The average American taxpayer gets around $3000 back at tax time in the form of a refund check from Uncle Sam. Those who look for tax resolution help often wonder what to do with the money they receive. The IRS will help you to adjust your tax withheld in order not to overpay. But remember, if you do not overpay then you will not receive a refund. Tax pros say this is the way to go, especially if you regularly get very large refunds. However, for the average taxpayer, the refund check represents a sort of delayed savings plan that pays zero interest. The advantage is that you have no choice but to contribute, in a manner of speaking, to the plan.
Many people have no idea what to do with the financial windfall, though professionals say that you should definitely have a plan. It all depends on where you are in your work life, and where you are in terms of savings goals. The other major consideration is whether you have significant unsecured debt, namely credit card debt. You should also ask yourself, honestly, whether there is some major emergency that must be attended to immediately. If there is, then that is probably where the bulk of your refund should go.
The main categories to look at for your personal financial situation are debt, savings, and other expenses. It makes the most sense, the money gurus tell us, to pay down debt first. The interest you pay on credit cards is virtually eating away at your financial castle. After paying down those pesky credit cards, look to set up some sort of rainy day fund to cover about six months’ worth of everyday expenses.
After taking care of the debt and the emergency fund, it is pretty much a judgment call at this point, depending what your particular needs are. Maybe you want to make a few mortgage payments ahead of time, or take a needed vacation. Interestingly, many people choose to get elective dental work with the funds.
The biggest mistake people make is to do nothing, to have no plan, to not even think about their tax refund until the day it arrives. This is asking for trouble. All the top advisers say that you should make a written, detailed listing of where each dollar will go. This way, a tiny bit of work on your part today will make the future much brighter.
Experiencing tax problems with the IRS? Contact Guardian Tax Resolutions. The Guardian will help you resolve your tax issues with the IRS.
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Tags: Debt, identity theft, IRS, tax, tax problems, Tax Refund, tax relief, taxes