ALBANY, GA (WALB) - By now, some of you have gotten your tax refund. And it's likely the only reason many of us look forward to tax season. So what should you do with that refund? I have six suggestions for you, and spending it all is not an option!
Last year, the IRS issued 97 million refunds, with the average refund around $2,763. While it sounds good to spend it on that much-needed vacation, you may need to take a closer look at your finances.
In 2017, GOBankingRates surveyed more than 2,500 adults across the U.S. to find out how much debt Americans have. Those results revealed mortgages, credit cards, and auto loans are the top three common debt to have in the country.
- 65-percent mortgage debt
- 50-percent credit card
- 32-percent auto loan debt
- 25-percent student loan
- 21-percent medical debt
If you have more than one loan or credit card, you can use the avalanche method to pay off the lowest balance first, or snowball method which is paying off the highest interest rate.
Tax expert John McDuffie with Mauldin & Jenkins CPA said "paying off debt is extremely valuable, especially folks that have credit card debt, the interest on that is not deductible, whether they itemize or not."
Having three to six months of expenses saved up is a good rule of thumb.
If you have a habit of dipping into savings from time to time, open a separate savings account at a bank you don't frequent.
It's an individual retirement account that consists of stocks, bonds or mutual funds.
There are several types with the most popular an individual retirement account (IRA) or Roth IRA.
According to Investopedia, a traditional IRA allows individuals to direct pretax income towards investments that can grow tax-deferred; no capital gains or dividend income is taxed until it is withdrawn. Individual taxpayers can contribute 100% of any earned compensation up to a specified maximum dollar amount.
"For a ton of folks in Southwest Georgia, the Roth IRA will be a tremendous thing to do because those earnings are never taxed and it will be nice to have tax free income at retirement," added McDuffie.
The difference between the two is when you make a withdrawal from the account, the IRA account is taxable and the Roth IRA is not taxable.
Learn new skills at a community college, sign up for personal development seminars or buy fitness gear and sessions with a personal trainer.
Both come with tax benefits. For instance, small upgrades add onto the tax basis to your home so when you sell it for profit.
If you donate money to a qualified charitable organization, you can reduce your taxable income and lower your tax bill for next year.
While a new wardrobe or a new car is a fun idea to entertain, you need to take a realistic look at your financial situation to determine whether your tax refund would be better put toward financial needs.
"If you are getting a tax refund what you have done is you have made an interest free loan to the government because if you would have less in withholdings, you could've had this money on a monthly basis," remarked McDuffie.