The average tax refund is roughly $2,750. With the US per capita income at around $48,000, that’s 6% of one’s income they’ve overpaid to the evil empire. Everybody knows that getting a refund is like giving the government an interest free loan. But, with interest rates the way they are, who cares?!
If you were to ask people to put aside $230 a month to save $2,750 a year, I bet most would fail due to the lack of discipline. As a result, I think it’s fantastic most people are getting refunds. The key is not blowing your refund on some splurge you wouldn’t otherwise spend money on if you didn’t get a refund.
In 2011, I had to pay about $1,000 more in Federal taxes, but I got several thousand back from the state of California. For the past 10 years, I’ve saved or invested every single refund I’ve received, and this year was no different. Boring! At least a philosophical post came out of it entitled, “Is Paying Taxes A Form Of Charity?”
Here’s a neat infochart with more ideas of what to do with your refund. I like the rocket ship chart of investing your refund every year until you retire with a 7.5% return. Buying a nice Macbook Pro would be sweet too, however, that’s a corporate expense, baby!
If you are like me, you should be motivated to invest and pay down more debt with your refund, rather than spend it on superfluous things. Although buying 1,000 lottery tickets sure sounds like way more fun!
Recommendation: I’ve been using H&R Block’s Premium Tax Software to do my own taxes for the past 11 years. It’s inexpensive and very easy to use for novice to advanced tax filers. The software always updates with the latest tax rules so you’re never behind. They also have audit protection service as well.