10 Best Things To Do With Your Tax Refund - DOLLARS PLUS SENSE (2024)

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Last Updated February 22, 2022

Did you get a tax refund this year? If so, you may be wondering what to do with your tax refund. Find out 10 smart things to do with your tax refund money. This list is in order of most important to least important uses of your tax return.

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What To Do With Tax Refund

1. Fully Fund Your Emergency Fund

One of the best things to do with a tax refund is to make sure you have a fully-funded emergency fund. An emergency fund is money set aside to cover large unexpected expenses or to help you through hard financial times—like a job loss.

The size of your emergency fund depends on your personal situation. I suggest an emergency fund that is at least three to six months’ worth of living expenses.

When I say “living expenses” I mean only necessities, such as rent and groceries. I don’t mean shopping, entertainment, dining out, or vacations.

However, no matter what your job situation is, I think everyone should have at least $1,000 set aside in case of an emergency.

Since an emergency can come at any time, it’s very important to have quick access to your money.

Therefore, I recommend you open a high yield savings account at an online bank. You get two benefits of banking online:

  • They usually pay higher interest on your money than a brick and mortar bank; and
  • It reduces impulse purchases because your money is a little harder to access. With online banks, it usually takes a few business days for the money to be transferred to a physical bank where you can withdraw cash.

A good online bank I like isCIT Bank because it:

  • offers competitive interest rates (one of the nation’s top rates),
  • has no monthly maintenance fees, and
  • you only need $100 to open an account.

If you want to learn more about emergency funds, you can read my detailed article titled “How To Build An Emergency Fund.”

2. Pay Down/Off High-Interest Debt

The next best way to spend your tax refund money is to pay off high-interest debt. Debt is a drain on your finances and slows down your achievement of financial freedom. I consider any debt with an interest rate above 8% to be “high interest.”

The reason why I would pay off any debt with an interest rate above 8% is because the stock market has returned about 8% over the long haul.

Paying off a debt with an interest rate greater than 8% is equivalent to getting a guaranteed return of more than 8% on an investment. Therefore, paying off your high-interest debt above 8% will most likely give you a better return on your money than investing in the stock market.

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You can use the Debt Worksheet found in my FREE Resource Library to get organized and prioritize which bills you will pay first.

Sometimes having too many different bills coming in can certainly be overwhelming and hard to keep track of. Therefore, use the FREE Debt Worksheet to help you keep track of this.

Use These Debt Repayment Tools

Ifyou’re like me, you like to use paperandsoftware to help you with your financial journey. If you’re interested in using technology to help with your debt repayment plan check out my Debt Payoff Spreadsheet.

This spreadsheet will help you create a custom repayment plan that fits your unique needs and keeps you motivated every step of the way. With this tool, you’ll know exactly when you’ll be debt-free and can celebrate your success along the way!

So, if you’re ready to take your debt repayment plan to the next level, then check out my Debt Payoff Spreadsheet.

Speed Up Paying Off Your Debt

You can also use an app like Tally. Tally is the world’s first automated debt manager that makes it easy to save money, manage your cards, and pay down balances faster.

The way it works is Tally analyzes your credit cards and finds ways to help you eliminate debt and save money. If you qualify, Tally gives you a line of credit with a low APR, then uses the new credit line to pay your credit cards every month. The low APR helps save you money on interest.

Tally manages all your credit cards in one simple app. They keep track of the balances, interest rates, and due dates for each card. That’s how Tally makes the right payment to the right card at the right time. All you have to do is make one monthly payment to Tally.

Tally is free to download, and they don’t charge any fees to use the app. The way they make money by charging interest on the amount borrowed (which is a lower interest rate than what your credit cards are currently charging you).

I highly recommend Tally because they only make money if they can save you money.

3. Put Your Tax Refund Towards Retirement Savings

Another thing to do with your tax refund is to put it towards your retirement. As the generation of baby boomers enters retirement, the payroll taxes that they’ve contributed to the system throughout their careers will turn to withdrawals in the form of retirement benefits.

The amount of money that has been set aside is not enough to cover the long-term expenses of baby boomers that will occur. As a result, it is estimated that social security will run out of money by 2034.

That’s just in time for people around my age to get ZERO when we decide to retire. Therefore, it is imperative that you save for your own retirement and not expect to rely on the government.

If you’re a millennial like me, you might be putting retirement on the back burner because it seems so far away from now. But you should start saving for retirement as early as possible to take advantage of time and compound interest.

The sooner you begin saving, the more time your money has to grow and compound. Compounding is a powerful wealth-building tool because your interest gains interest.

For example, say you have $1,000 invested that gains 10% interest. At the end of the year, you will earn $100 in interest and have a total of $1,100. If you don’t touch that money and allow your interest to compound, you will earn 10% on $1,100 (not $1,000); therefore, at the end of year two, you will earn $110 in interest.

Finally, saving for retirement is even more important if your employer matches contributions to your 401(k) or similar plan. If you don’t you’re leaving FREE money on the table!

4. Put Your Tax Refund Towards Other Financial Savings Goals

Do you have something, in particular, you’re saving for? Maybe it’s to save up a down payment to put towards a house. A smart way to use your tax refund is to put it towards a big savings goal you would like to accomplish.

Again, I would recommend you keep your savings in an online bank likeCIT Bank. They offer competitive interest rates and your money will be held in a safe place until you’re ready to use it.

5. Invest Your Tax Refund

One of the best things to do with your tax refund is to invest it. I’m a firm believer that you should be investing your money and not just saving. If you don’t invest your money, and only save it in a savings account or CD, your money is eroding every year thanks to inflation.

10 Best Things To Do With Your Tax Refund - DOLLARS PLUS SENSE (5)

Historically, the stock market and real estate have offered better returns on your money than if you were to save it in a bank account.

I personally use Robinhood.com to purchase individual stocks. This website is great because you can buy and sell stocks for free—there are no commissions or fees. Most other brokerage firms charge at least a $4.95 fee per trade, and some have hidden fees.

Sign up today and you and I can get a free stock like Apple, Ford, or Sprint. With Robinhood you also don’t need a minimum account balance, so you can get started right away.

If you are new to investing in the stock market and want to learn more, read my article “Best Ways To Invest In The Stock Market For Beginners.”

6. Use Your Tax Refund To Start A Business

10 Best Things To Do With Your Tax Refund - DOLLARS PLUS SENSE (6)

If you’ve always had the dream of being your own boss, consider starting a business. Your tax refund can be the boost you need to get your business off of the ground. Take advantage of this windfall of cash and take your business to the next level.

You can use your tax refund to buy the tools you need to get started, build up inventory, go towards tuition for courses tailored to your business, or anything else that will turn your hobby into a business.

7. Put Your Tax Refund Towards Your Child’s College Fund

10 Best Things To Do With Your Tax Refund - DOLLARS PLUS SENSE (7)

If you have children (and have already fully funded your emergency fund and retirement account), you may want to start saving up for their college fund.

The cost of education is growing at an alarming rate. Therefore, your child will probably need as much help as they can get so they’re not drowning in student loans later. Setting up a 529 plan can help your child afford higher education later in life.

8. Use Your Tax Refund To Pay Down Low-Interest Debt

You can use your tax refund to pay down any low-interest debt you may have. For example, you can make some extra payments to your mortgage or student loans.

These extra payments will reduce the principal balance you owe, and can make a big difference in how much you end up paying the bank in the future.

9. Donate Your Tax Refund

Went through the list and you still don’t know what to do with your tax refund? Consider donating it. Sometimes your budget is so tight that it is hard to make charitable or religious donations. Therefore, this is usually on the bottom of our list of priorities.

Your tax refund can give you a chance to give something back. So if you felt bad you couldn’t donate to a great cause earlier in the year, now is your chance to make up for that.

10. Use Your Tax Refund To Treat Yourself

Finally, if you have taken care of all your other financial obligations on this list, and still have money left over, I think you should go ahead and treat yourself! You saved all year and made sure your money is right, so don’t feel guilty and treat yourself to something nice.

Just make sure you don’t get carried away!

How To Use Your Tax Refund Wisely

In short, here’s 10 ways to use your tax refund wisely:

  1. Fully fund your emergency fund
  2. Pay down (or pay off) your high-interest debt (any debt with an interest rate higher than 8%)
  3. Save towards retirement
  4. Save towards other savings goals (like buying a house)
  5. Invest your tax refund
  6. Start a business
  7. Put it towards your child’s college fund
  8. Pay down low-interest debt
  9. Donate it to a cause you care about
  10. Treat yourself 🙂

Summary

Sometimes it’s hard to figure out what to do with a tax refund. Regardless of how much you get from your tax refund, you want to make sure you’re spending it in a smart way. There are so many great things to do with your tax refund.

First, you should be putting this extra money in a place where it can work for you, and allow you to get closer to your financial goals. Once that is taken care of, you can donate the money to a charitable cause. You can even treat yourself!

If you want to remember this article, pin it to your favorite Pinterest board.

10 Best Things To Do With Your Tax Refund - DOLLARS PLUS SENSE (10)
10 Best Things To Do With Your Tax Refund - DOLLARS PLUS SENSE (11)

About Dafina

Dafina went from being in the ICU to becoming a successful attorney and entrepreneur. Read her inspiring story of how she was able to turn her six-figure debt into six-figure income HERE. Feel free to send Dafina a message HERE.
10 Best Things To Do With Your Tax Refund - DOLLARS PLUS SENSE (2024)

FAQs

How can I get the most money from my tax refund? ›

4 ways to increase your tax refund come tax time
  1. Consider your filing status. Believe it or not, your filing status can significantly impact your tax liability. ...
  2. Explore tax credits. Tax credits are a valuable source of tax savings. ...
  3. Make use of tax deductions. ...
  4. Take year-end tax moves.

How to get extra $1,000 tax return? ›

For 2021, taxpayers can use either their 2021 or 2019 income to maximize the credit. If you're a college student or supporting a child in college, you may be eligible to claim valuable education credits. The American Opportunity Credit is refundable up to $1,000.

What is a good way to spend your refund? ›

One of the best ways to use your tax refund is to pay down or pay off high-interest credit cards, especially if you're carrying high balances or you're maxed out on several cards. This rule holds true even if you're tempted to spend more on a rewards credit card to get points or miles.

What will give me a bigger tax refund? ›

Key takeaways

You can increase the amount of your tax refund by decreasing your taxable income and taking advantage of tax credits. Working with a financial advisor and tax professional can help you make the most of deductions and credits you're eligible for.

How do people get $10,000 tax refunds? ›

How do I get a 10,000 tax refund? You could end up with a $10,000 tax refund if you've paid significantly more tax payments than you owe at the end of the year.

How to get $7000 tax refund? ›

Requirements to receive up to $7,000 for the Earned Income Tax Credit refund (EITC)
  1. Have worked and earned income under $63,398.
  2. Have investment income below $11,000 in the tax year 2023.
  3. Have a valid Social Security number by the due date of your 2023 return (including extensions)
Apr 12, 2024

Which filing status gives the biggest refund? ›

If you're able to file as a head of household it could give your refund a significant boost. For example, heads of household get a larger standard deduction than single filers.

How are people getting 30k back in taxes? ›

The Department of Community Services and Development encourages Californians earning under $30,000 a year to file their taxes to claim the California Earned Income Tax Credit (CalEITC), a cash-back tax credit, and receive a larger tax refund.

Is it better to claim 1 or 0 on your taxes? ›

By placing a “0” on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period.

What not to do with your tax refund? ›

Spending the Money Before You Receive It

One of the worst things you can do is spend your tax refund before you've even received it. Even if you got a head start on tax season and you know the amount you will receive, you might not want to spend your refund until you have the check in hand.

What's the biggest tax refund ever? ›

In what could be the most amazing tax move ever, a Georgia woman filed a $94 MILLION tax refund! You have to make over $1.6 billion dollars in income to pay $94 million taxes with Georgia's 6% state income tax rate. Sure, it's possible to make $1.6+ billion dollars, but probably not by this woman.

What are two 2 ways you can receive your refund? ›

Methods of receiving tax refunds
  • Direct deposit to bank account: Direct deposit is when your tax refund is deposited into your bank account. ...
  • Paper check via mail: You can also opt to receive your refund via paper check, which will arrive in the mail.

How can I increase my tax refund? ›

The Bottom Line. One way to increase next year's refund is to adjust your withholding. By contributing more toward your tax bill with each paycheck, you'll increase the amount you pay in during the year—and thereby increase your chances of getting a bigger refund.

What can I write off on my taxes? ›

If you itemize, you can deduct these expenses:
  • Bad debts.
  • Canceled debt on home.
  • Capital losses.
  • Donations to charity.
  • Gains from sale of your home.
  • Gambling losses.
  • Home mortgage interest.
  • Income, sales, real estate and personal property taxes.
Jun 14, 2024

What deduction can I claim without receipts? ›

What does the IRS allow you to deduct (or “write off”) without receipts?
  • Self-employment taxes. ...
  • Home office expenses. ...
  • Self-employed health insurance premiums. ...
  • Self-employed retirement plan contributions. ...
  • Vehicle expenses. ...
  • Cell phone expenses.
May 31, 2024

How to get a bigger tax refund in 2024? ›

Giving money away or saving it may help increase the size of your refund. That's because certain contributions to retirement and health care savings accounts can reduce your taxable income, and donations to charity can, too. On average, every $25 reduction in your taxable income lowers your taxes by about $5 per $25.

Is it better to claim 1 or 0? ›

Claiming 1 reduces the amount of taxes that are withheld from weekly paychecks, so you get more money now with a smaller refund. Claiming 0 allowances may be a better option if you'd rather receive a larger lump sum of money in the form of your tax refund.

How can I adjust my taxes to get more money? ›

Change Your Withholding
  1. Complete a new Form W-4, Employee's Withholding Allowance Certificate, and submit it to your employer.
  2. Complete a new Form W-4P, Withholding Certificate for Pension or Annuity Payments, and submit it to your payer.
  3. Make an additional or estimated tax payment to the IRS before the end of the year.
Jan 30, 2024

What is the average tax return for a single person making $60,000? ›

If you make $60,000 a year living in the region of California, USA, you will be taxed $13,653. That means that your net pay will be $46,347 per year, or $3,862 per month.

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