The average American family getting a tax refund this year will receive slightly less than last year, according to the information the IRS has released so far. This year, the average tax refund is $3,125.
According to a survey from Prosperity Now, many people who receive a tax refund rely on it to fund basic needs.
You may have heard people say their goal is to find the sweet spot between paying taxes and receiving a refund. People whose desire is to have more money in each paycheck rather than a lump sum in a refund may strike you as boring. But they are actually trying hard to win at the income tax game.
I've tried this technique for more than a decade. Every year, we adjust my active-duty spouse's withholding -- and it never works. Without a doubt, we get a refund.
In the early years, we used this in a variety of ways, just like most Americans. We would go on vacation, pay off debt or make a significant purchase with it. But are those the best ideas? What should we be doing with our tax refund, if we happen to get one? The Balance had a few ideas, which include donating, funding a Health Savings Account and boosting a college fund.
Here are some other responsible ideas.
- Pay down debt. There's no argument here that paying down debt is a responsible financial step. Service members tend to have a higher percentage of credit card debt than their civilian counterparts; rely on borrowing money from lenders outside of banks; and struggle to make ends meet. Paying down debt, of course, should be closely followed by not incurring any more debt. Using a tax refund to make a lump-sum payment on a credit card or car loan is a great way to jump ahead, but don't let it be the only way you pay on those debts.
- Save for retirement. It's hard to think about retirement when you're in your 20s or 30s, but it's a great time to do so. Investing in a Roth or traditional IRA in your 20s gives you that many more years to see a return. And you'll need more than that military pension for retirement, I promise.
- Travel. While it may not seem like a responsible plan of action, tax refunds are a great way to help stimulate the economy, and travel is a fun way to do that. If you rely on your tax refund for your travel budget, you ensure that you won't overspend on travel and increase any debt you may have. But maybe not always to see family. Take a trip just for fun!
- Make a big purchase. Another popular option for a tax refund is to make a large purchase. Using your tax refund to do this can eliminate additional debt and help the local economy. Consider purchasing from a locally owned company.
- Invest it. Investing your tax refund may be one of the least interesting options, but it is a great step toward your future. Investment opportunities and information are accessible online and through your bank or credit union. Planning for your future is the pinnacle of responsible spending.
Before you get your tax refund, or at least before you spend it, have a plan for what you're going to do with it. Talk with your spouse and your financial adviser, and consider your personal financial situation before making a decision.
While an Apple TV is certainly a fun way to spend your tax refund, you may need to buckle down and pay off a credit card first. Or maybe you can compromise and split the difference.
Be a savvy and responsible military spouse with your family's tax refund this year, or celebrate that you found the middle ground and didn't owe taxes.
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--Rebecca Alwine can be reached at rebecca.alwine@monster.com.
