Taxpayers expecting large returns from the IRS this year already may be dreaming of what to do with their hefty cash infusion.
A tropical vacation? Paying off credits cards? Home improvements?
While these are all typical ways taxpayers spend their returns, Peekz ConsultiN’s owner advises clients to take a breather before committing their money to any single expense.
When it comes to tax refunds, accountant Amy Peek recommends saving at least half.
“Invest it,” Peek says, either toward a retirement plan or put it into an emergency savings account.
Take the other half of your refund, and put it toward debt, like credit cards or car loans. Concentrate using the money to eliminate or reduce the smallest debt balances first, Peek said.
If you don’t have any debt, she suggests putting the second half of your refund toward a goal or dream, like a vacation or home improvements.
“Most people take their whole refund and pay off their credit cards, but you don’t change a habit that way,” Peek said.
When people save nothing, but pay off all of their credit cards, the debt usually returns, she said. If there is no backup fund to help with emergencies, taxpayers will find themselves in a position where they have to reach for their credit cards again.
“If you still have debt, you are less likely to rack up more debt,” Peek said.
Also, the added benefit of investing money in a retirement account, is the potential to earn money back, she added.
If you still haven’t filed your taxes this year, avoid stiff penalties by submitting them as soon as possible. New or existing clients can make an appointment with Peek directly on our online calendar.
PHOTO CREDITS: Alyson Raletz
Peekz ConsultiN LLC is a Pittsburgh-based accounting firm, located in the West Side, that caters to individuals, small businesses and nonprofit organizations. We aim to empower clients to help them take control of their finances and achieve their dreams.