Tax Savvy Ways to Spend your IRS Refund

According to the IRS the average tax refund last year was over $2,500. I always encourage taxpayers to do something smart with this money, and it is never too early to begin planning for next tax season.



Put the Funds into a Traditional IRA



When you file your tax return you have the option to have your refund split between up to three different accounts. You can even have funds electronically transferred to a tax friendly traditional IRA. You can use these contributions to lower your adjusted gross income for the year.



Purchase Inflation-Adjusted Savings Bonds



In addition to transferring funds to a retirement account, the IRS has recently began allowing taxpayers to use a portion of their refund to buy inflated adjusted saving bonds, commonly referred to as I Bonds. The government makes this process easy, all you have to do is fill out IRS Form 8888 and designate how much of your refund you want to invest in I Bonds. They are exempt from state and local taxes, and federal taxes are deferred until you redeem the bond.



Use the Money for a Down Payment on a House



We all know there are multiple tax advantages of homeownership. You can write off mortgage interest, deduct property taxes, and many homebuyers qualify for IRS credits of up to $8,000. If your refund is large enough, you could use it as a down payment on a house. If you do qualify for a new homebuyer credit then you can even use the funds to help cover your closing costs.



Make Energy Efficient Upgrades to your Home



If you already own your home then you might want to consider making energy efficient upgrades to your house. In addition to increasing the value of your property, many upgrades qualify for tax incentives. To find out the exact amounts, check out EnergyStar.gov.



Make a Donation to a Qualified Charity



You can easily donate a portion of your tax refund to a qualified charity to directly reduce your adjusted gross income. Even if you cannot afford to make a large monetary contribution all miles driven to, from and during volunteer work are deductible expenses, as well as any goods or supplies you purchased while volunteering.



Invest in Yourself



Instead of investing your money into a retirement account you could invest in yourself and take a class at a local university. Depending on your income level the American Opportunity Tax Credit could cover the cost of up to the first $2,500 in qualifying tuition and related expenses.



Buy a Qualifying Hybrid



Although popular cars such as the Toyota Prius no longer qualify for the Alternative Motor Vehicle Credit, there are plenty of vehicles that do-Including the Ford Fusion Hybrid, which qualifies for a $3,400 credit.



The Tax Lady Roni Deutch and her law firm Roni Deutch, A Professional Tax Corporation have been helping taxpayers across the nation find IRS tax relief for over seventeen years. The firm has experienced tax lawyers who can fight IRS tax liens on your behalf.