As tax season closes in, most people are looking forward to a nice gift from Uncle Sam in the form of your Tax Return.
The opportunities are endless. A payment for a new car? Pay off some bills? Invest? Your tax returns can take you a long way – and we want to help with this big decision of yours.
First and foremost, what is a tax return? Contrary to popular belief, a tax return isn’t necessarily a good thing. When you withhold taxes from your paycheck they go into a large pot held by the IRS. Then you figure out your taxes at the end of the year, the IRS calculates the difference between what you’ve paid and what you owe, and viola…your tax return.
If you notice your tax return increases every year or you receive a larger than average check from the IRS then you might be withholding too much. Remember that withholding taxes take it from your pocket to the IRS and if you withhold too much then that’s cash directly out of your pocket.
But that’s a conversation for next year, right? This year you have a check on its way and already plan the creative ways to spend it. Below are a few ideas that we have on how to get the most out of your tax return:
Pay off Credit Cards – Credit cards typically carry much higher interest than other loans, reaching APR’s up to almost 30%! When you carry interest on a credit card, you’re paying that company a lot of money. Lowering this debt can help you get ahead while avoiding costly interest rates.
Fill your Roth IRA – The annual limit for Roth IRA’s is $5,500 (or $6,500 if you’re over 50) and a tax return might provide just the boost you need to fill this account up. Investing in a Roth can provide growth, tax-free build up, and more flexibility than your 401(k).
Start Saving for College – A 529 plan is another good investment for yourself, or more importantly, your children. 529 plans provide a tax-deductible platform where you can save for your children’s education. Proceeds from these accounts can pay for qualifying higher education expenses and have the “double write-off” capability.
Upgrade Your Life – Need a new roof or transmission? Maybe you want to do something a little more fun like a vacation. Well, here’s your chance. Financing big purchases can play a big role in peoples lives but paying off a bigger chunk can lower interest payments and reduce long-term debt. Plus the mental benefits are obvious. Go have some fun.
Whether its Jamaica or paying off a credit card, using your tax return wisely is an important decision that far too many people make impulsively. Remembering that this check isn’t a gift, but a refund of your salary, will help ensure that you make smart decisions while also maximizing your happiness in the process.
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Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Creative Financial Partners are not affiliated. Additional products and services may be available through Eric T Croak or Creative Financial Partners that are not offered by AIC. Please personalize document with your current AIC Disclosure language. In addition, please add – Representatives of AIC do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation.