Five Key Moves to Optimize Your Tax Refund

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Tax season is among us; it’s time to get strategic and decide what you’re going to do with your tax refund. Whether you’ve filed your taxes and are awaiting your refund or you’re still gathering your documents, you need a plan for what you’ll do with the money when it arrives.

An extra lump sum of cash can make it tempting to splurge on a big purchase or a nice vacation. While these options may be more gratifying in the short-term, leveraging your tax refund to strengthen your savings, start investing, or make home improvements can give you a head start to financial security.

As you await your much-anticipated tax refund, let’s explore five smart strategies for optimizing your 2024 tax return. Additionally, we’ll cover mistakes to avoid once you receive your refund and common FAQs related to tax returns.

What To Do with a Tax Refund

Good news – you’re getting a tax refund. What should you do with it? Tax refunds can sometimes feel like free money. This false perception can make it really easy to spend the cash impulsively. Try to view your tax return as an opportunity to make strides toward your financial goals – whether that’s saving for emergencies, completing the home maintenance you’ve been avoiding, or investing for the future.
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Everyone loves getting a tax refund. While it’s tempting to focus on using the cash for something fun, try to dedicate a portion of it to your financial goals.

Build Your Emergency Fund

Consider allocating a portion of your tax refund to build or reinforce your emergency fund. This financial cushion serves as a safety net for unexpected expenses, providing stability and peace of mind. An emergency fund is integral to your financial well-being, allowing you to weather unexpected financial storms without derailing your long-term goals.

As a rule of thumb, you should aim to have an emergency fund that covers at least three – but ideally six – months of household expenses. Allocate some of your tax refund to your emergency fund and continue contributing to it throughout the year. You’ll never regret being adequately prepared if disaster were to strike.

Pay Down High-Interest Debt

Dedicate a portion of your tax refund to pay down high-interest debts. Whether it's credit card balances or loans, reducing debt improves your credit score and frees up future income for other financial goals. Prioritize debts with the highest interest rates to make the most significant impact on your overall financial health.

When you’re not paying down debt, you can put that extra income towards saving for a down payment on a home, buying a car, or saving for retirement.

Invest for the Future

Explore investment options that align with your financial objectives. From contributing to a diversified portfolio to considering stocks or retirement accounts, investing your tax refund can potentially yield long-term financial growth. If you're new to investing, consider consulting with a financial advisor to tailor your investment strategy to your specific goals and risk tolerance.*

Prioritize Home Maintenance

Your home is an investment, and using your tax refund for overdue maintenance is a wise choice. Attend to repairs, renovations, or upgrades to enhance the value of your property and ensure a comfortable living space. This not only improves your quality of life but can also contribute to the long-term appreciation of your home's value.

SouthState tip: Use your credit card for big ticket items and pay the card off right away. Doing so will allow you to collect rewards points for your purchase, and you won’t accrue any interest if you pay it off immediately.

Maximize Retirement Savings

Boost your retirement savings by opening an IRA (Individual Retirement Account) account and contributing a portion of your tax refund. This not only helps secure your financial future but may also offer tax advantages. If your employer offers a 401(k) match, take advantage of this opportunity to maximize your retirement savings and potentially increase your overall return on investment.

What Not To Do With Your Tax Refund

When it comes to your tax refund, the possibilities are endless for what you can do with the money. Just as we put together responsible recommendations for what you could do with your tax return, we also compiled a few things you should avoid.

Avoid Impulse Spending - Resist the temptation to splurge on unnecessary purchases. Impulse spending can quickly diminish the financial impact of your tax refund. Instead, focus on thoughtful and strategic choices that align with your long-term financial goals.

Don’t Keep Your Refund in Your Checking Account - Keeping your tax refund in a checking account may seem convenient, but it’s not the most strategic move for your finances. Unlike savings or investment accounts, checking accounts typically offer minimal to no interest. If you stash your refund there, you miss out on the opportunity for your money to work for you.

Don't Neglect Your Tax Obligations - Ensure that you're aware of any outstanding tax obligations or liabilities. Ignoring tax responsibilities can lead to penalties and financial strain. If you have uncertainties about your tax situation, consult with a tax professional for guidance.

Refrain From Using Your Refund as a Temporary Solution - Using your tax refund as a temporary fix for ongoing financial challenges may not provide a lasting solution. Instead, focus on comprehensive financial planning to address underlying issues and build a sustainable financial future.

Frequently Asked Questions

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When is the deadline for filing taxes in 2024?

The deadline for filing federal taxes in 2024 is April 15th. Be sure to check for any state-specific deadlines as they may vary.

How can I track my tax refund status?

You can track your tax refund status through the IRS website or use their mobile app. Have your Social Security number, filing status, and exact refund amount handy for accurate tracking.

Can I contribute to an IRA if I have a 401(k) plan?

Yes, you can contribute to both an IRA and a 401(k). However, your ability to deduct traditional IRA contributions may be limited if you're also contributing to a 401(k). Consult a financial advisor to optimize your retirement savings strategy.*
As you prepare to receive your tax refund in 2024, these strategies can help you make impactful financial decisions. Whether it's building an emergency fund, reducing debt, investing, maintaining your home, or maximizing retirement savings, thoughtful planning is key.

At SouthState, we're here to assist you on your financial journey. Remember, the choices you make with your tax refund can have a lasting impact on your financial well-being, so consider each move carefully and align it with your unique financial goals and priorities. Step into your local branch today to learn more.

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    *Please consult your tax-advisor for tax related issues.
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