The tax deadline may have come and gone, but for many Americans, the joy of tax season lives on as they decide what to do with their treasured tax refund. According to the IRS, this year's average refund is $2,899. Now only one question remains -- what will people do with the money they get back?
The results may surprise you! According to a TurboTax poll, 56 percent of respondents said they would use their refund to pay off debt. If you're one of these people, consider paying off the account with the highest interest rate or smallest balance to start eliminating debt and save on interest payments. If it's a mortgage you are prepaying, consider making a "principal-only" payment and it will help lower your mortgage's interest accrual.
Not everyone chooses the responsible option of paying down debt with their refund. Would you rather splurge, save it or even donate it to charity?
Fancy a trip to Paris or Rome?
With summer just around the corner and an average tax refund that's just under $3,000, 10 percent of Americans plan to use at least part of their refund for travel or leisure this year.
A penny a day...
Roughly 16 percent of taxpayers will put their refund in some type of savings. In an effort to avoid debt or the temptation to raid your retirement accounts in the event of a financial emergency, consider setting up an emergency fund. Financial planners suggest you have six months' worth of living expenses on hand for emergencies.
Another great place to use your tax refund is to fund your retirement nest egg. You could put more money into your work's 401(k) or use your tax refund to fund an IRA. By investing in a traditional IRA now, you could potentially increase your tax refund for next year.
One additional option to consider is to use your refund to open up a 529 College Savings Plan for your child. The money invested in a 529 savings plan grows tax free as long as it's used for college expenses. The funds in most plans can be used at any college or university in the U.S.
Giving back to charity
If you decide to give a portion (or all) of your refund to charity, consider giving it to a qualifying charitable organization. The donation will likely be deductible on next year's tax return and you'll join the two percent of taxpayers who said they would donate their refund.
Maybe a shopping spree or night on the town
It's not surprising that with so many spending options, 16 percent of taxpayers said they would spend their refund in other ways -- from using the extra cash to start their million dollar idea, splurge on a fancy dinner, or even buy that stunning pair of shoes they've had their eye on all year.
If you didn't get as much money back as you had hoped or had to pay Uncle Sam this year, there's always actions you can take now to increase your refund next year. When doing your spring cleaning, consider donating clothes, toys and other household items to charity as a donation, but remember to get a receipt.
You might also want to change your withholdings through your employer. This allows you to increase (or decrease) the amount that goes toward your 2012 tax liability. So when it's time to file next year, you'll be less likely to owe money.
But for now, breathe a sigh of relief that you've made it through another tax season.
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