By Justin Smith
For the Opelika
The Internal Revenue Service reported that 67.7 million individual tax returns have been filed through March 8. Of those, approximately 53.4 million tax returns had a refund. To date, $161 billion in refunds have been issued averaging $3,008 per return. Interestingly, the IRS reports this is nearly unchanged from 2018, when 55.3 million refunds were issued, totaling $166 billion and averaging $3,004 per return through the first week of March. Now that filing season has been open nearly two months, the early data showing that refunds were significantly down has been shown to be somewhat inaccurate.
If you are one of the more than 100 million taxpayers anticipating a refund this year, now is a good time to consider what you will do with it.
Here are a few options you may consider when determining how to spend your tax season windfall:
- Invest it – I recently met with my financial advisor and decided to enhance my non-retirement investments in single stocks in sectors such as energy, healthcare, consumer retail, logistics and technology. It’s great to invest in tax-advantaged retirement accounts, but making strategic investments into wealth building is a great way to put your money to work.
- Save it – While you won’t build significant wealth in low-yield savings accounts, the value of immediate access to liquidity for emergencies cannot be overstated. Financial experts often encourage you to have three to six months of living expenses available in the event of job loss or other unexpected catastrophe, so a readily-available cash pile in an FDIC-insured savings account can help you meet that objective.
- Reduce debt – credit card debt is expensive. Many studies show that Americans carry more than $5,000 of credit card debt on average. High interest rates can greatly magnify the cost of whatever you purchased on the card, so putting a large cash payment onto such debt helps to reduce the stress on your cash flow.
- Be generous with it – we Americans rarely think about how fortunate we are, but we’ve definitely got it made compared to the rest of the world. Americans are also some of the most generous people in the world, and a windfall presents a great opportunity help others.
- Save for retirement – Now is a great time to open an Individual Retirement Account (IRA) or contribute to it to help fund your golden years. Taxpayers should never assume Social Security will be enough to sufficiently fund their retirement lifestyle, so contributing to a traditional or Roth IRA (talk to an investment advisor about the best options) and investing the funds in long-term growth opportunities can help to provide a comfortable retirement lifestyle.
- Invest in yourself and your family – Go back to school, learn a new skill, or start a new business with your refund serving as seed money.
- Enjoy it – It’s your money!
Regardless of what you choose to do with your money, the fastest way to obtain it is to e-file your return with a direct deposit of the refund. April will be here before you know it, so don’t delay!
Justin Smith is a licensed certified public accountant in Opelika, specializing in individual and small business tax and accounting. He can be contacted at 251-209-2579 or Justin@JSmithCPA.net. His website is www.jsmithcpa.net.