We’re back to taxes again?

Yes, but this is the happy part of taxes: the long-awaited refund check!

According to the IRS, the average tax return last year was $2,899.  Nearly $3,000—that’s a lot of money.

Do you have some ideas about how we should spend it?

You bet I do! According to a 2012 survey by TurboTax, many people say they are being responsible with their tax refunds: 42% plan to use the money to pay down debt and cover bills and 25% plan to save it. But others are splurging: 15% of taxpayers plan to treat themselves to a vacation or shopping.

If you’re one of the people lucky enough to get a substantial tax refund this year, be smart about how you spend it. Remember, even though it may feel like “found” money from an unexpected windfall, you earned that check by working hard—the same as you do every other paycheck, so don’t blow it on 2,899 lottery tickets.

Top priority: Pay off your credit card. It’s far and away the smartest thing you can do.

Next: Maintenance work. Schedule those car repairs you’ve been avoiding –new brakes, tires, a tune-up, oil change—you know the drill.

Or maybe you have house repairs to do? Use the money to pay for removal of storm-damaged trees, and have some replacement trees planted with any leftover money.

Or take that money straight to the bank. Do you have a rainy day fund? Everyone should have at least three months living expenses in a secure savings account.

What if I’ve already done ALL those things?

Well then we can have a little fun! My first suggestion would be to put the money in the bank, so to speak. But this time I’m speaking figuratively. Don’t put it in the actual bank, but invest the money in your future. That means opening a mutual fund account or how about opening a Roth IRA if you qualify for one?  The earnings grow tax-free, meaning you can reap the benefits in retirement without having to give a slice of the pie to Uncle Sam.

Remember, Roth IRAs are subject to income limits. If you file your taxes jointly with your spouse, your income needs to be below $178,000 for you to be able to fully contribute to a Roth IRA. If you make between $178,000 and $188,000, you are in the “phase-out” range and the amount you can contribute—$5,000 in 2013—starts “phasing out.” At $188,000 you are unable to contribute to a Roth IRA.

For people filing their taxes as singles in 2013, your income needs to be less than $112,000 to fully contribute to a Roth IRA, and your phase out range is between $112,000 and $127,000. It’s one of the few times that earning less money actually works in your favor!

Another way to spend the money wisely would be to take a course and learn something, making an investment in yourself. There’s an old saying “empty your pocketbook into your head.”

None of these suggestions are all that fun.

Well, I may have mislead you at the beginning. Planning for retirement isn’t all that sexy, I guess, but neither is eating cat food when you’re 80. Let’s say you’ve done everything right—You have your rainy day fund and are maxing out your retirement plans and your house and your car are in top condition—okay, what can that $2,899 buy you?

You could buy 525 “tattoos for babies” from a website called “stupid.com.”

Here’s my final suggestion: Kick in another $182 and you can take the kids to Disney World. The average refund will cover airfare, a four night stay at a hotel plus park passes for a family of four.

Airfare from where?

Dallas, of course! We’re all set for next week!

I have to leave you with this: If you get a refund from the IRS, it means you paid more in taxes than you actually owed, in effect giving the government an interest-free loan.  The IRS doesn’t send you a check as a little “thank you” gift for filing your taxes—they’re just returning YOUR money. In the future, make sure you’re claiming the right number of deductions on your W-4 or ratchet back the amounts you send in for quarterly estimated tax payments.

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