Three Tax Refund Best Practices

taxes.jpg

LIVE B.R.O.K.E

BUILD WEALTH

Unless you plan to do an extension, there is just over a month of time remaining to file your 2017 tax return. Many of you likely fall in one of a few categories. You have already filed, are still waiting to file or waiting until next season to file while others may have had the misfortune of losing their tax refund altogether due to a debt obligation. My question to you is how do you view your refund? Is it a bonus check that you can spend however you please? Do you feel it is a repayment of money you should have received throughout the year? The answer is much like many questions pertaining to finance, it depends.

Many low income filers receive credits that have nothing to do with wages earned throughout the year. If this is you than a portion of your refund is indeed a bonus via the earned income credit. Others like education credits, the child tax credit, adoption credits among others are directly correlated to expenses accrued within the previous year. These type of credits are repayments of money you already spent. Be sure to consult with a tax professional to get a firm grasp of your current tax circumstances.

Regardless of your current tax situation, there are three things that you must do with your tax return in order to improve your life fiscally.

  1. Pay down Debt - If you have debt obligations, it is wise to take a portion of your tax proceeds and apply it to whatever debt you see fit. Doing so can be more impactful to your financial health than buying another “thing”.

  2. Save - Much like you do with payroll or commision wages, always save 10% of everything that comes in. I don’t care what the circumstances are.  

  3. Invest - What I’m expressing here is not investing in the traditional sense. This investment can be a normal investment in one of the many asset classes. An investment in your education or maybe even a business. The point being is to apply some of your tax proceeds to an area of your life for long term improvement.   

The aim is not to prevent you from enjoying your money.However, the average US tax return is around 3,000. This is $30,000 over 10 years. If handled correctly, $30,000 can help make almost anyone’s life markedly better. Don’t be the person that has nothing.