According to the IRS, refunds to taxpayers averaged about $3,200 over the past two years and over 92% of the refunds were direct deposited into the taxpayers account. Use this as an opportunity to bolster your personal balance sheet.
- You could use the refund to pay off debt. For example, you could pay off credit card debt. Paying off credit card debt with your refund would decrease your liabilities on your balance sheet.
- You could use your refund to start building your emergency savings fund or increase an existing emergency fund. This strategy may help you avoid landing in credit-card debt if you have an emergency. Adding funds to an emergency savings fund would increase your assets on your balance sheet.
- You could use your refund to boost your retirement savings. For example, you could contribute to a Traditional IRA or a Roth IRA. In 2016, the total amount you may be eligible to contribute to either a Roth IRA or a Traditional IRA is $5,500. People 50 and over can contribute an additional $1,000 for a total of $6,500. Keep in mind that you can only contribute to a Roth IRA if you have earned income and your income is below a certain threshold. If you work and your spouse does not, you can also contribute to a Roth IRA in his or her name if your joint income is within the limits. Adding funds to an IRA or Roth IRA would increase your assets on your balance sheet.
- You could use your refund to build a college fund for your children. For example, you could use the refund to contribute to a 529 account. Adding funds to a 529 account would increase your assets on your balance sheet.
- Lastly, if your refund was substantial, consider giving yourself an immediate raise by adjusting your tax withholding to increase your take-home pay rather than waiting all year to receive a refund next year. You can adjust your withholdings by updating your W-4 at any time during the year. Use the IRS Withholding Calculator to help you determine the adjustments.