To refund or not to refund…that is the question

So the tax deadline is now behind us and for many, the decision becomes what to do with that refund check. We’ve asked our expert and Certified Public Accountant, Marta Strauss, to weigh-in on the topic for our blog readers:

Tax season is daunting for many but some look forward to a boost in their spending power when they receive their refund check. Chances are that you received a refund this tax season. But now what?Did you already run out and buy that new flat screen you had your eyes on? A pair of shoes to add to your already overflowing closet? Or perhaps you are a planner and knew you would pay a chunk of old debt off or save for Junior’s college fund…or maybe your refund has freshly been direct deposited into your bank account and has not been earmarked for anything in particular yet. Hopefully, you didn’t spend the money before you even got it back from the IRS.

As CPAs our role is to ask the difficult questions and help you prepare yourself financially or connect you to other professionals that can help—during tax season, throughout your extension season and beyond. Before you spend your refund this year, here are a few ideas and sanity-savers to consider.

• Emergency Fund: Have you created at least a $1,000 cash emergency fund at your home for those unplanned emergencies: new car tires, clogged toilet, broken computer, medical emergency…etc.
• Health Deductibles: Save your individual or family health insurance deductible or even better your maximum out of pocket expense for the calendar year. The good news is that if you do not use this money in 2014 you can keep it in a savings or money market account and feel a peace of mind that a health emergency would already be in your budget.
• Debt: Did you need to pay down some credit card, student loan or medical debt? You can use the snowball approach where you pay off the smallest balance first then take that amount of money and add to your next debt payment. It is not the “pay off the highest rate debt first” method. This is the “take a breath and pat yourself on the back because you just started to pay off your debt and it feels good method”. The latter is highly effective!
• Investing: Have you spoken to your financial advisor about what investments, IRAs, SEP accounts would be in your best interest even with a small windfall from your refund? It is never too late to start putting money aside.
• Insurance/Wills/Trusts: Have you neglected purchasing life insurance, a cancer policy, updating your wills, trusts and estate? Now is a good time to think about these things while you still have the cash available.
• Tax Planning: Also, my favorite is…did you already discuss your 2014 tax plan with your CPA? Has anything changed from the prior year? Any new dependents? A new job? Are you now being paid as an independent contractor and did not take out any federal withholding?Do you need to pay in any federal quarterly estimated tax payments? What type of position will you be during next year’s tax season?

 
Getting a refund is exciting and what you do with it is your decision but we do hope that you think about the above to help guide your spending. If you have questions on your refund or existing tax issues, we would love the opportunity to assist you.

For more information about taxes and related topics, please visit us at www.prestigebusinessenterprises.com.