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A lot of people dread the idea of having to sit down and file their taxes. And while you may not exactly be jumping for joy over the prospect, the sooner you submit your 2023 tax return, the sooner any refund you’re owed can hit your bank account.
The IRS has issued more than 2.6 million tax refunds so far this year. And as of Feb. 2, the average refund issued was $1,395.
Now it can be argued that it’s not really a good thing to get a tax refund, because if you do, it means you gave the IRS an opportunity to hang onto your money for a while interest free instead of you collecting it upfront. But if you’re due a refund, it’s also not something to cry about.
In fact, no matter how much your refund amounts to this year, you have a prime opportunity to use that money to better your financial picture. Here are a few ways you can put your upcoming refund to good use.
1. Boost your emergency fund
Do you have enough money in savings to cover three full months of essential bills? If not, then it definitely pays to take your refund and stick it into your savings account. Having a solid emergency fund could make it so that you aren’t forced to resort to debt when unplanned expenses suddenly pop up.
2. Pay off your credit cards
Maybe you racked up a balance on your credit cards during last year’s holiday season. Or maybe you had to charge some medical bills due to an accident that had you in the ER. Applying your tax refund to your credit card balance could save you a lot of money, since credit card interest can accrue daily. And if you owe money on a few different credit cards, aim to first pay down the balance with the highest interest rate attached to it.
3. Address home or car repairs you’ve been putting off
A home or vehicle repair might fall by the wayside if you don’t have the money to cover it. Once your tax refund comes in, address issues with your home or car so that they don’t escalate or put you in a position where you have to whip out a credit card to cover them. And if your car is older and beyond repair, use your refund toward a down payment on a replacement vehicle.
How to get a higher tax refund
If you haven’t yet filed your 2023 tax return, there may be a few things you can do to eke out a higher refund. First, if you didn’t max out your IRA in 2023, you have until this year’s April 15 tax-filing deadline to pump more money into that account. That could shield more of last year’s income from taxes, resulting in a higher IRS payday for you.
Next, make sure you’re claiming all of the credits and deductions you’re entitled to. A good rule of thumb is to compare the credits and deductions you’re claiming now to last year’s return to see if you’ve missed anything.
Finally, you may want to consider hiring a tax professional to handle your return. They might spot tax breaks you didn’t know you could claim, resulting in a higher refund.
Either way, the sooner you get your taxes done, the sooner you’ll have that extra money at your disposal. So if you’ve been putting off your taxes so far, consider that once you get moving, you can potentially start to address some important financial matters like the ones above.
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