Use Your Tax Refund to Meet Short and Long Term Goals

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By Kyrie Collins, Highlands Ranch-Parker-Castle Rock-Lone Tree Publisher April 11, 2018

With interest rates on savings accounts and Certificates of Deposit at practically zero, many Americans are opting to reduce their monthly income and pay more taxes up front in order to receive a larger tax refund. Nearly 80% of taxpayers get a refund, and the average amount for Individual Income Tax Returns is nearly $3,000. (Source: IRS Statistics)

Although it's no Powerball, allocating your tax refund toward both short and long-term goals can help you get ahead faster. Prior to becoming a mom, I worked in the financial industry for a large corporation. One financial adviser I knew recommended using a 40-30-20-10 allocation for tax refunds and bonuses at work to help me meet my financial goals, both short and long term.

  • 40% for the coming year: Whether it's a new couch, ski passes for the family, or a scheduled summer vacation, many families will have a fairly large expense each year.

  • 30% for emergency savings: Most financial experts recommend having six to nine months of income in an accessible savings account, in case of injury or job loss. If you don't have that much in savings, now's the time to start building that account.

  • 20% for 1-5 years from now: Maybe you want to take a second honeymoon when the kids get a little bit older or you're planning to buy a new car and prefer to make a large down payment. Put this money away and make it difficult to access (lock it into a CD or deposit it into a savings account in another town).

  • 10% for retirement: Hopefully you are already saving 10% of your income toward your retirement through a 401(K) at work or an Individual Retirement Account. Every additional penny you add will get you to retirement that much sooner. If you are under 50 years old, you can contribute up to $5,500 to a Roth or Traditional IRA for tax years 2017 and 2018. (Deposits for tax year 2017 must be made by April 17, 2018.)
This allocation suggestion is not intended to be and should not be considered financial advice, but is simply a useful guideline I have used with success over the years. Of course, you will need to take into account your own objectives and financial situation and consult with a financial professional to determine what is best for you.

If you are carrying more than 10% of your annual income in credit card debt, most financial advisers would tell you to ignore the above allocation and pay off that credit card debt instead.

Hiring a tax professional will save you time and it can save you money as well if your tax preparer finds a significant deduction or credit you might have missed.

Kimberly White Accounting, LLC provides outstanding service to their clients because of their dedication to the three underlying principles of professionalism, responsiveness, and quality. To schedule an appointment, please call (303) 791-5114 or email