Finding out you're getting a tax return is one of the best pieces of information your accountant can provide. Once you get that news, you’ll likely start planning how you’re going to spend the money. While it may be tempting to treat yourself to an extravagant purchase, your future self will thank you for opting to go down a smarter route. Here are three intelligent ways to put your tax return to work. 

3 Smart Ways to Use Your Tax Refund

1. Reduce Debt

Americans are nearly $14 trillion in debt. Every penny used to pay back a credit card or loan is money saved because it reduces your total interest costs. Credit cards are known for their astronomical interest rates, so working to pay down debt should be a top priority. 

If you don't carry a balance month-to-month, put the money towards other debts, such as student loans. Consider starting with an account that either has the lowest amount or highest interest rate. Smaller accounts are easier to pay off, and quickly paying off high interest rates can save you money in the long run. 

2. Build a Savings

It's vital to have money to fall back on in the event of an emergency. The lump-sum provided by a tax return is an excellent way to kickstart a savings account.

Create an emergency fund that can cover household living expenses for six months. Having a cash reserve is incredibly valuable during tough economic times, like a recession, when the risk of job loss and financial insecurity is high. 

If you've already established a savings fund, you can turn your attention to big purchases, such as a real estate down payment. Use the return as an initial investment, and create a plan to build it up monthly until you reach your goal.

3. Invest for the Future

There are a variety of investment options that are essentially tax-free, which helps you grow the money faster. For retirement purposes, the IRS allows you to contribute up to $7,000 free of taxes.

If education for your children is a top concern, consider a qualified tuition program, like a 529 plan. An accountant can utilize their knowledge of tax law to advise you on the best types of investment accounts based on your circumstances. 


If you need tax return help, reach out to Corey C. Davis, CPA in Kerr County, TX. The local accountant offers a full range of tax and legal services to residents and businesses across Texas Hill Country. Learn more about the law firm's tax planning and preparation offerings online. Call (830) 257-8800 to request assistance.