While saving for an emergency fund or important money goal may top your personal finance to-do list, it's easier said than done. No matter our good intentions, there are bills to pay and conflicting priorities that often get in the way. Your tax refund could help you start to build on your savings goals. According to the U.S. Department of the Treasury, the average federal tax refund in 2019 was $3,143. That's a significant chunk of change you can use to get ahead financially. Here's how to make the most of your tax refund, along with some year-round tax tips:
Opt for Direct Deposit
When you file a tax refund, you can choose to receive it electronically to the bank account of your choice. Or if you're working with a tax professional on your return, just let them know direct deposit is your preference. To sign up for this option, you'll need to provide your bank account and routing number. When you e-file and select direct deposit, you will likely get the money in the bank within 21 days. You can track the status of your refund by using the Where's My Refund? tool.
Decide Where the Money Should Go
Before you receive your tax refund, spend some time figuring out how you'd like to use that money. For instance, maybe you'd like to put part of it toward student debt, and the remainder for a down payment on your first home. Or perhaps you'd like to enjoy some of that refund and squirrel away the rest in savings. When you choose to receive your refund by direct deposit, you can allocate the funds in as many as three accounts. If you have different savings account for your money goals, you can parse the refund so it goes directly towards these goals.
Should You Adjust Your Withholdings?
When it comes to tax withholdings, it works like so: The more allowances you claim, the less income tax will be withheld from each paycheck. In turn, this strategy can free up more money throughout the year to put toward your bills or day-to-day expenses. On the flip side, if you prefer a fatter check from Uncle Sam come tax season, you may want to claim fewer tax allowances. The fewer you claim, the more income tax is withheld, the bigger your likely refund. Changes made to your tax withholdings can be made by filling out a new W-9 form. You can ask the human resources manager at your workplace for a copy to fill out and submit. If you're self-employed, you can find a copy of the W-9 form on the IRS website.
Besides making the most the of your tax refund, here are some year-round tips to stay on top of your financial housekeeping:
Keep Track Of All Receipts
To save on your taxes and claim the proper deductions and credits, hold on to your receipts. Which ones should you keep? Some expenses that could knock down your taxable income include childcare expenses, qualified medical expenses and work-related expenses that your employer doesn't cover. For the self-employed, certain expenses deemed “ordinary and necessary" to run your business are deductible. For instance, supplies, equipment and software, and work-related travel might lower your taxable income.
Consult a Tax or Accounting Professional
Working with a tax preparer, accountant, or CPA will likely prevent you from wasting time or making costly blunders. Check-ins with a tax pro can help you devise tactics to maximize your tax savings, make sure your financial records are accurate and keep you looped in to any changes in the tax code.
Know the Tax Implications of Life Events
Milestone, life-changing events such as getting married, having a child and going back to school can impact your tax situation. For instance, if you buy a home, there's a chance you could deduct property taxes and mortgage insurance. Had a baby? You might qualify for a child tax credit or receive an exemption if you claim them as a dependent. If you're returning to school, you could qualify for an education tax credit. Filing your tax return doesn't have to be an overwhelming, stressful experience.
By making the most of a refund and staying on top of your tax prep year-round, you can learn to make informed choices that suit your money situation.
All content provided in this blog is supplied by Jackie Lam and is for informational purposes only. Barclays takes no position as to the views, and makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.