Hooray! You are getting a tax refund. As you fantasize about all the ways you can spend it, don’t forget ways that you can use this year’s tax refund to get a bigger refund next year. Here’s how:
- Make a contribution to your IRA: If you are eligible to contribute to a traditional IRA, that contribution is tax-deductible, so you may boost next year’s refund by 25% or so of the amount you contribute, depending on your tax bracket. Plus you’ll have that money growing for your future rather than squandered on electronics that are obsolete the day you bring them home from the store.
- Contribute to charity: Remember how your mom used to implore you to think of the people in need out there? Well, they are still there. You can use part of your tax refund to help those less fortunate than you, and if you itemize your deductions, you’ll garner a tax deduction as well. That will boost next year’s refund by 25% or so of your donation, depending on your tax bracket.
- Boost your flexible spending account: You can ask your employer to take money out of your paycheck and put it into your flexible spending account. That will leave your paycheck short, but you can make it up by using part of your tax refund to live on. What’s the advantage? The money that goes into your flexible spending account is not taxed, reduces your taxable income and can boost your tax refund next year. And you’ll have that money in the flexible spending account to spend on health care, child care, and whatever else your employer’s plan allows.
- Purchase your teaching supplies: If you are an educator, you can use part of your refund to buy much-needed supplies for your classroom. You’ll increase the effectiveness of your teaching while garnering a tax deduction that will increase next year’s refund.
No matter what you decide to do with your tax refund, consider setting aside a bit of it to have some fun with. After all, you worked long and hard for that money – you deserve it.