With the new year in full swing it is time to start thinking about tax season. Each year millions of people across the country receive an income tax return from Uncle Sam. With many families in central Pennsylvania struggling to make ends meet this lump sum payment is something to look forward to in the coming months. In an ideal world you could take this money and treat yourself to something nice, however most people will use their return for more practical purposes. Here are a few tips to make sure you make the most of your tax return:
- Catch up on bills- There is nothing less exciting than using your tax refund to pay off bills and other debts, however it can help you get your finances back on track. Remember if you pay bills or eliminate debt you will have more money out of your pay check to treat yourself throughout the year.
- Start saving- Most people find the hardest part of saving money is getting started. Using part or all of your return to start your savings can be a great way to get the ball rolling. If you don't already have an emergency fund started, this is the perfect opportunity to bank some cash for future expenses.
- Avoid refund anticipation loans- The advertisements are already appearing on the television and printed publications. If you want your refund early you can either pay a fee to your tax preparer or even use your refund to make purchases from certain merchants. While the "fee" may not seem extravagant you are basically paying to borrow your own money. Considering the fact you only receive your cash weeks or even days before you would from the IRS it simply doesn't make sense to get a refund anticipation loan. The annual percentage rate on this type of short term loan is in the triple digits and you always run the risk that your refund will be less than anticipated. In that situation you would end up owing money to the tax preparer or merchant who fronted the cash in the first place.
Everyone could use a little financial help these days. Don't let this opportunity to pay off debt or build your savings pass you by. Even though many people look forward to receiving that one time payment each year, you should also consider changing your tax deductions so you receive the most cash throughout the year. If you do this you can then bank that extra money and earn interest instead of letting Uncle Sam benefit from your hard earned money.
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