Over 80% of Americans filing taxes this year will get refunds. For many people, this much-anticipated refund is the one redeeming quality of tax season. With the average tax refund hovering around $3,000, you probably already have plans for your tax refund. Or, maybe you're not sure what you're going to do with it. Either way, here are a few of the smartest things you can do with your tax refund.
First things first—if you’re behind on any bills or have accounts in collections, use your refund to get caught up. Being in the red can wreak havoc on your credit score (not to mention your emotional state of mind), and the longer and more behind you get, the more difficult it is to get caught up.
Unless you have a zero interest credit card that you pay off every month, one of the best things you can do with your tax refund is get rid of your credit card debt. Paying off or down high interest debt means you’ll end up saving a fortune on interest.
Paying down debt has other benefits as well: it will likely raise your credit score, since a third of your score is calculated based on your available credit. When your credit is maxed out, your score tends to suffer.
You don't have to save all of it, but saving a portion of your tax refund is a smart thing to do. This is especially true if your emergency fund is running low (or non-existent). You can make this easy and reduce the temptation to spend it all by having your refund deposited in separate accounts. You can have your refund directly deposited into multiple accounts; just specify the amount you want in each when filling out Form 8888, Allocation of Refund, when filing your taxes.
The IRS allows filers to submit up to $5,000 of their 2013 tax refund to an IRA. Depending on your income ($127,000 or less if you're single and $188,000 or less if you're married filing jointly), you can put the money in a Roth IRA. If your retirement savings is not where you need it to be, this is a great option. A Roth allows you to withdraw the money tax-free once you retire.
Chances are a few grand won't completely redo your kitchen, but you can still make home improvements that will go a long way in raising your resale value. Making solid improvements, especially if you're hoping to sell your home in the near future, is always a good investment. Keep in mind this doesn't necessarily mean buying all new furniture. However, a fresh coat of paint on the walls, landscaping to increase curb appeal, update fixtures, or add backsplash can all go a long way.
If you’re one of the lucky ones getting a tax refund this year, make sure you put it to good use. These smart things you can do with your refund will help you get your finances on track and help bring financial peace of mind.