At the start of the new year, we are all busy creating plans that will help us increase our personal net worth. It is a motivating time to plan for the future and in most cases, we concentrate on the financial aspect of our lives. The consumerist society that we live in gave us a deep-seated need to make ourselves financially and materially abundant.
There are many ways to earn extra income to make this possible. Some of them are actually ours already – we just have to claim them. One of them is our income tax refund.
Most of us view our tax returns as a bonus that we get every year. The government returns the excess taxes that you paid off of your income in the past year. This comes from the federal and/or state government. In some cases, even if someone does not pay any taxes, they are qualified to get these refunds because they qualify for certain tax credits.
According to the latest data from the IRS.gov, tax year 2010 resulted in 142.9 million income tax refund. This is considered to be an increase of 1.7% from the 140.5 million in tax year 2009. The data showed that the total returns amounted to $8.1 trillion which is a 6.1% increase compared to the previous year. The government site noted that this is the first time that it went up in two years.
Assuming that you can expect to receive your tax returns from the government, what exactly do you plan to do with it? You need to be smart about this so that you will not waste the limited resources that you have.
Smart uses for your income tax returns
It is easy to get sidetracked when you are faced with a monetary “bonus” but you need to keep yourself from celebrating by splurging – at least, until you have considered your options.
So what is the smart way of using your income tax refund? We have 4 suggestions for you.
Pay off your credit obligations. If you have some debts leftover from last year, you may want to think about using your tax refund to lower your balance. Slicing off a huge chunk of the high interest debt will get you off to a good start in getting rid of your credit problem once and for all. Take advantage of this money and use it to eliminate your liabilities – or at least, lessen it. If this is one of the many resolutions that you have, you have one less to worry about for the rest of the year.
Put it in your savings. Another smart move for your income tax refund is to put it in your savings. This is especially true if you do not have adequate cash in your emergency fund. If that is true, you can prioritize this over your debt payments. You can keep yourself from taking on more debt in case the unexpected happens.
Invest your money where it can grow. If you have savings, you can choose to put your money in some investments. Buy some stocks or bonds so your money can grow at a faster rate than what is accrued in a savings account. You can choose low or high risk investments. It really depends on how much money you can afford to risk. If you have enough emergency fund in your savings, you can probably invest all of your income tax refund. That should help you grow your money for various saving goals like your retirement or something similar.
Grow the value of your assets. Lastly, you may want to use the money to help grow the value of your assets. For instance, you can fix up your home. It always needs maintenance anyway so head off any problem by doing the necessary repairs before any damage gets too severe that it needs replacing. You can also enroll in a training program that will improve your skills. That should give you some edge when you try to negotiate for a raise. You can actually buy savings bond directly with your tax refund. You can learn more about it in the article published on the IRS site entitled, “Now you can buy US series I savings bonds for anyone with your tax refund.”
When is the best time to file your tax returns?
Although the deadline of filing your income tax return is ideally on or before April 15, you can file earlier or later. But there are some important facts that you need to know about it.
There is an option to file as early as January of the year. While things have yet to pick up after the holidays, you might want to start working on it. Just so you can get it out of the way. A lot of consumers dread filing their income tax refund because they really find it to be quite tedious. But if you file it electronically, you can actually start preparing for it by January. That way, when the forms are sent to you by end of January, you can begin completing your forms and filing by February. That way, you can forget about it already.
A lot of people view tax refunds as a loan that the government uses interest-free. You want to avoid that because you are putting your money where it is not growing. Best to get it as soon as you can so you can invest it or put it to work in increasing your personal net worth.
On April 15
In truth, the deadline will depend on what calendar the individual is using. It can be the fiscal or calendar year. The IRS wants it to be filed in the middle of the fourth month – which in a calendar year is on April 15th. If the date falls on a weekend or a holiday, the deadline is moved to the next business day.
While there is nothing wrong with filing on this date, you may have to face a lot of last minute filers. Not only that, you may be faced with a longer waiting time because the IRS has a lot to process. If you file off-peak, then you may have your refund earlier.
On October 15
In case you cannot file your income tax refund in time for the April 15 deadline, you can file it on October 15 but you need to apply for a filing extension before April 15. There are no penalties to be paid if you file on this date. Any filing after this date will be penalized. Also, October 15 is the last day to file electronically. If you file after, you will be forced to do so through the classic way – with paper returns.
If you wish to know more about filing your income tax refund, you may want to visit the IRS website – specifically the IRS.gov/refunds.
Ideally you want to file your tax refund as early as you can because it will help you when you are creating your household budget worksheet. You can see where you can put the money you will receive so it is in a position to help grow your personal net worth. That is how you be smart with any kind of income that you will receive.