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How to Spend Your Tax Refund

Audio version available here:

Length: approx. 1 min. 30 sec.

With tax season opening last month, some taxpayers have already filed their tax return with the IRS. As we previously advised, submitting your return electronically and opting for a direct deposit is the fastest way to receive your tax refund. Now that you have your refund, what do you do with it? Treat yourself to a shopping trip? There are many possibilities; here are a few:

According to experts, the best way to spend your tax refund is by saving it or using it to help pay off debt. Prioritize your needs rather than your wants with your tax refund. Save it by creating or adding to your “emergency fund”. With high inflation and “recent company layoffs”, having a money cushion for an unexpected event or emergency is vital. If you have high interest debt, use the money from your tax refund to pay down the balance. Doing so will help you save money “in the long run”.

In other cases, actually spending your tax refund may help you during the next tax cycle. You could use your refund to buy “state municipal bonds”, which can “generate tax-exempt interest”. You may also consider using your tax refund to donate to charity. Donating to a qualified charity can give you a sizable tax deduction, but make sure to do your research, lest you fall into these donation deduction mistakes.

But none of this matters if you do not have a tax refund in the first place. How can you boost your chances at a significant refund? Engaging in smart tax planning to maximize your deductions, credits, and tax strategy is critical. If you need the right guidance in tax planning and preparation, don’t hesitate to contact the XQ CPA team. We are here to help you.

Phone: 832-295-3353

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In focus hand holding several $100 bills, in blurry background man smiles at camera


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