With the average refund at $2,831 this year, that's some extra money in your pocket! While you might have the urge to splurge, here are some tips to help you decide -- and plan ahead -- for what to do with your tax refund:
1. Put your refund money into savings. Forty percent of U.S. households live paycheck to paycheck, and more than one-third admit to rarely being able to save enough money. A federal tax refund is one of the largest lump sums of money the average American household receives all year, so using your tax refund to create a financial cushion can make a huge difference.
2. Pay off high interest debt. If you have credit card debt, consider using your refund to pay down debt on the cards that charge the highest interest rates.
3. Increase retirement account contributions. Using all or a portion of your tax refund for retirement contributions can give you great returns on your investment.
4. Improve the value of your home. Consider applying your tax refund toward home improvements you've been putting off, like that kitchen remodel or bathroom upgrade. It will make your home more enjoyable and can significantly increase your home's value.
5. Take a vacation. If you've already paid down your debt, increased your retirement savings and in general have been responsible with your money, great - you've earned a vacation! It's always important to reward yourself, but try not to spend every single cent just because you have it.
Did you know today marks the 101st Tax Day in American history? So while you might be thanking Uncle Sam for your refund, interestingly enough, while April 15 is the date that is engrained in everyone's mind, most taxpayers have no idea why Tax Day is on or around April 15 every year. To help you understand where these traditions started, here's a little history behind Tax Day:
The History of Tax Day: 101 Years in the Making
On February 3, 1913, Congress ratified the 16th Amendment, giving them the authority to enact an income tax. Prior to 1913, there were no income taxes other than those raised during the Civil War. When Congress passed the income tax law in 1913, a joint-filing couple that made more than $4,000 in taxable income after all deductions was subject to a one percent tax rate. With inflation, that $4,000 is equal to roughly $93,700 now.
So why is tax day on April 15? The first income tax day in U.S. history was on March 1, 1914. Four years later, Congress passed the "Revenue Act," which moved tax day forward by two weeks to March 15, where it remained in effect until 1955. Why the change to April 15? Historians believe there are two reasons that Congress chose to push income tax day to April 15: first, it gave the IRS a month longer to go through the income tax returns (imagine the piles of paper before the ability to e-file). Secondly, it let Uncle Sam hang onto the collected money a little longer before issuing refunds.
Another interesting fact is tax day cannot fall on a Saturday, Sunday, or a holiday, according to the United States tax code. Tax day can also not fall on April 16 since that's the date of Emancipation Day, a legal holiday in Washington, D.C., celebrating the freeing of American slaves.
If you're one of the millions of taxpayers who still need to file your return before the tax deadline, today is the last day you can file with the IRS. If you haven't filed yet, don't panic. There's still time! You can go online and e-file your federal and state tax returns until 11:59pm on April 15th. If you don't think you'll make the deadline and are considering filing an extension (or not filing at all), here are six reasons why you should file now vs. filing for an extension.
Do you have other questions about smart ways to spend or save your tax refund? Be sure to visit the TurboTax blog, or leave me a comment.