It is not free money
Sometimes tax refund can feel like free money – manna from heaven! However, students should remember that it was their money which was paid to the IRS in the first place. For that reason, it is advisable that careful consideration be given as to how you spend the refund.
If you are tempted to go on a spending frenzy, it may be pertinent to reconsider! Put your tax refund on the back burner, while you figure out the best way to use the money that will be of benefit to your financial situation.
A tax refund should rather be seen as a bonus, and not as free money to spend before it even gets on your bank statement.
Some good ways to use your tax refund
Graduating high school and attending college is a huge step to adulthood and with it comes the responsibilities of keeping up with studies and making yourself marketable for a job after graduation. You may also have to take control of your own finances, maybe stick to a budget and if a nice slice of the tax refund pie comes along, manage that as well.
Here are some good financial moves you can make with your tax refund:
- If you have high credit card debt where the interest rate is often around 20%, make reducing the balance a priority when using your tax refund.
- Consider putting some of the funds in a good savings account with a high APR. A nest egg would be useful if there are sudden emergency expenses such as car repairs or unexpected medical bills.
- Starting an investment portfolio if you have extra cash in hand is an excellent idea. Get some advice from experts, and opt for investments you can add to whenever you have spare cash. This is a way you can really start to build your financial future.
- Set some money aside to help cover the cost of study-related costs like text books, stationery, computer supplies etc. These material costs can mount up, and if you can pay cash, it will not impact on credit card debt.
- If you have only one class left to graduate which will not be covered by a federal loan, a tax refund will be handy to help pay for the final leg of your education.
- If you are a senior about to graduate, it is a good idea to start planning for post-college expenses. Obviously you will not be getting a million dollar tax refund, but it is all relative. You will be stepping out into the wide world of job hunting, and even if you set a goal to take some refund cash and buy something new to wear to job interviews, it will be money well spent.
- Experts agree that you can definitely benefit by using you tax refund wisely, and after taking care of necessary expenses, it is okay to take a part of it to treat yourself. If you have carefully budgeted the whole year, indulging and treating yourself a little, will leave you with a good feeling that it was all worth it.
Before you can receive any tax refunds, you will need to begin filing taxes, but while you are still a college student, this can be a tricky process. You might get stressed at times, but taking advantage of the education tax credits you are eligible for, and when you get a refund, it will make this a positive experience.
Don’t rush through filing your taxes. Take your time and ensure that you are claiming all the deductions available to you.
Here are some points that you need to know about filing taxes as a college student.
- According to the IRS, your parents can claim you as a dependant until the age of 19, but once you are a student, that age can be extended to 24.
- If this applies to you, you can still file taxes, but you will need to indicate and confirm that someone else can claim you as a dependant.
- You may not claim any credits or deductions your parents are already taking.
- If you are over the age of 19 and your parents are no longer listing you as a dependant, then you are free to file your own taxes, and claim all the credits due to you.
Keeping it simple
It is often that the case that students doing part-time work end up with complicated tax affairs. Sometimes this is because some students work in more than one job at a time, and sometimes they regularly chop and change jobs. This can lead to employers using the incorrect tax code on their payslips, and consequently some students end up paying too much, and will be eligible for a tax refund.
If you have taken on part-time work while studying, you may be unaware that you could be eligible for a refund. Keep track of all work you do, and keep all your payslips on file, as well as every receipt for expenses incurred relating to your education.
When you have everything handy, filing your tax return should be relatively simple to do. However, if accounts is not your strong point, find someone with the necessary expertise to assist you, so that you do not lose out on any refunds that may be due.
Forming smart habits
A survey conducted among students who are expecting tax refunds, showed that 63 percent of those interviewed plan on putting as much cash as they can towards savings. Most were also of the opinion that money in the bank helps to resist the temptation to spend on unnecessary items.
Some students about to graduate believed that it would be useful to have some extra cash to rely on, while job hunting. This will help to relieve tension in what may be a very stressful time of CV”s and interviews.
If you are a student with multiple sources of debt, and are unsure how to allocate the funds, a smart move will be to focus on the debt with the higher fees or interest rates.
The bottom line is don’t procrastinate and hang indecisively onto your tax refund – use it to improve your financial situation. That is the smartest money move you can make!