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What Should I Do with My Tax Refund?

If you're expecting a refund, making a plan for it can help you and help others.

By Haley Tolitsky, CFP

It’s everyone’s favorite time of the year – tax refund season! Remember, if you receive a large refund this year, you are allowing the government to hold your money for you throughout the year without paying you any interest. Ideally, you want to get as close to breaking even as possible, meaning you don’t owe any taxes or receive a refund, after filing. The less of your money that the government holds throughout the year, the more dollars you can put to work immediately toward your financial goals.

Haley Tolitsky, CFP®, is a CERTIFIED FINANCIAL PLANNER™ Professional with Cooke Capital in Wilmington, NC, providing highly personalized financial planning and investment management services. She is passionate about financial empowerment, specifically for women and the next generation, and loves the opportunity to motivate and guide others to take charge of their financial lives. Haley can be reached at htolitsky@cookecapital.com.

Haley Tolitsky

I recommend checking the IRS Tax Withholding Estimator calculator every quarter to see if you need to update your withholdings. All you need is a recent paystub. This also gives a you good idea of what to expect when you file your taxes.

If you are expecting a refund, make a plan for it before the money hits your bank account. Commit a specific dollar amount or percentage to put toward one or more of your financial goals and leave some funds to treat yourself! This will help keep you accountable and on track to achieve your goals. For example, if you are expecting a refund of $2,000, you may put $1,000 toward your emergency fund, invest $600 in your Roth IRA ,and buy that $400 item you’ve been thinking about for a while now. Here are some ideas to put your money to work:

Build Your Emergency Fund

A solid emergency fund should consist of at least 3-6 months of living expenses in a high-yield savings account.

Pay off Debt

Start with your highest interest debt, a.k.a. credit cards. If you have additional funds leftover, you may consider paying down other debt, such as student or car loans, depending on your interest rate.

Invest for Retirement or Other Goals

Now is a great time to invest extra dollars in your Roth IRA, 529 plan for your child’s college, and/or a brokerage account.

Donating money not only helps those in need, it could also result in a tax deduction for this year.

Treat Yourself to Some Self-Care

You work hard, so don’t be afraid to use some of the funds toward yourself. This may be a massage, vacation or enrolling in a course to further your education and skillset.

As soon as you know what your refund will be, make a plan for your money, and double check your withholdings for 2022. Your future self will thank you!

About the author: Haley Tolitsky, CFP®

is a CERTIFIED FINANCIAL PLANNER™ Professional with Cooke Capital in Wilmington, NC, providing highly personalized financial planning and investment management services. She is passionate about financial empowerment, specifically for women and the next generation, and loves the opportunity to motivate and guide others to take charge of their financial lives. Haley can be reached at htolitsky@cookecapital.com.

Securities offered through The Strategic Financial Alliance, Inc. (SFA), Member FINRA, SIPC. Advisory services offered through Allegiance Financial Group Advisory Services, LLC (AFGAS). SFA, AFGAS, and Cooke Capital, Inc. are not affiliated. Supervising office: 678-954-4000.