There are some rewards for filing your federal tax return, such as getting a refund.
And tax refunds present an opportunity to review your overall financial picture.
First of all, if you are getting an refund, that is usually a pleasant surprise. But it is also important to review why you are getting a refund. Did your tax picture change from the prior year or are you withholding more than you should?
In other words, the IRS is holding your money for a full year, and paying you back without any interest on that money. So take the time to review your tax strategy with a financial planner and tax adviser.
As for getting your refund as soon as possible, consider the following:
- It is best to file your federal income tax return electronically, since it will be processed faster.
- Select a direct deposit method for the refund so that can be credited into your bank account.
According to the IRS, you can get your refund in as little as three weeks after they accept your return and in most cases it may be sooner. Be sure that you have the correct bank instructions with your account number and bank routing number verified. You can even check on the status of your refund online, IRS website.
And what to do with the refund? Here are some important suggestions:
- pay down debt
Look at the type of debt and interest rate that you are carrying. For example, credit card debt is usually the highest rate and should be eliminated.
- build your emergency savings
Add to your savings account to have an adequate balance to carry you over an interruption in income, loss of job or unexpected expenses. A good basic rule is to accumulate enough savings to cover 6 months of expenses.
- fund your retirement
Make a contribution to your future by funding a retirement account, consider if a Roth IRA fits into your long term goals and make this a monthly discipline to continue funding throughout the year.
Finally, if you have accomplished those goals, reward yourself and enjoy the refund.
For more details on tax question and refunds, see the IRS website. The IRS site provides tools and tips as well as all the forms and publications.
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