CHICAGO, April 24, 2012 /PRNewswire-USNewswire/ -- With the tax deadline behind us, the IRS is expecting to receive over 144 million returns – most of which will result in a refund. According to the IRS, the average refund totals around $3,000, which isn't a small sum of money. Before you take that cash and splurge at the mall or on a vacation, the Illinois CPA Society suggests some tips on how to use your refund that will bring larger returns to your overall financial outlook.
1. Pay Off Debt.
Use your refund to make an extra payment on your mortgage or student loans. If you've only been paying the minimum on your charge card bills, make larger payments or pay off the balance on a card with the highest interest rate.
2. Build a Rainy Day Fund.
Put aside even a portion of the refund for an emergency. In general, you should have roughly nine months worth of living expenses saved in case of an accident or if you lose your job. You may never end up needing it, but you'll be grateful to have the extra funds if you do run into trouble.
3. Pay for a Big Ticket Item.
Perhaps you have an event like a wedding or graduation coming up or would like to make a major purchase like a car or a home in the near future. Consider using the money as a special savings fund. You could also sock away the cash for a seasonal expense like holiday shopping.
4. Start an IRA.
No matter your age, it's always a good idea to invest in your retirement. Consider opening or adding to a traditional or Roth IRA. A traditional IRA allows you to put away money in a specific fund tax-deferred, which means you'll pay taxes only when you make take distributions and your contributions may be deductible. A Roth IRA, on the other hand, doesn't qualify for a deduction, but you won't have to pay any tax on withdrawals during retirement as long as the funds have been deposited for at least five years. For both types of funds, your income level may also affect if the contributions are deductible.
5. Save for Continuing Education.
Use your refund to make an investment in yourself. Apply the funds towards a continuing education class to help you move forward in your career or into another area that interests you. If you don't see yourself returning to school, put the money into a 529 savings account for your children or grandchildren to use for their education.
While it may seem like a windfall, if you received a large refund, you may actually be paying too much to the IRS over the year. A CPA can help you determine the right withholding amount to put more money in your pocket with each paycheck. Contact a CPA near you with the Illinois CPA Society's Find a CPA Directory at www.icpas.org.
About the Illinois CPA Society
The Illinois CPA Society, founded in 1903, is the fourth largest state CPA Society in the nation, with more than 24,000 members. It is the premier professional organization that represents CPAs in Illinois. During its over 100 years of existence, the Society has advanced the highest ethical and financial standards of the profession, and has been a leader in educating the public on financial issues.
SOURCE Illinois CPA Society