5 Things to Do with Your Tax Refund in 2022
According to the IRS, 8,992,000 refunds for this tax season had been issued by Feb. 11, 2022. A total amount of $20.888 billion had been issued, with an average refund of $2,323. This is massive and shows that many taxpayers are getting refunds from the IRS. However, the percentage of taxpayers receiving refunds should increase from the current 38% (based on the 8,992,000 refunds given as a percentage of the 23.438 million returns processed so far). For this increase to happen, many of you must hire tax professionals to prepare your tax return. Find out how to contact me at the bottom of this article if you still need a tax pro to prepare your 2021 tax return.
Nevertheless, let me get into this article’s subject: How do we maximize our tax refunds? What are the best ways to spend your tax refund? Go clubbing until sunrise? Buy a nice pair of sneakers? Buy your mom a gift? Which one would you choose? Below I give you some suggestions that can improve your financial state.
Fund your 2022 IRA accounts
Single filers can contribute up to $6,000 to IRAs in 2022. This amount can go up to $7,000 if you are over 50 years old. If you consistently add your refund to these retirement accounts, you will retire with a sizeable amount of money that can help your family build generational wealth. Remember, what helps them build generational wealth is to spend less on daily expenses and channel some of their money towards business or investments. Therefore, less one retiree who needs money from them is a plus. You will be taking care of yourself using the money you can start saving today!
Reinvest in your business
Use the refund money to buy a business laptop or high-end mobile device (for streaming and Instagram images for business). You will deduct it again as a business expense next year. So, besides reinvesting the money in your business, you can record these transactions as business expenses and be able to deduct them in the following tax seasons.
There are many things that require a small budget, and tax refunds can cover these. Do not just look at the camera or cellphone, as I mentioned above. But also look into revamping your marketing tools such as SEO optimization on your website by hiring a freelancer on platforms such as Fiverr to get things done. You can employ excellent writers, SEO experts, graphic designers, and more to give your business a new lift through refund money.
Open a 529 for your child in 2022 and contribute your refund therein
Use this to save your child from student loans and enjoy some tax benefits. If you have young kids in your home, take this opportunity to start their college fund and save money on your state taxes.
If you contribute to a 529 college savings plan, you will lower your state tax bill in 2022.
You can do this in more than 30 states that allow you to deduct at least a portion of 529 plan contributions from state income taxes.
By doing this, not only do you save money on taxes, but you also remove the burden of having to pay cash for your child when they eventually get to college. Or worse, your baby may be forced to borrow from the government and spend the rest of her life paying back a hefty student loan. So, you are better off contributing to that 529 plan now. The tax refund money gives you the best chance to start.
Start a business
They say starting a business is not for the faint-hearted because of the work that goes in. but a few people talk about the benefits of starting a business. Indeed, it can be challenging to get your business properly running, but the benefits of being a business owner far outweigh the challenges you may meet.
As such, you can use your refund money to invest in the first steps of your business. There is so much you can do with it. For example, building a website sometimes costs you under $100, and the average refund so far for this tax season is above $2,000. Remember that every business you see today, be it in New York or in Maryland, started as an idea. The difference is that those entrepreneurs acted on their ideas. And to be honest, sometimes it takes a lot more purpose than the amount of money you have to get started.
Build an emergency fund
Finally, you can use your tax refund to build an emergency fund. Every family goes through an emergency from time to time. And when this happens, you will need money to pay for emergency bills such as medical bills or relocating expenses. If it happens when you have nothing set aside, your family could be in debt. And debt is the opposite of wealth, unless if it is debt taken to invest in a business or buy a real estate property. So, given the above, you are better off using your refund to build an emergency fund. If you are confused about how to do this and the other tips I gave you above, contact my office now and let me know if you want to start organizing your finances, starting with doing something meaningful with your tax refund money.
People have also asked the following
- What does tax refund mean?
A tax refund is a reimbursement of extra taxes you would have paid. This arises because you could have overpaid your taxes throughout the year or deducted some items on your tax returns and qualified for some refundable tax credits. If the deductions and refundable credits outweigh the taxes you owe, the IRS will reimburse you the difference.
- How do you get a tax refund?
The IRS sends refund checks via mail. But taxpayers who file electronically and choose Direct Deposit as a refund method get the refunds in their bank accounts, which is the fastest and IRS recommended method.
- What can I spend my tax refund on?
You are free to spend your tax refund how you see fit. However, it’s best to think about your future and only spend it on things that secure your financial status, for example, contributing to a retirement account.
- What is the smartest thing to do with a tax refund?
The smartest thing to do with your tax refund is anything that contributes towards contributing to your future financial status, for example, contributing to your child’s college fund.
- What do I do with a large tax return?
Large tax returns are complicated. And the best way to prepare a complex tax return is through the help of a tax professional. Do not prepare it on your own; hire a tax pro.
