Smart Uses for Tax Refunds

Smart Moves

With tax season in full swing, many Americans are expecting a refund. Instead of restocking your entire shoe rack or buying a big flat-screen TV, there are plenty of smart ways to invest your money that could mean an even fatter wallet in the long run. Here are some of your options. Photo Credit: substack


Especially in a tough job market, an emergency savings account is the first place you should be putting any extra money you have, including the tax refund money that you might rather spend on fun stuff. Regardless of the amount you’re expecting back from Uncle Sam, using it to build a fund that can cover at least a year’s worth of your expenses would be a wise move in a time of economic uncertainty. For the best savings account interest rates, visit Photo Credit: alancleaver_2000

Credit Card Debt

No matter what your refund amount is, using it to pay off any outstanding credit card debt you have will ultimately save you money in interest charges. New consumer-friendly credit card rules will be in effect in less than a week, and interest rates have risen dramatically in preparation for them, so now is the perfect time to really work on chipping away at your credit card balances if you’re carrying any. Photo Credit: Andres Rueda

Weatherize Your Home

Making your home more energy-efficient could save you a substantial amount of money, but not having the funds upfront to invest in energy-saving upgrades may prevent you from making those money-saving moves. Simple changes like sealing cracks near windows and doors can lower your heating and cooling expenses, and investing in pricier items like energy-efficient roofing and central air conditioning could pay off easily over time. Photo Credit: dichohecho

Get More Energy Efficient

In addition to upgrades that help you save on heating and cooling expenses, swapping out incandescent bulbs with compact fluorescent light bulbs or replacing your existing windows with more energy-efficient ones could lower your utility bills as well. Photo Credit: AZAdam

Remodel Your Home

Whether or not you plan on selling your home anytime soon, if you’ve been meaning to make any upgrades, now might be the time to put those plans into action. A new kitchen, new appliances, building a deck or even applying a fresh coat of paint could change how you feel at home – especially if you’ve been opting for staycations instead of making travel plans. Plus, if your house is on the market, even small cosmetic changes can make a difference to potential buyers, according to Real Simple magazine. Photo Credit: alexik

Get Solar Panels

If you’ve already been thinking about installing solar panels at home, putting your tax refund to work for them now will help ease the upfront financial burden of making your home more green. Plus, you could get a 30% tax credit on your upgrades, including expenses related to the preparation, assembly, and installation of panels. For more information, visit and see IRS Form 5695. Photo Credit: Wayne National Forest

Pre-Pay Your Mortgage

If you have sufficient emergency savings and don’t carry credit card debt with high interest rates, using your tax refund to get ahead on your mortgage payments will lower how much you pay in interest in the long run, notes Smart Money magazine. You’ll want to check with your lender to make sure there’s no penalty fee for pre-paying, however, Smart Money notes. Photo Credit: woodleywonderworks

Pre-Pay Student Loans

If you’re one of the lucky 20-somethings with no credit card debt and a good chunk of change in emergency savings, deny your urge to spend and put your money toward paying off school loans. Pre-paying your student loans will reduce the total amount in interest you’ll pay on your loans over time, notes Photo Credit: westerndave


If you already have adequate emergency savings, but you want to keep money in a safe place for fixed period of time, putting your cash into certificates of deposit can make you money without having to endure the risk of a volatile stock market, notes the Securities and Exchange Commission. But make sure you won’t need the cash before your CD matures, or you could be subject to a penalty fee for early withdrawal or have to forfeit some of the interest you earned, the SEC says. Finding a good CD rate is tough in this economy. Luckily, is here to help with a National CD Rate Tracker that finds the best deals in your area. Photo Credit:

Invest in Yourself

We don’t necessarily mean you should go get a massage or acupuncture (though you might be able to pay for these treatments with a tax-advantaged flexible spending account) but taking a class to further your education and add to your job skills could actually make you more money in the long run. Plus, the IRS offers tax benefits for education if you meet certain income qualifications. Photo Credit: Sidewalk Flying

Music Lessons for the Kids

Especially in school districts that have been forced to cut music education programs, parents who have already been financially responsible savers and investors might consider paying for their child to learn to play the piano, guitar or another instrument. After all, listening to and playing music has been associated with higher children’s test scores, and playing music helps develop skills that memorization and rote work can’t, according to Parenting magazine. Photo Credit: cosnciansky

Mutual Funds

If you have some cash to put to work and you want some stock market exposure, but don’t feel ready to pick your own stocks quite yet, mutual funds might be the investment for you. “A mutual fund is a company that pools the money of many investors -- its shareholders -- to invest in a variety of different securities,” explains the Mutual Fund Investor’s Center. These funds could be perfect for the novice investor who doesn’t have the skill or knowledge to actively manage stock market investments but wants a piece of the action with help from professionals. Photo Credit: Robert S. Donovan


Especially if you don’t have the benefit of a company-sponsored 401(k) or other retirement account, putting your tax refund into an individual retirement account could be a good idea regardless of how far you are from retirement age. You could see some substantial tax benefits from putting money into an IRA, and generally, the longer your investment horizon, the more time you have for your money to grow. For more on IRAs and to find out more about what kind of IRA is right for you, click here. Photo Credit: nDevilTv

Saving For College

Parents with school-aged kids or even working adults who may eventually go back to school for an advanced degree could benefit from opening or contributing to an existing 529 college savings plan. These state-sponsored college savings accounts allow individuals to invest their money in mutual funds based on their own tolerance for financial risk. Plus, contributions are tax-deferred, meaning withdrawals will likely be tax-free, according to education services company Peterson’s. Photo Credit: robb3d


Investing in individual stocks in this market may be a terrifying prospect or simply a bad idea for certain personalities, but if you can tolerate some financial risk or you have plenty of time to hold on to your investments, now could be the time for you to start investing in the stock market. It’s not advisable to try to time the market’s ups and downs, but some investors believe that buying on bad news can mean significant returns. You’ll still want to keep up with your due diligence on companies and their industries, however. Photo Credit: Katrina Tuliao


Starting this year, you’ll also have the option to receive your tax refund in the form of savings bonds, notes the Miami Herald. To do so, you’ll have to fill out IRS Form 8888 for a direct deposit of your refund to more than one account, the Herald notes. There, you can choose to designate the money to the purchase of a U.S. savings bond. Photo Credit:

Short-Term Savings Goals

If you’ve been meaning to save for a short-term goal like taking a special vacation later this year, depositing your tax refund into an interest-bearing savings or checking account can earn you a little extra cash to use when it’s finally time for a little traveling. And if you set the money aside in a separate account far enough in advance, you’ll have time to search for the cheapest rates. If you can’t wait to buy your plane tickets, however, be sure to take advantage of programs like the Orbitz low-price guarantee. For more on interest-bearing checking accounts and savings rates, visit Photo Credit: John-Morgan

Get a Tune-Up

Using your tax refund check to get your car tuned up could save you from unexpected auto repair expenses and help keep your car running longer. Plus, regular oil changes and keeping your air filter clean could help improve your car’s fuel efficiency, according to MSN Autos. Photo Credit: Robert S. Donovan

Grow a Garden and Save

Assuming you have a balanced diet, growing fruits and vegetables at home could mean significantly less money spent on groceries, especially if you’re a religious buyer of organic produce. If you have the yard space, you can even start your own organic garden, notes The Daily Green. And even if you don’t have a yard, you can grow your own produce at home, MainStreet previously reported. Photo Credit: Sbocaj

Bulk Buying

If you have the storage space, buying in bulk could save you a ton of money. For instance, you can get laundry detergent at less than half price if you buy it in bulk at Costco (Stock Quote: COST), MainStreet reports. And if don’t mind being seen in your driveway unloading 96 rolls of toilet paper from the trunk of your car, go for it! Photo Credit: *clairity*

Buy a Big Freezer

If you’re a meat lover or frequent consumer of frozen foods, buying a large freezer or a second refrigerator could actually end up saving you about 20% per pound on what you might pay for smaller packages of meat, according to Plus, bulk retailer Costco and Wegmans grocery stores now carry quality USDA Prime beef, which until recently was only available at steakhouses, and you may find it for as little as $7 per pound if you buy it in bulk, MainStreet previously reported. Photo Credit:

Spend on Itemized Deductions

If you’re a freelancer, contract worker or small business owner and you’re expecting a tax refund check in the next two months or so, you may want to use the extra money to invest in items you need to run your business. For instance, you can use it to buy a new computer instead of adding another charge to your credit card. Then when next tax season rolls around, you can itemize your deductions and claim that purchase. For more on miscellaneous tax deductions, visit Photo Credit: robertgaal

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