What Americans Do With Their Tax Refunds
It's safe to say that most Americans don't look forward to tax season. But the refund that the taxpayer majority receives can make the tedious process of tax filing worth the effort. Of course, that raises the question of what to do with your tax refund.
Not sure yet? With the filing deadline being April 15, you still have some time to figure it out. But if you need inspiration, here's how the majority of Americans planned to use their tax refund last year, which may help you figure out this year's refund.
Most Americans Spent Their Refund on Essentials
According to a survey conducted by TaxSlayer and Talker Research, most Americans planned to use their tax refund in a practical manner: paying for essentials. Over half (52%) planned to use their refund toward bills, like rent and utilities, and 44% planned to spend it on groceries and essential goods.
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Paying Off Debt Was the Next Most-Popular Choice
According to the survey, 37% planned to use their refund to pay down credit card debt. Among those who planned to use their refund toward their credit card debt, over half (56%) were specifically targeting debt they racked up due to holiday season purchases.
Other things Americans planned to do with their refund included putting it into a savings account (22%) or covering a home improvement project or repair (20%).
Few Americans Spent Their Refunds on Unnecessary Expenses
According to the survey, only 8% of Americans said they planned to spend their refund on luxuries. Among those who were planning to treat themselves with their refund check, the largest proportion planned to buy new clothes (37%). Others planned to spend it on entertainment (28%), a new phone (26%), gifts (24%) or a night out on the town (23%).
The Best Ways To Use Your Tax Refund
If you are wondering, "What should I do with my tax refund?" -- you have plenty of options. But first, don't think of your tax refund as free money. It's money that you could have gotten in each paycheck, but instead, you let the government hold onto it for you throughout the year. So make the most of your money when you get it back.
Here are some smart ways you can use your tax refund to improve your financial situation.
1. Pay Off Debt
Join the 37% of Americans who planned to use their refund to tackle debt and consider using the cash you get to help pay off what you owe. Focus on first paying off high-interest debt -- such as credit card debt -- to reduce the total amount that you pay.
2. Create an Emergency Fund
Stashing your refund in a savings account can be an effective way to build an emergency fund so you don't have to rely on credit to cover unexpected expenses. This could be an especially smart move this year, given the volatility of the job market.
3. Invest In Yourself
You might be able to break the cycle of living paycheck to paycheck by climbing the career ladder and making more money. Consider using your refund to hire a career coach, take courses online to improve your skills, attend conferences, join networking groups or even launch your own business.
How To Track Your Tax Refund
So, the taxes are filed, they're snug in the IRS' hands; how do you then track your refund as it heads your way? E-filers will be able to track their returns and subsequent refunds using the IRS' "Where's My Refund?" tool beginning 24 hours after filing.
You can use the tool even if you mail a physical tax return to the IRS, but you'll have to wait up to six weeks for the IRS to receive and upload the return into the tool.
How Can You Estimate Your Tax Refund?
Maybe you're planning on making a big purchase. Maybe you're a bit behind on a few payments. Or maybe you just want to know how much that tax refund might be. You can use one of several great online estimators to get a ballpark figure.
TurboTax has a tax return calculator, an easy-to-use tool that is always up to date on the latest and greatest in tax law. H&R Block also has a calculator -- just answer a few simple questions about your income and expenses and you'll be able to see an estimate of either your refund or what you might owe.
Why You Actually Shouldn't Want a Big Tax Refund
Although it can feel like a windfall, there are a few reasons why a big tax refund is actually not a good thing. It means that you let the government hang on to your money interest-free throughout the year.
You could be better off getting more in each paycheck to pay down debt or invest so your money can grow. Taxpayers who regularly get a large refund might need to reassess their W-4 to adjust their tax withholding and hang on to more of each paycheck.
Cameron Huddleston and Gabrielle Olya contributed to the reporting for this article.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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