Avoiding an IRS Refund
Tips and advice on how to avoid an IRS refund
If getting an IRS refund is wrong, American taxpayers don't want to be right. Many Americans look at the tax refund as a forced savings plan, but in reality, it is a no-interest loan to Uncle Sam.
According to the Minnesota Society of Certified Public Accountants (MNCPA), more than 3/4 of Americans will receive an IRS refund this year not realizing there are more productive ways to put your hard-earned income to work.
"When a client receives a refund over a $1000, my first step is to analyze why?" said Tom Alagna, MNCPA member and University of St. Thomas adjunct professor. "There are so many new deductions, credits and special tax breaks available. It's almost impossible for an individual to keep up with the IRS, but with a little planning and research you can strive for a zero balance and create a better financial plan."
Tips to reduce your refund
Evaluate your tax plan. Are you withholding too much? Are you taking all the deductions you are owed? Are you taking advantage of special tax breaks.
Consider a home equity line of credit. Home equity line of credit interest is tax deductible and the interest rate is often very low. It can be accessed for a car loan or home improvements. Refer to IRS Publication 17. Publication 17 summarizes changes and new deductions for 2006.
Make an appointment with a CPA or financial planner. Doing so will help you navigate your overall financial situation and prepare tax plan.
Tips on spending your refund
So if you do receive a refund, is that new boat or Disneyland vacation in order? Not necessarily. Affect your personal bottom-line for the long-term by using these tips recommended by the MNCPA.
Pay down high-interest debt. Credit card interest rates average 13 to 14 percent, while not as much fun, paying down high-interest debt is one of the smartest moves an individual can make.
Fund your retirement. There are numerous tax advantages and the money will compound over the years.
Establish or replenish an emergency fund. The economy is up. The economy is down; jobs are downsized or eliminated. Keep funds in a liquid investment such as a money market and use only for true emergencies.
Save for college. Tiny tots become college-bound seniors sooner than later. Invest tax refund dollars in a Section 529 college savings plan.
Do some preventive maintenance or improvements on your house. Using a refund to repair the roof or upgrade your home increases its value and protects your investment.
Minnesota Society of Certified Public Accountants - http://www.mncpa.org/