How to Spend a Tax Refund?

Jan 17, 2014 | Taxes

So, you just received that great big refund check from the IRS. What should you do with the money? Well, the first thing to think about is that it is really a refund of YOUR money – you did not just get a windfall from the Government.
Once you deposit that money into your bank account – and that big balance is just sitting there – it might be tempting to spend the money on something frivolous.


How does your current year income tax look?
However, before you start spending, you might consider the following recommendations. First, look at your current year tax situation. You might be well served by putting the money away to pay your current year income tax. If your business is making money in the current year, your company will probably owe taxes when the return is filed.

Do you have any debt to pay off?
Second, look at your finances and see if you have any credit cards with balances that you are carrying month to month. It makes sense to pay off or pay down the credit cards with the highest interest rates first. Credit card interest rates are generally much higher than regular bank loans. Pay off credit cards as soon as possible and avoid interest. This will also free up monthly cash flow.
Pay off other debts that are due. Lines of credit and term loans can be paid down. You could consider a short-term investment or investment in a certificate of deposit to keep the money available but a bit out of reach for day-to-day operations.

Do you need to invest?
Investing in equipment might be a good use for the money. Computers have a relatively short life and it makes sense to update them every few years. You could also invest in additional software to help improve employee productivity.

Did you think about your employees?
Since employees are vital to your organization, you could give a special bonus or make a contribution to the employee profit sharing plan.

You should always consider your overall business goals and budgets before deciding how to spend a tax refund check.

For more information on how to handle your taxes, contact ABIP CPA today. One of our experts will answer your questions.