While most people don't look forward to the actual process of doing their income taxes, the resulting refund can be a big help for taxpayers and their families. But, before you start spending that money in your head, here are a few great options to save it for the future instead.
Direct Deposit
When completing your tax forms, be sure to have handy your bank account number and ABA routing number. Choosing to have your refund deposited directly gets it in your hands faster and more safely. You have the option of splitting your refund between up to three different accounts, meaning that you can spend some of it and still put the rest aside for the future.
Savings Bonds
The IRS offers a little-known option to purchase Series I savings bonds with your refund. You can purchase savings bonds in multiples of $50 for either you, your spouse, or even someone else. Savings bonds earn interest monthly and can be redeemed without penalty in as little as 5 years. They're also not subject to state income tax, so they could save you additional money in the future.
Apply to Next Year
If your tax situation may be changing in the next year (such as those starting to receive income as an independent contractor or business or parents who will be losing a dependent claim), you may want to have your refund applied directly to next year's tax bill. To choose this option, enter an amount on line 77 of Form 1040. If you're unsure if your taxes are changing, talk with a qualified accountant who offers tax services.
IRA or HSA Contributions
Want to really plan for the future? Fund your Individual Retirement Account or Health Savings Account with your refund. Contact your bank or brokerage company to find out the ABA routing number, account number, and whether to choose "Savings" or "Checking". Then, fill out line 76 on Form 1040.
Open a MyRA Account
If you don't already have an IRA, you can set up a simple one at myRA.gov. This account is treated like a Roth IRA -- and therefore doesn't reduce your taxes right now -- but withdrawals will be tax free. If you're a nervous investor, keep in mind that it is invested in U.S. Treasury retirement savings bonds and therefore doesn't lose value. Deposit your refund into a MyRA account in the same way as an IRA above.
No matter what the amount of your refund is, choosing any of these savings options can help you get started -- or make progress -- on a secure financial future. Talk with your accountant about what works best for your situation.
Share18 January 2017
Accounting is the absolute most important element of running a business. If you mess up the bookkeeping even the slightest bit, the entire business could be in trouble. I know how costly a small bookkeeping error can be. About three years ago, I made a seemingly small mistake in the financial records for my business and the next year when I filed my taxes, things were very bad for me. What would have required a small tax payment had suddenly turned into a big tax bill and quite a headache. Since then, I have worked with an accountant and things have been better.