Have you been struggling with your finances in recent years? Did Christmas empty your pockets? Luckily, tax season is here, and you may be looking at a tax refund in the near future. If you’re expecting a tax refund this year, there are many different ways you can use that money. In this blog, the bankruptcy lawyers at O’Bryan Law Offices explore what to do with tax refund money in 2023.
At O’Bryan Law Offices, we help Kentucky and southern Indiana residents achieve a fresh financial start through bankruptcy. The United States Bankruptcy Code outlines ways in which consumers and businesses can get a handle on their finances while also receiving legal protections. If you’re unsure of where to turn and you’re in a financial rut, don’t hesitate to reach out to our attorneys. We’ll help you along your path to financial stability. To schedule your free consultation with us, please call our office at 502-339-0222 today.
What Is a Tax Refund?
A tax refund is a reimbursement of excess taxes paid to either the state or federal government. When a person overpays their taxes, they will receive a tax refund from the government entity that they overpaid. Many people look at a tax refund as an interest-free loan from the government. While there are ways to file your taxes in order to avoid a refund and keep more money in your pocket, many people look forward to the possibility of a refund. If you’re expecting a tax refund in 2023, we have a few recommendations on how you can use it to your advantage.
What Should I Do with My Tax Refund?
Are you expecting a tax refund in 2023? Whether you get a high tax refund or an average tax refund, there are many ways in which you can spend this money to help your finances. Especially if you’re in a tough financial situation, the way you spend your tax refund could mean the difference between stability and instability. In the following sections, we outline many ways in which you can spend your tax refund that may help your financial situation.
Emergency Funds
It’s always a good idea to keep an emergency fund just in case you run into any unexpected expenses. There are many types of financial emergencies, including an unexpected medical bill, higher living expenses, or a car accident. Having emergency savings can greatly help out your future self in the event of a sudden expense or bill. An emergency fund can also help you avoid using your monthly income on unexpected costs, thus helping your budget.
Pay Off Credit Card Debt
You can also use your tax return money to pay down or pay off your credit card debt. Even if you already make monthly payments on your credit cards, private student loans, or other debts, you can make an even larger payment with your tax refund. Many credit cards generate high-interest debt, which means that it can quickly disrupt your monthly budget. To avoid this, use the extra money from your refund to pay down your credit card bill. With one less debt to worry about, you’ll be even closer to meeting your financial goals.
Put It Toward Your Savings
You may even use your tax refund to build up your savings account. Saving for the future is always a great choice, especially if you have big plans for your future. Putting tax refunds into high-yield savings accounts is one of many ways you can use your money to make more money. This way, you can save up for a rainy day, for a vacation, or to have some spending money.
Put It Toward Your Retirement
It’s never too soon to start building your retirement savings. If you use your tax refund to build up your retirement account, this can help you reach your financial retirement goals much faster. You could contribute to any form of a retirement fund, including a Roth IRA, a 401(k) account, or a traditional IRA.
Save It to Invest in Your Home
If you’re looking to buy a house, you can put the extra money from your refund toward a down payment. If you already have a home, you have a few other options. Maybe you want to make a few changes or improvements to your home. Your tax refund could go towards these projects, thus increasing the value of your home. Alternatively, you can use it to make extra mortgage payments. This can help you reach financial independence faster.
Invest It for Passive Income
If you’re a fan of investments, putting your refund toward the stock market or money market accounts could help your money grow passively. Remember that there is always some degree of investment risk, so we strongly recommend thinking about this thoroughly before making a decision.
Pay Off Unsecured Debts
Unsecured debts are those without collateral, such as a credit card balance, student debt, or medical debt. Using your tax refund to pay down a high-interest debt or education expenses is a good idea, as this can take a lot of weight off your shoulders. Especially if you’ve suffered a job loss or another stroke of bad luck this tax year, your tax return can help you soften the blow.
Get a Fresh Financial Start
There are many other smart ways to spend your refund check. At O’Bryan Law Offices, we recommend using your tax refund to achieve a fresh financial start. If you’re struggling with crushing debt, your tax benefits could help relieve some of this pressure. To learn more about how you can use this year’s tax return effectively, please call our office at 502-339-0222 today.
What Not to Do with Your Tax Refund
Just as there are many smart ways to spend your extra cash, there are also many less-than-ideal ways to spend it. Putting money in a savings account, retirement account, or into seed money for your child’s college education is a great idea. Below, we outline ways in which you could use your refund, but that we wouldn’t recommend.
Spend It All on Unnecessary Items
Once you receive your refund check, you may be tempted to go on a shopping spree or to make a big purchase. Instead of using their refund to build wealth, many people blow their refunds on new clothes, new electronics, or other unnecessary items. We recommend using this extra payment to contribute to your emergency fund or your savings accounts instead.
Lending It to Others
Generosity is a great quality to have, but it’s also important to prioritize yourself and your family. If any friends or family members ask for a personal loan after you get your refund, carefully consider your own financial situation before making a decision. Are you financially secure enough to loan money to someone instead of using it to contribute to your debt or savings goal? Lending money to friends and family has its benefits, but it also has many drawbacks.
Are You Struggling with Your Finances?
If you’ve received your refund, and it wasn’t exactly the biggest paycheck, there are other ways to handle your debt. Bankruptcy is one of the best options when it comes to debt relief. Not only will it give you significant financial breathing room, but it will also give you legal protections against your creditors. Other options, such as debt consolidation in Kentucky, cannot legally protect you from wage garnishment, creditor harassment, foreclosure, or other negatives. Filing for bankruptcy under the Bankruptcy Code is the only way you can receive the protection of the automatic stay.
The Louisville bankruptcy lawyers at O’Bryan Law Offices have considerable experience helping Kentucky and Indiana residents with their bankruptcy cases. We handle both Chapter 7 and Chapter 13 filings, and we can also advise you on the best ways to spend your tax refund.
Contact O’Bryan Law Offices Today
If you feel like you’re drowning in debt, bankruptcy can be your way out. The attorneys at O’Bryan Law Offices understand the negative connotation that bankruptcy has. However, we know better than anyone that it is actually a helpful tool that anyone can use to get a handle on their debts. Filing for bankruptcy can help protect you from your creditors, discharge your unsecured debts, and get you back on your feet. To learn more about the benefits of bankruptcy, please contact our office and schedule a free consultation. Call today at 502-339-0222 or fill out our online intake form to schedule.
