One of the most significant advantages of tax planning is making the most out of the deductions and credits at your disposal. Additionally, it’s important to ensure that your annual taxes will result in a hefty federal and/or state refund.
Anticipating that check or direct deposit is arguably the best part of tax season for most Americans. However, once you have your refund in hand, what should you do next?
The next stage of tax planning and management entails putting that refund to good use, which is where financial planning tax strategies come into play.
Granted, you may already have some of that refund earmarked for a specific purchase, like a down payment on a new car or a vacation. But if you want to transform your tax refund into more money that’s put back in your pocket, read on to uncover how to make the most out of your recent tax refund. .
Financial Planning and Tax Strategies for Your 2024 Tax Refund
Examine (and Pay Off) Your Outstanding Debt
Paying interest on credit cards or loans simply allows your money to disappear with nothing to show. One of the most financially beneficial things you can do with a sudden influx of funds is to examine and pay off any debt, especially when it comes to loans that may have a hefty or accelerating interest rate.
Create an Emergency Fund
An astonishing 44% of Americans can’t pay for an unexpected $1,000 expense, and not having an emergency fund readily available can easily cause your finances to spiral out of control. Without an emergency fund, you may rack up more debt, be unable to pay for essentials like your home or utilities or make unexpected sacrifices just to stay afloat – (like canceling that vacation!)
If you don’t have an emergency fund, it’s time to start one now. There are plenty of options when it comes to how to set this money aside. These options include a savings account with limited or no early withdrawal penalties, so your money can grow while you save it for a rainy day.
Look at Investment Opportunities
There are plenty of ways to invest your tax refund and allow it to naturally grow in value over the months, years, and decades ahead.
Creating a diversified investment portfolio is a great way to start saving for your long-term goals. For example, retirement, buying a first (or second) house, or other lofty ambitions that require a substantial nest egg.
In addition, you may find opportunities to invest that are close to home. Many workplaces offer 401(k) retirement plans with employer matches, meaning any funds you invest are automatically doubled, thanks to your employer’s contributions. Best of all, investing in retirement plans often has tax incentives, so you’ll have even more deductions or credits when the 2025 tax season rolls around.
Find Tax-friendly Ways to Save and Spend
Speaking of 2025 taxes, you can spend your 2024 refund in ways that will lead to financial benefits for next year and beyond. These options and ideas include the following:
- Energy-efficient home projects. Certain renovation projects can add value to your home. However, they can also result in tax advantages if they qualify as energy-efficient improvements, like installing new doors or windows or investing in solar panels.
- Educational investments. Consider investing some money in a 529 plan for your child’s future college education or enhancing your expertise through professional development courses or other training opportunities. Many education-based credits and deductions are available that make launching or continuing your education less of a financial burden.
- Donating to your favorite charity. Charitable deductions are tax -deductible, and if you have been thinking about making a hefty donation to your favorite charity, perhaps now is the time! In terms of tax implications, this is an especially attractive option if you are on the edge of two federal tax brackets come the end of 2024 and want your net income to fall into the lower bracket.
Contact Our Tax Experts at Saddock Advisory to Learn More and Start Planning for 2025
Even if you didn’t enlist an expert for tax year 2023, it’s not too late to start embracing smart tax planning and management strategies for 2024! The professional and client-focused team at Saddock Advisory is standing by to help you explore your options for this year’s tax refund and to help ensure that your next refund will be bigger than ever before.
Reach out to us today to start the conversation. We’ll work together to ensure that when it comes to tax strategies, and develop a comprehensive plan that will reap financial rewards for many years to come.
