For many Americans, a tax refund is the largest check they will receive all year. Saving all or part of that refund can help you prepare for unforeseen expenses throughout the year or perhaps reach a larger savings goal.
Research has shown that setting aside just $500 can cover a lot of the emergency expenses people often experience. Perhaps, though, you want to catch up on some bills, save for a major purchase, or even treat yourself to something special. Whatever you have in mind, tax time is a great opportunity to put money aside.
Here are some basic steps to take.
- Estimate your refund. Think about how much you might get back in a refund, based on what you received last year. Keep in mind, there were several changes to the tax laws in 2018.
- Identify and prioritize your bills. This includes essentials like rent and utilities, as well as bills you would like to pay off or pay down.
- Plan for special purchases. Consider if there are any larger purchases you would like to make with part of your refund.
- Calculate what remains. Add up your expenses, payments, and purchases to see what you might have left over from your refund.
- Make a plan to save. Set a goal to save a portion of what’s left over from your refund. Perhaps it’s $500, or 25 percent of your refund. Whatever you choose is OK — just make a plan so you have a savings goal.
- Finally, decide where you want to put your savings. Do you have a separate account or another way to set money aside? Or perhaps you have a prepaid card with a set aside feature. If you have an account or a card you want to use for saving, make sure to have both your account and routing numbers available when you file your return. Rather than waiting for a check, the IRS can often directly deposit your refund into this account.
It’s important to choose a reputable tax preparer that will file an accurate return. Any mistakes could result in additional costs and complications in the future. You can get FREE tax preparation assistance by IRS-certified volunteers at a VITA location like Center For Siouxland!
Putting it all together
Planning ahead can help you to take advantage of tax time to make the most of your tax refund. Take some simple steps to make a savings plan. If you are eligible, save on filing fees by using a free or low-cost filing options. Finally, make sure you protect your tax information so that you can feel confident that your return is filed properly, and you get the refund you have earned.