Best Ways to Spend Your 2020 Tax Refund
Tax season has arrived, and one of the big topics on every taxpayer’s mind is how to spend their 2020 income tax refund. Every year, millions of Americans rely on their tax refund check as their principal source of non-recurring income. Many Americans rely on their tax refund for important purchases, such as vacations, and gifts for friends and loved ones. The typical tax refund check amounts to around $2,000 to $2,500 – that’s certainly not a small sum! The average taxpayer would do well to contemplate exactly how he or she can maximize their tax refund. Sometimes, because most Americans are so overjoyed to receive their check, not enough thought or care is given to how the check can best be utilized. In this post, we’ll identify and discuss a few of the better ways Americans can spend their 2020 tax refund check.
If the average taxpayer takes the time to really think about how they spend this additional income, it can really go far. Let’s go through some of the best ways to spend your tax refund, one by one.
Invest in Leisure Activities
Although many tax refund recipients may think that stretching their income in some way is the best route to pursue, taxpayers shouldn’t be quick to dismiss investing their refund in leisure activities. A typical tax refund check is sufficient to book a good vacation, buy a new television, or invest in another form of entertainment. It’s not wise to think about money and work all the time. Even the most diligent person needs time to recharge his or her batteries. This means taking time to relax and do something fun every now and then. If you invest in a fun activity with your refund, this may actually pay big dividends throughout the rest of the tax year.
Invest in Your Own Human Capital
If you’re looking to maximize your financial position with your tax refund, one way you can do this is by investing in your own human capital. In other words, you can use your refund money to develop new, marketable skills. There are several ways you can go about doing this.
One way is to use your tax refund to pay to go back to school. You can put your refund toward tuition at a local college or university. If you earn a degree, or take a course, you may be able to leverage it to earn more money in the long run.
Another way to invest in your own capital is to learn a new marketable skill. Perhaps you can pay someone to teach you how to write software, or how to design marketing flyers. The more skills you have, the more you’ll be able to learn over the course of your career.
Save & Earn Interest
Another solid way to spend your 2020 tax refund is to not spend your refund at all. Instead, save money; maybe even save for retirement. If you’re really trying to maximize your overall financial situation, you should put your tax refund money in a savings account and earn interest. You can really help yourself if you do this repeatedly over the course of many years. If you save your tax refund checks for 20 years, for instance, you may be able to double your money, depending on the interest rate on your account. You may be able to grow your money even faster by investing in certain financial vehicles, such as stocks, or a retirement plan, a traditional IRA or a Roth IRA.
Create an Emergency Fund
Another good way to spend your 2020 tax refund money is to create a separate emergency fund. Believe it or not, most Americans do not have an adequate amount put away in an emergency fund. Emergency funds are essential for dealing with unexpected financial setbacks, such as a job loss, or car accidents or repairs. Putting tax refund money into a separate account to function as your emergency fund is a very good idea. Research shows that Americans typically have inadequate emergency funds even when the economy is performing well. In uncertain economic times such as these, having a good emergency fund is all the more essential.
Pay Down Debt
This option may not be as attractive as some of the other options, but certainly a good use of the refund is to pay down debt. What kind? Depending on individual circumstances, paying off student loans may be an excellent application. Another is to pay off credit card debt. With those, priority should always be given to the credit card with the highest interest rates.
Reach Out to MC&C for More Info
These are just a few suggestions for spending your 2020 tax refund in a beneficial way. There can be many other workable ways to spend your money. At Mackay, Caswell & Callahan, P.C., we spend a great deal of time focusing on current tax and financial matters, including tax refunds. We’ve already talked about the main reasons why refund checks get delayed. We may come back and discuss other tax refund issues before tax season ends. If you have a question about taxes, or your federal or NY state tax debt, don’t hesitate to contact us. Call us and a top New York City tax attorney will be happy to answer your questions.
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