Expecting a Tax Return? Consider These 4 Ways to Use It

Depending on your withholdings, you might be in for a solid tax return from the 2019 tax season. Last year, the IRS returned $324 billion to taxpayers with the average tax return at about $2,900. Before those funds arrive in your account, consider these options to help your tax return work for you.

First: Revisit Your Financial Plan

If you haven’t already, consider checking in with your financial advisor before you make any plans for your returned funds. Your check in should be a good reminder of your established financial goals and should also help you to ascertain that your existing plans are on track to meet those goals.

Once you know where you stand with your financial planning, you can set your mind to other financial goals or even to a fun expenditure or two.

Option 1: Add to existing savings accounts 

Tax-smart investment accounts can include IRAs, HSAs, and 529 plans. You may find that the extra thousand or more that comes in the form of a tax return can provide a nice boost to one of your savings plans.

Or maybe this you’re ready to open a new savings account. Favorable annual percentage rates (APY) could be an opportunity to open a new account with your tax return.

Your financial advisor can help you to understand rates and provide guidance on choosing an account that might work for your savings goals. Depending on the minimum balance requirements and accessibility and your own desires and needs, you might find that a new savings account with a high APY is a smart way to use that extra cash. 

Option 2: Invest

If you’re looking to make money with your money, investing your tax return may be an option to consider. Stocks, savings bonds, and interest bearing accounts are some ideas for investing your tax return, each with different benefits that will change depending on your specific financial situation.

Whether you have a robust investment portfolio or are interested in diversifying your investments, you may find that investing your tax return is a viable idea for your financial planning. Your financial advisor can provide more information about investment options and whether or not they’re a good fit for your tax return spending.

Option 3: Give

The season of giving may be over, but giving to charity and family is always an option for those looking to be tax-smart and feel good about how they spend their money. This can potentially serve as an addition to the charitable donation deductions you claim on the next year’s taxes, but it also gives that warm, fuzzy feeling that comes with helping a cause you care about. 

Option 4: Invest in Personal Development

Attending a class, whether for recreation or to become more qualified in your field, or starting a side business, could be a unique way to invest in your future. Though you’d be spending your tax return rather than saving it, personal development usually isn’t considered frivolous spending. If you’ve been waiting for a time to invest some cash in a personal project, this tax return season may be the time to do so.

Choosing an Option

Regardless of the amount of money you received in your tax return and your financial status, consider having a conversation with your advisor about your financial plan and how your tax return may or may not play into it. If you want to learn more about investing, our CFP® professionals at Puckett & Sturgill Financial Group would love to have a look at your unique situation and discuss the possible options for using your tax return this year.

    Stock investing involves risk including loss of principal. 

    Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. 

    Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such states’s qualified tuition program.  Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. 

    There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk.