Here’s How To Maximize Your Tax Refund (Photo: The Hill)
Tax season has officially begun. On January 23, the Internal Revenue Service began accepting and processing 2022 tax year returns, and many early filers have already received their refunds.
The IRS had issued 13.34 million refunds totaling $26.65 billion as of February 10. The average refund is $1,997, meaning millions of Americans have extra money but don’t know how to maximize tax refunds.
Don’t worry if you still need to finish your taxes. The filing deadline is on April 18.
Regardless, if you’re expecting a refund, you’re probably overjoyed. Receiving an extra influx of cash is always welcome, regardless of what you do with it.
Faron Daugs, CFP, wealth advisor, founder & CEO of Harrison Wallace Financial Group in Libertyville, Illinois, observed that most people intend to be financially savvy with their money.
READ ALSO: Here Are 15 Tips on Using Your Tax Refund Wisely
Here’s How To Maximize Your Tax Refund (Photo: Tax Outreach)
More Excellent Moves
According to Wanda Bowman, author of “The Financial Glow Up,” one way to maximize tax refund is to apply it to credit cards before saving.
She pointed out that a basic savings account can earn between 1.5% and 3% interest, whereas the average credit card interest rate is around 21%. She also stated that the current average yield on a balanced 401(k) plan — 60% stock, 40% debt/cash — is around 8% to 10%.
Each to their own
Finally, there is no right or wrong way how to maximize tax refunds. The best option will be something unique to each individual.
While exponentially more people — 26% — intend to save, spending is not always wrong. If you’re not in debt and have a healthy amount of savings, you might be content with what appears to be an annual “bonus” from the IRS.
Reduce Your Refund Next Year
Meanwhile, Daugs suggested that you make changes for next year.
He acknowledged that many people use their tax refunds to force themselves to save for short-term financial goals like vacations or new furniture. This strategy helps to maximize cash flow throughout the year while avoiding a significant tax liability.
