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How Will You Use Your Tax Refund?

By Staff | Feb 5, 2020

The Internal Revenue Service announced they are accepting tax returns, so how will you spend your money? The Iowa State University Extension and Outreach section has some good tips when it comes to your income tax refund. The following are some highlights of the Plan Smart Ways to Use Tax Refund article from the website.

Is your tax refund the financial highlight of the year? After all, it is a valuable resource one you can use to get ahead.

“A tax refund is once-a-year income, so I recommend considering the entire year ahead when deciding how to use it,” said Barb Wollan, a human sciences specialist with Iowa State University Extension and Outreach.

Anyone may receive a large refund if they have extra taxes withheld from their paychecks.

For families who have sufficient income to meet their needs throughout the year, Wollan suggests that a great use for tax refund money is to save or invest it for emergencies, retirement, college or a major goal.

“If you think of tax refunds as ‘bonus’ money, you can set aside half of it, or more, to meet goals and boost your net worth without feeling any pinch in your budget,” Wollan said.

For those who occasionally find themselves short on funds throughout the year, Wollan offers two elements of yearly planning:

Think about needs and wants down the road

Consider major expenses that may arise

Past due bills can result in large expenses in the future with late fees and high interest rates, many will use at least part of their tax return to pay off overdue bills.

“When people set aside a chunk of their tax refund for expenses that may arise in summer or fall, they can avoid being in the hole when tax season rolls around again next year. That, in turn, reduces total costs since there would be no late fees and extra interest charges. This simple act of looking ahead can dramatically improve a family’s financial stability and reduce stress levels year-round,” Wollan said.

“Many families like to ‘splurge’ a little with their tax refund perhaps on eating out or going to a special concert or doing something else a little frivolous, especially since during the rest of the year there may not be any extra to splurge with. There is nothing wrong with that, if families have considered all their options,” said Wollan.

“When it comes to tax refunds, I encourage families to use at least a portion of this once-a-year income in a way that will help them get ahead in the long run,” Wollan said.