First Person: What to Do with Your Tax Refund Money

Where to spend income tax return money is a question most people have on their minds after the first of the year. Obviously, the monies returned should go toward paying off debt, especially high interest rate credit cards. But what about that big screen TV we have been wanting to purchase?

Withholding Tax

The average tax return in 2008 was $2,902, according to the IRS Tax Statistics. The first thing that says is the withholding tax from a paycheck is too much. Loaning the United States Government your money, with no interest paid, should not be a choice. Even in a low interest savings account at two percent, this money would have earned $58.02 (or more, depending on rate of calculations) in additional savings.

If worries about having to pay taxes at the end of the year are a concern, then just deposit the extra income into that savings account, gain interest paid, and at the year-end, there will be monies to take care of any tax liability. Personal responsibility for money is something Americans are now learning. Adjusting payroll withholdings is a beginning.

Tax Return Loan (RAL)

A Refund Anticipation Loan (RAL) is something that some tax preparers offer clients. Since there are no credit checks, a RAL loan can be approved in a matter of minutes and the monies available in as little as 48 hours. This quick access to money comes with a steep price tag. Just like a 'payday loan' interest rates can run from 40% to 100% APR. At this rate, the loan could cost $200 for a five-day loan.

E-filing a return can have monies available in 10 to 14 days. If the return is deposited into a bank account, the monies could be available in as little as seven days, eliminating the need for a RAL. If a bank account is not available, purchase a pre-paid debit card. Most of these cards can receive direct deposits just like a bank account. Alternatively, use of a trusted family member's bank account number to receive the deposit is always an option.

When strapped for cash, rather than pay the high interest for a RAL, just make some other payments late. The late fees will not come near costing what the RAL will cost.

E-file Tax Return

Some people are afraid of e-filing income tax return for fear of identity theft. As a precaution against income tax return e-file identity theft, the IRS has set up a system whereby e-filers must be registered prior to e-filing returns. These registrations of web sites allow the IRS to quickly identify fraud schemes and phishing schemes.

Filing tax returns via USPS can cause a return to be delayed by weeks, or months. Turbo Tax has some excellent information on filing a tax return by e-file.

Purchasing That Big Screen TV

After having been financially responsible, why not make that purchase. Part of the monies returned can be used for purchases that the family has been wanting, and the other part of the monies paid against a debt, or deposited into a savings account for future unexpected expenses.

Do not let your tax return monies go to waste. Do not spend it before you get it. Use the money to accomplish some important financial goals and also allow yourself some fun.

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