Tax Refund Do’s & Don’ts

Are you waiting to get your tax refund—just so you can spend it? You’re not alone. Are you tempted to reward your hard work this past year with a well-deserved (but ill-timed) spending spree? Join the club. If you’ve contemplated all the deliciously wrong ways you could spend your refund, chances are, others have too.  When you finally get your tax refund, there are some things you should and shouldn’t do.  

  • Don’t splurge.

Some people call it retail therapy. Others call it impulse buying. Either way, mindless spending usually satisfies some temporary, and often imagined, need. The point is, the emotion that triggered the splurge is fleeting. Your money shouldn’t be. 

  • Don’t keep it in your checking account.

Money sitting in your checking account is begging to be spent. Your tax refund should exist separately somewhere—in savings, in an IRA, anywhere but your checking account. 

  • Don’t gamble it away.

Sure, a road trip to Vegas on a party bus sounds like fun—until your tax refund is gone. Gambling is a bad idea, too (remember, you have to pay taxes on your winnings!). 

With no plan in place for your tax refund, and no foresight, it’s easy to give in to your immediate desires. What you want to do, instead, is make your money last for as long as possible. Here are 3 ways to do that: 

  • Do buy an experience.

Climb a mountain, camp out for a weekend, take a beach vacation, or explore a new country. It’s true that the experience will come and go, but the story lasts forever.  

  • Do start a business.

Owning and operating your own business is not as hard or as complicated as you think. Put your tax refund toward the startup costs. In case you need further encouragement, startup costs are usually deductible on your tax return! 

  • Do save.

Ideally, you should have 4–6 months of living expenses stored in savings—just in case. If your savings account needs a little padding, consider using your tax refund. We did a little research and asked TaxSlayer customers how they would spend their tax refund in 2018, and here’s what they said (customers could choose more than one answer)*: 

 

Pay off debt  42% 
Save  43% 
Contribute to a retirement account    9% 
Spending spree  13% 
Purchase an experience  13% 

 

As it turns out, the majority of TaxSlayer survey participants are either eliminating debt or saving money. Way to go, TaxSlayers!  

*All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2388 adults, of whom 2049 file taxes. Fieldwork was undertaken between 21st – 22nd November 2017. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+). 

Updated March 9, 2018