Make Your Tax Return Work For You

In just a few weeks (or less), many Americans will be receiving a tax refund. The average tax refund received in 2020 was just shy of $3,000. Like many, you may be planning how best to spend your refund. We have some advice on how to leverage your tax refund this season to create meaningful advancements in your financial journey.

While each of us has a unique financial journey, the basic needs for stability remain for all. Before dreaming about vacation plans, an upgrade to your car or that new item that you “need” oh so bad, let’s look at smart financial planning that is applicable to all:

  1. Save – An emergency savings account should be in place. Each family should have an emergency savings account with a minimum of three to six months’ worth of take-home income set aside. These funds are meant for the unexpected such as major medical, major appliance repair or a major car repair and should not be touched outside of the events we cannot plan for. Try to save at about 50% of your return.
  2. Debt Reduction– Focus on your highest interest debt as well as your smallest balance debt. When paying off each debt, take the amount of that monthly payment you have eliminated and add it to the next debt in line to pay. You will quickly find yourself eliminating debts as you aggressively reduce balances through large principal reductions. Your tax refund is a great way to eliminate a few of the smaller debts before you even begin your debt reduction plan. About 40% of your return should be used for debt reduction. Other ways to reduce debt:
    • Pay your next 6 months of auto insurance instead of monthly to reduce premiums.
    • Get ahead on rent, loan payments or utility bills by paying in advance.
  3. Maintenance– The heaviest expenses come from neglecting the typical maintenance needs of our automobiles and appliances. After your savings is built and debt reduction plan in place, leverage your tax refund to address and budget the maintenance needs of your assets: automobiles, homes and recreational vehicles. Annual maintenance avoids major (and more costly) repairs in the future.
  4. Purchase a Necessity– Use your return on extra expenses you might not have had the funds for. A few examples could include upgrading your vehicle, replacing old appliances or initiating home repairs.
  5. Invest In Education – Education can be a key to really getting ahead in the future. Get your GED, work towards a degree or take a class at a local school to improve your skills. Start building your child’s college fund with a 529 savings plan.
  6. Do Something for Yourself– Give yourself a reward for the hard work you have done all year. Go on pre pay a vacation or buy something you’ve been wanting. Invest more monthly into your retirement! The last 10% of your return could be something fun!
  7. Give Back – If you find yourself advanced on your financial journey and receiving a tax refund with an emergency savings built, debt eliminated and all maintenance up to date, find ways of giving back in your community. Is there a charity that speaks to your heart that your financial resources can best serve? Our communities are dependent upon financial savvy leaders to care for the less fortunate and build a brighter future. Consider a gift to the Marine Credit Union Foundation!

What Do I Bring To My Tax Appointment? *

  1. A valid picture ID
  2. Social Security card for you, your spouse and any others shown on your tax return
  3. Copies of all w-2 and 1099 forms, including SSA 1099 statement (social security) and proof of any other income received by your and your spouse
  4. A copy of your prior year’s tax returns (Federal, State and Homestead), property tax bill or signed rent certificate, if filing for Homestead (Wisconsin only)

*Seek help from your accountant or a local non-profit credit counseling agency

Plan Ahead For Your 2021 Return

Receiving a large return but struggling each month to pay your bills? Consider making a change to your withholdings with your employer. See what you should be claiming in your W-4 by visiting the IRS withholding estimator.

On the other hand, if you’d like a larger return in April, but have a little less income each month, you can file single or show less dependents. You’ll pay more in taxes throughout the year but receive a larger return.

We are all on financial journeys that will provide us different opportunities. As Dave Ramsey so eloquently put it, “You must gain control over your money, or the lack of it will forever control you.”

Other Resources

  1. Marine Credit Union’s Financial Education
  2. Greenpath Financial Wellness

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