According to the IRS, about eight out of ten taxpayers received a federal tax refund in 2015, and it looks like it'll be about the same percentage this year. It's tempting to splurge on a big-ticket item, but the better move is to carefully manage your refund to maximize your dollars. Virginia Business has identified some top tips for how to make your tax refund count—whether you decide to spend it or save it—in "How to maximize your tax refund."
- Analyze your tax refund as a hierarchy of needs. Take a look at your circumstances and see if there are any gaps that need correcting. Are you saving the appropriate amount for your age? Do you have adequate insurance protection? Use your tax refund to cover any shortcomings.
- Consider the return on investment (ROI). If you see that all of your financial bases are covered and you want to go ahead and spend the refund, be certain you're receiving a good return on investment with that purchase. Spending the money on an experience with the whole family is money well spent.
- Modify your W4. Adjust how much money is withheld from your paycheck on your W4 form by changing the number of deductions. If you get a big refund every April, you might want to up the number of your deductions. This withholds less out of your paycheck, and you'll have more money for monthly expenses.
- Plan ahead. One way to be assured that you make your tax refund count for the next year is to look ahead and consider any major life changes that may be in the foreseeable future. Planning for deductions helps you understand how much you should withhold and where you should be allocating funds.
- Meet with an expert. After you get your tax refund, talk with your financial planning team to establish priorities. Make the necessary adjustments to ensure the money will be put to good use throughout this year and place you in a good position for success for the next tax year.
Have a realistic mindset concerning what your tax refund is and from where it's coming because this could influence the way it's spent or used. Remember, your tax refund is your money—money for which you've worked hard. It deserves mindful financial planning.
Reference: Virginia Business (April 14, 2016) "How to maximize your tax refund"