How to Save During Tax Time

March 29th, 2021 by
how to save during tax time

Photo by Karolina Grabowska / Pexels

Getting a return on your income tax? Now the question is: what should you do with that extra boost of cash?

According to the Internal Revenue Service, around 72% of Americans in 2019 received a refund from their taxes. This extra bit of money would be the perfect way to start saving for that rainy day expense. 

Why should you save your tax refund?

By putting your refund into savings, you can help yourself to prepare to pay for any unforeseen expenses that may pop up throughout the year. Saving your refund can also help you reach long-term goals, such as buying a house or paying for your child’s college tuition.

Related: Hard Credit Inquiries: How Many Is Too Many?

Making ends meet throughout the year is tough for many people and the ability to save regularly may seem unrealistic. Your tax refund could help you build or replenish your savings from unexpected expenses during the year.

Four Ways to Save Your Tax Return

  1. Plan Ahead – Many people already know what they are going to do with their return even before they file. If you make the commitment to put aside all or a part of your return, this could give you that financial boost in the year should you need it.
  2. File Electronically – By filing electronically, you can usually expect your return to be in your bank account within 21 days, Consumer Finance says.  If you mail in your taxes, you can expect your return to take up to six weeks to process. Filing electronically will also protect you from potential tax fraud, as you are not sending sensitive, personal information through the mail.
  3. Use Direct Deposit – By receiving your return via direct deposit, your money is saved safely and automatically into the account of your choice. It is also far faster to have the funds deposited directly into your account rather than receiving a paper check.
  4. Depositing Your Refund – The IRS does allow you to divide your return into three different bank accounts of your choice. You can divide your return to be deposited into checking accounts, savings accounts, retirement accounts, mutual accounts. You can even purchase United States Savings Bonds, too. If you chose this option and are filing electronically, you can purchase those bonds by indicating so in your electronic filing form.

Related: What is the difference between a FICO Score and a Credit Score?

With any financial matters, the best way on how to save your refund is to plan ahead. Know how much you would like to save and file your taxes electronically.

Saving during tax time can help establish an emergency fund for use when unexpected, costly issues arise. 

 

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Posted in Financial Planning