Tired of blowing your tax refund?

 I don't know about you, but I am struggling to believe it almost the end of January already...

This time of year also means that tax refunds will start to be issued soon.

I have talked to so many people over the years that regret spending their tax refunds as quickly as they do or on things that they can't even recall what or where.

Whether this is clothes shopping, eating out, new cars or just mindless shopping and spending, the value is usually not there for them after the money is gone.

Many people use their tax refunds as an intentional sales avenue knowing they may not be disciplined enough yet with their finances to actually put that money in savings throughout the year. But most, don't do it intentionally and when it comes in it can feel like Christmas day for some.

Let's take a look at what a tax refund actually is.

A refund is simply the IRS (or state) paying you back the money you let them borrow interest free all year long. It is not a big windfall, it is not free money, it is your money that you essentially gave to someone else to hold on to and they used it to earn money.

My theory on tax refunds differs from many mainly because I don't like refunds. A refund to me implies that I did a piss poor job of planning during the year and essentially lost money by doing so. What I mean by that is I could have taken that money and put it towards loans and saved money on interest or even invested it myself and earned money on my money. So by getting a refund I am actually losing money.

Now on the other side of that, some people like to have that large check as they use it for vacations or projects they have been planning on all year. To some, it is the easiest way to save large sums of money to be able to do things like that. And if that is you, that is fine, I just want you to be aware of what you are potentially losing by running your taxes this way.

Anyways, off my soap box and to the point of this.

I want to offer advice on some things you can do with your refund to use it to achieve your financial goals.

1.     Invest. Take part of the money from your refund and put it into a retirement account. As a self-employed individual there are several retirement account options you can look at to see which is best for you, and they can even help reduce your tax bill. Talk to your accountant and financial advisor to see what options make the most sense for you.

2.     Pay off debt. If you can use part of the refund money to pay off a credit card or a small loan payment, why not? How much cash each month does that free up for you? That cash can then be used to plan for vacations or to continue to invest and grow your net worth.

3.     Invest in yourself. If you have been eyeballing a course or program that will help you generate more income, this might be the time to invest in it. You just received some bonus money (kinda...) and you will be using it for something that is potentially a tax write off as an entrepreneur.

Beyond that, I also recommend really considering if that refund is the best thing for your financial plan and goals. If you don't think it is, then you may want to look at adjusting your withholding if you have a W2 job in addition to your business. The IRS website has a tool just for this purpose. However, be aware that if your business grows, you may need to make estimated tax payments on a quarterly basis to avoid paying penalties for owing too much tax. And really, the best action you could take is to be working with your accountant more than just at tax time. A great small business accountant will work with you more on a quarterly basis (yes it is going to be a larger investment with them but well worth it in my opinon) to help you determine how much to pay for your tax payments as well as helping you identify areas where you may be able to use tax strategy and tax savings options to save even more. (My favorite is hiring my kids in my business!!!!)

Enjoy your refund in smart ways and you will thank yourself for it later.

I don't know about you, but I am struggling to believe it almost the end of January already...

This time of year also means that tax refunds will start to be issued soon.