:
1. Your emergency fund
According to Bankrate’s Financial Security Index, 25 percent of adults in the U.S. do not have enough emergency funds, and a further 28 percent do not have any emergency savings at all. Financial experts recommend that you save at least six months’ worth of expenses. So, if you don’t have an emergency fund yet or you don’t have enough, it’s wise you use your tax refund to pad your emergency savings.
2. A high-interest debt
Credit cards are extremely helpful when financing large expenses. But, they’re also a source of high-interest debts that, when not managed carefully, can spiral out of control. So before allocating your tax refund on a spring break getaway or a new Rolex, consider paying off high-interest debts first. This way, you’re taking an active step toward financial freedom.
3. Necessary home improvements
Your home is one of your best investments and its value has the potential to increase even more. One of the easiest ways to do that is by making improvements around the house. Adding a fresh coat of paint is a low-cost improvement with a high ROI. Landscaping your yard adds to your property’s curb appeal and updating your bathroom can have up to 86.4 percent ROI. There are numerous home renovations that offer great returns, so get your hard hat and hammer on.
4. Donate to charity
Let’s admit it: when you’re on a tight budget, donating to charity may not be a priority on your list of things to spend on. But if you can, you should. Apart from helping those in need, donating to charitable causes can also benefit you, tax-wise. When you donate to tax-exempt 501(c)(3) organizations, like the American Red Cross, the Salvation Army, or Goodwill, you can take a tax deduction for the amount you contributed.
Whether your tax refund ends up being a major windfall or barely a drop in the bucket, treat it as if you worked hard for it: because you did! It’s perfectly fine to treat yourself a little, but you can also choose to put the refund into improving your financial situation.