I received my income tax refund the other week and it was a whopping total of $65! Well I shouldn’t be complaining because a little bit of money is better than no money or even worse- having to return money. Tax returns are always fun for me because I have encountered so many young people that made simple mistakes when filing their income taxes and they ended up owing the government hundreds of dollars. That’s why even the smallest amount feels like a success. The last thing a twenty something needs is to have to return money to the government.
Why was my income tax return so low? Well without giving away too many details I worked really really hard last year and made more than what the government feels a student should be earning. When I was doing my tax return filing I realized that despite claiming my tuition and retirement contributions I would still barely receive an income tax return.
For those of you that will receive decent income tax returns then there are some great options available for you! Green Panda Treehouse offers two wise suggestions: pay down credit card debt or add to your emergency fund. Just so that I don’t lose my readers with a really long post and so that I don’t get accused of stealing GPT’s great ideas I will only add two more suggestions on how to spend that income tax refund:
1. Put it towards your retirement contributions. In my situation you could argue that I received my income tax return as a result of “tax breaks” received from my retirement contributions. Many young people simply do not have enough money in their retirement accounts so this would be the perfect opportunity to grow that retirement fund. I will dive into more detail on Individual Retirement Accounts and Registered Retirement Savings Plans when I introduce my new investing sections at Studenomics next week.
2. Forget about the recession and have some fun. If you made wise choices all year round & properly filed your income tax forms and ended up with a decent income tax return then why not enjoy yourself? It feels great to actually get money from the government once in a while so why not go out and have a beer on them? Or even go out and do something remotely fun that will get your mind off the recession for a few hours at least.
Now it’s time to find out how everyone else will be spending their income tax returns? Or even worse did any of you guys owe money?
{ 9 comments… read them below or add one }
I owed a fabulously large chunk of change. I would have received about a $50 refund, if I weren’t being claimed as a dependent by my mother. As such, my mother is paying my outrageous tax bill. Next year, I might just get a refund… since no one will be claiming me, but me.
Stephanie —
Why does your mom claim you as a dependent (does she support you?)?
If so, consider yourself very lucky she paid for the tax bill!
I was owed a decent amount of money because of the way my employer handled the part-year filing method, unfortunately. But it was enough to pay for my 2 vacations this year (1 already passed)! Unexpected windfalls aren’t too shabby.
Thanks for the mention and including some other great ideas. We’ve set aside most of the refund for savings and the rest went for my husband’s dentist bill.
Why would you want to get money back? That is a free loan to the government. Our goal is to get as close to zero as possible, but owing a small amount is not bad either. Something in the tax code changed this year and totally messed us up and we’re getting a large refund. Probably will go towards landscaping and summer camps for the kids.
Earlier in the week, I actually wrote up 10 ways to spend your tax refund. Not that I’m trying to show off or anything.
Stupidly Yours,
Matt
Ramavich,
I totally agree with you. If you get a large refund that is your money that you should have had all along. The goal is to break even. I would rather owe money when I file my taxes. As long as you don’t owe so much that you have to pay a penalty, that was an interest free loan from the government. I always owe a little at the end and that is perfect. It means that I am getting the maximum paycheck that I can.
Ramavich & Laura –
Average refund is about $2,500. At 3% for the year that is $75 in “free money to the government.”
For most people the security of a refund at a cost of $75 is much more appealing than the chance that they screw up their withholding and owe money all of a sudden.
Would I rather owe $2,500 (and get $75 in interest) or be owed $2,500 (and lose an opportunity for $75 in interest)? I choose refund every time. And I am good at saving and not spending!
I’m thinking about opening an IRA account and putting all of it in there so I can finally begin a retirement account.
@MyLifeROI: as a college student, my “primary residence” is still my mother’s house. This is the main way that she “supports” me, so according to the government, she is eligible to claim me as a dependent. We compared my tax forms to her tax forms this year, to see who would get the bigger benefit by claiming me. Because she would get the bigger benefit, she claimed me and then paid my tax bill. I do consider myself lucky, although it was my idea