Now that we’ve given a shout-out to the tax-filing procrastinators, offering them tips on how file their taxes at this late date, it’s time to give a nod to those who got this task done early and now have a refund either burning a hole in their pocket or impatiently awaiting one.
According to MarketWatch, by early March, more than 40 million Americans had already learned their tax bills had cleared and a good-sized refund was on its way. Probably many of them asked, where can I spend this money?
We’re here to say, not so fast.
When we hear this, our first reaction is to suggest you save it for retirement, a special occasion (a dream vacation?) or add to your emergency fund. It doesn’t sound very exciting but as you know, saving is always a good thing. However, if these three ideas don’t appeal to you, here are some practical and fun ideas.
Here are the ways to spend your tax refund.
Add to a Taxable Account
Maybe you’re been thinking about a certain stock or mutual fund that you’d like to invest in for a while. Now is your chance with that extra cash. Go ahead and purchase some shares that may either be unavailable from your 401(k) plan or it’s a little risky for your IRA.
Buy Some Insurance
Now that the harsh winter is over, rainy season could be on its way as well as a home full of kids for summer vacation. This could be the time to either purchase flood or liability coverage for under $1,000.
For a cost of $350 to $600 annually, you can purchase insurance via the National Flood Insurance Program if you reside in either a low to medium-risk area, according to Kiplinger’s. This will give you coverage of $100,000 for your possessions and for your home, $250,000.
And now that the kids will be around more, you may want to consider liability insurance. Should either someone be hurt by your car or in your home, this insurance will pay for your legal expenses. The cost is typically $200 to $400 for a personal umbrella policy, which may give you $1 million in coverage over policy limits for auto and homeowner insurance.
Pay Bills Early
Whether it’s a monthly credit card bill or summer tennis lessons for your daughter pay them ahead of time. You’ll get rid of the growing interest for the card and you may receive a discount or extra sessions from doing so.
By paying down that credit card, you could also find yourself in a situation to eventually close it and find one charging less interest.
Have Your Kids Save Money
With some money from your refund, you can add it to a Roth IRA for one of your kids as long as they have earned money. Whether it’s babysitting, shoveling snow, or acting as a camp counselor, they are eligible to contribute to the account—either up to $5,500 or the amount of their annual earned income—whichever is the lower of the two.
And you can always give your child some cash to do a task and encourage saving.
Ok, now time for a few fun ideas…
Purchase a Gift Card
No, we’re not suggesting you start your holiday shopping early but if you are a TurboTax customer, you can receive a 5% to 10% bonus if your refund is used to purchase Amazon.com gift cards. They must be purchased in $100 increments with the amount added varying from the service utilized.
For example, if you used TurboTax Deluxe, you can spend $500 and receive a $550 Amazon gift card and a $525 card if you used either the basic or free edition.
Amazon isn’t the only retailer to offer this for refunds. If you’re a movie fan, MarketWatch reported there’s 10% to 20% gift card discounts for AMC Theatres and Regal Cinemas on the website Gift Card Granny, which serves as marketplace for buying and selling gift cards.
Spend It on a Class
Have you been thinking about a course that could help your career? Look to your refund check to pave the way for bill payment as well as the tuition providing a tax break.
Check out the IRS Lifetime Learning Credit which says both students and their parents may be able to claim a maximum $2,000 benefit. This holds true if the class isn’t going toward a degree.
Maybe your child isn’t ready for that class yet. Don’t fear, you could put the cash into a 529 savings plan. Or, if the course is for your professional growth, check with your company first to see if you can use it.
Renovate Your Home
Tired of looking at your dated kitchen or bathroom and dream about those new cabinets, faucets or wall paper– maybe even a new dishwasher? Use your refund for this home upgrade.
By making these improvements, you’ll be investing in your home and possibly even raising its value. It’s a win-win situation and if you even go to the extent of creating a home that has greater energy efficiencies, you could find yourself with a tax break for this.