Getting a Tax Refund?Take This Opportunity to Tune-Up Your Finances

NJTODAY.NET's online business directory

The average tax refund has increased by approximately 10 percent in 2010 as more Americans have qualified for tax breaks under the economic stimulus acts.

If you’re one of the lucky ones receiving a refund, CPAs urge you to think carefully before spending it. It’s a good time to review your entire financial situation and make adjustments to keep you on track for the rest of the year.

[smartads]

The New Jersey Society of Certified Public Accountants (NJSCPA) offers these suggestions for tuning-up your finances:

Update Your Budget

Before you spend a penny of your refund, review your monthly expenses so you know exactly how much is going out the door every month. Include any recent changes as well as amounts for education and retirement savings. It’s much easier to commit to putting that money away consistently if you budget for it as an expense.

Build Your Cash Reserves

This is a good time to increase your financial emergency fund. CPAs recommend maintaining a cash reserve that will cover three to six months of expenses in the event of a job loss or other financial crisis.

Save for Retirement

Invest a portion of your refund in a retirement savings plan such as an Individual Retirement Account (IRA). You generally can take either a deduction or a credit on your tax return for a traditional IRA contribution. Plus, you won’t be taxed on any interest you earn until you withdraw the money at age 59½ or later. With a Roth IRA, you invest money after tax and it grows tax free. Talk to your CPA about the best option for your tax situation.

Decrease Debt

One of the best ways to save money and improve your credit rating is to pay off debt such as high-interest credit cards. In the future, commit to having only one credit card and never using it unless you can pay the bill in full when it arrives.

Improve Your Home’s Value

If you own your home and plan to live in it for at least five years, consider making certain improvements that will increase its market value. In 2010, homeowners who make certain energy efficiency improvements may claim a tax credit of 30 percent of the total cost of the improvement, up to $1,500. Qualifying expenses include certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuels. For more information, read the Internal Revenue Service Fact Sheet, “Energy Provisions of the American Recovery and Reinvestment Act of 2009.”

Have Some Fun

If you’re meeting monthly expenses and have paid down your short-term debt, it’s okay to spend a portion on something fun. A good rule of thumb is to spend no more than 10 percent of your total refund, and don’t use it as a down payment to finance something that will increase your debt.

Change Your Withholding

Many people think of their tax refund as a bonus, but it’s really an interest-free loan you give the government for an entire year. If you’re getting a significant refund, consider changing your withholding status so that you have more money in each paycheck to put toward your long-term financial goals. Calculating an appropriate withholding level can be challenging. A CPA can help you determine the correct number of allowances to claim. If you don’t have a CPA, you can easily locate one online using the NJSCPA Find-A-CPA service. Just go to www.findacpa.org, and in a few clicks you can locate a highly qualified professional who is right for you.

For more smart money tips or to find a CPA in your area, visit the NJSCPA consumer website at www.MoneyMattersNJ.com. While visiting, you can subscribe to Your Money Matters, the NJSCPA’s free, monthly email newsletter to receive valuable personal financial planning advice throughout the year.


Connect with NJTODAY.NET


Join NJTODAY.NET's free Email List to receive occasional updates delivered right to your email address!
Email ads@njtoday.net for advertising information Send stuff to NJTODAY.NET Like Us On Facebook Follow Us On Twitter Download this week's issue of NJTODAY.NET

Leave a Reply