Plan now how to use your tax refund

AMES — Iowans who are expecting a sizable income tax refund have choices about how to use that money, says Barb Wollan, a human sciences specialist with Iowa State University Extension and Outreach.

“Keep in mind that how you use your refund will affect your household’s financial well-being all year long. However, before you receive your refund, consider how much money to pay for tax preparation,” said Wollan.

If your income is below about $67,000 per year, you may be eligible for free tax preparation through the Volunteer Income Tax Assistance program. Some ISU Extension and Outreach county offices are also VITA sites and a list of these VITA sites is available online.

If your income is below $84,000, you can use VITA’s free do-it-yourself software. Learn more by emailing centraliowavita@gmail.com; an auto reply will provide you with the link and instructions.

As with any type of income, you have three main choices for how to use your tax refund: spend, save or pay off debt.

Saving substantially from the tax refund may be overlooked when immediate needs and wants are always present. However, for many families, saving a large portion of the refund may be the best possible option.

Without savings, any major repair, medical bill or large seasonal expense could disrupt your financial stability.

Your first priority for your refund may be to pay off any problem debt. If you’re behind on a bill, getting caught up is important. If you have high-interest credit card debt, paying it off will save a lot of interest expense, Wollan said.

After paying off problem debt, though, it becomes a balancing act: saving for anticipated needs in the coming year versus making special purchases now.

“Keep in mind that spending the money is irreversible. However, if you save a large portion of your refund and no emergencies arise, you can always make purchases later, or next year,” Wollan said.

Most families will make some purchases with their tax refund. Consider purchases that will pay benefits for a long time, so that even six to eight months from now your family will still enjoy what you purchased and feel like it has made your life better.