YES! Invest your Tax Refund!
We all love receiving extra money at any given time, right? Extra money isn’t accounted for and sometimes not even expected. Assuming all financial obligations are met, here are some smart ways to invest your tax return.
- Payoff High Interest Debt: Carrying high interest debt only depletes your cash flow in the long run. Pay off debt holding the highest interest rate first. If you have no credit card debt, pay down a car note or student loan.
- Up your 401K Contributions: If you’re not putting the total 6% towards your 401K throughout the year, you may be able to make up the difference using your tax refund. If you are behind in your targeted retirement goal, use the refund for catchup contributions.
- Increase a Home DownPayment or Resale Value: Buying a home this year, add the refund to your downpayment. This may eliminate the requirement for Private Mortgage Insurance aka PMI. Already own a home? Using your refund to make one additional payment per year can reduce the term of your mortgage significantly.
- Make an Investment: This would be a great time to make an investment. That start up company you’ve been wanting to open, invest in real estate or stock. These are all types of ways to invest. Be sure to do the research prior to investing. Determine which investment best suits you.
- Make Investments that Save Time ane Money: Find a product or service that will enhance your company by saving you time and/or money. This is done by taking a look at your current applications, services and product and deciding which to let go and which to further invest in to further enhance your business.
- Open a Credit Card Account with Benefits: Small business owners trying to establish business credit or increase their personal credit limits may want to open a credit card. Choose credit cards with benefits and incentives such as “cash back” or “frequent flyer” rewards. Before opening a credit card, ensure you understand the “credit factors” that make up your credit score and the ramifications associated with opening a credit card. For example, while opening a new credit card may increase your spending limits (which may be appealing when applying for business credit), it will also decrease your “credit age”. Always seek financial advice prior to making these decisions.
Give a Tax-Free Annual Gift: If you have a well-established financial portfolio and are near retirement age, you may want to consider gifting excess funds, such as a large refund, every year. For 2022, the IRS set an annual limit of $16,000 per recipient on the gifts individuals are able to transfer to others, including family members, without filing a gift tax return.