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Best Ways to Use Your Tax Refund
By William R. Patterson
|In March and April of every year, millions of Americans will be filing their taxes and receiving sizeable refunds.|
Here are seven smart ways to make best use of your tax refund:
- Reduce your credit card debt.
It is difficult to build wealth if you are paying 20-30% interest on credit cards. There are few better uses of your tax refund than paying down your high interest rate debt. You can use the Resources section of BaronSeries.com to obtain your free credit report and find the fastest way to pay-off your debt.
- Contribute to a Roth or Traditional IRA.
Through April 15th, individuals are allowed to contribute up to a $5,000 ($6,000 if you are age 50 or older) to an IRA for tax year 2009. If you are unable to make the April 15th deadline, you can make your 2010 contribution with it instead. For 2010, individuals are allowed to contribute up to a $5,000 ($6,000 if you are age 50 or older).
- Fund a 529 plan.
For many parents and students, the cost of higher-education has become increasingly difficult to manage. According to the College Board, tuition and fees at public colleges and universities have increased 51 percent on an inflation-adjusted basis over the last 10 years. 529 plans can be a great way to begin saving for your children’s college education. Some states even offer an income tax deduction for residents who contribute to a 529 plan.
- Build up your cash reserve.
The average person should have enough cash to cover at least six-to-twelve month's worth of living expenses to handle emergencies and to take advantage of new investment opportunities. You can use the Resources section of BaronSeries.com to help you find many of the highest interest rate checking, savings, and money market accounts in the country to help you fight inflation.
- Start saving for a down payment on a house or investment property.
The government rewards property owners, so real estate can be a helpful way to build wealth while generating more tax deductions and tax credits. The sub-prime mortgage crisis and weak real estate market have created some great buying opportunities for those with the proper training and knowledge.
- Start a home based business.
Starting a home based business can be a smart way to supplement or multiply your current income while generating additional tax write offs. Facing a recession, it has become essential for individuals to not only diversify their investments, but also their sources of income. On BaronSeries.com, you will find the top 20 part-time and home based businesses that you can start today and business coaching to help you succeed.
- Invest in yourself and financial education.
The more you know the fewer mistakes you will make and the more opportunities you will find. Inadequate financial education exposes you risks that can cost you tens-of-thousands of dollars and can create a paralyzing fear and lack of confidence in your ability to build significant wealth.
It is important to remember that receiving a large tax refund is not a good thing. Rather than allowing the government to hold onto your money throughout the year and pay you nothing in interest, you should work with your financial advisor, tax preparer, or accountant to adjust your withholdings so that you receive only a small refund after you file your return. This will allow you to free up more cash flow throughout the year to invest or pay down debt.
Lastly, beware of the real cost of expedited and rapid tax refunds. Generally, the few days you will save are not worth the cost, particularly if you file your return electronically. Patience always pays!
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