Although many dread filing for taxes, did you know that tax season can actually be a period of new possibilities? It is all about perspective, think about how you can make the most out of your refund or how you will settle your bill.
What to do with your refund?
There are endless possibilities to using tax returns to maximize your benefits. You deserve an easy and convenient process after your hard work and diligent planning. Check out some ways to spend your tax refund.
- A New Beginning: Pay down credit cards and other non-tax-advantage debt to increase your finances.
- Cultivate and Renew: Make your home more valuable or comfortable by making some home improvements. You may even start thinking down the line about children’s college tuitions.
- Nourish: Buy yourself something. Or even give back by helping others. This includes buy yourself a new gym membership or even investing in your hobby. Donations to charity is a great way to nourish yourself and others.
- Replenish: Contribute to your retirement plans, this allows you to get ahead in you planning process. Another way to replant is if you would rather set aside the money to enhance your emergency fun.
- Plan: Some people have the lens to view your tax refund as an interest-free loan from the government. Should you rethink our withholdings so next year you can come out even?
What to do when you end up owing?
The first step in owing taxes, you will decide how to pay. Most people will jump forward and pay cash or check from your investments or savings. If you aren’t careful, you can quickly realize the impact that you it has immediately and long term.
One way this can impact you is by liquidating assets to pay off your taxes can actually create new tax consequences and hurt your long-term investment strategy. You should not empty your savings accounts; this leaves you in a state of unplanned and at risk in emergency situations.
There are other options rather than using your assets working towards your long-term goals. Consider liquidity or other borrowing options based on the value of your assets. This allows you to have access to your cash when needed and to pay your tax bill without moving your assets from where they belong. The key is to keep that money invested.
Next year, take initiative to reduce your tax bill. Here is how:
- Maximize contributions: Know when you have tax breaks in your retirement accounts and take advantage of it. Make catch-up contributions once you turn 50.
- Take in losses: Consider balancing your realized capital gains. To do this, sell securities for a loss and reduce your tax liability.
- Search for advice: Your financial advisor is here for a reason. Use them to your advantage and discuss your tax plan.
The first few months of the year are approaching quickly. Use this crucial time to use your tax refund wisely or think about your long-term investment plan if you owe on taxes. Don’t disturb your hard work and efforts by not thinking thoroughly during this tax season.
Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.