Financial expert breaks down the best ways to spend your tax refund

Posted at 9:40 PM, Apr 02, 2018
and last updated 2018-04-02 23:31:07-04

Tax refunds can range from hundreds to thousands of dollars for some taxpayers. You can sink that bonus money into a high-ticket item, or you can be sensible.

“Always pay down debt and there are several reasons why. First of all, it's basically paying yourself in the future,” said JP Krahel, assistant professor of accounting at Loyola University Maryland Sellinger School of Business.

If you're debt-free, there are still ways to make that money work for you.

“People talk about investing in the stock market. There are actually much simpler investments you can make in your own home. If you swap out all the incandescent light bulbs in your home with LEDs, you save on your power bill and again, tax-free savings,” said Krahel.

What you don't want to do is hand off that money to a scammer posing as the IRS. It's not hard to fall for a scam. Scammers can be incessant, pushy, and convincing.

“They're always going to get you to act quickly because the combination of fear and urgency will get you to make bad decisions that you otherwise wouldn't have made,” Krahel said.

Tax fraud is also high on the list. A sure way to evade thieves from taking your refund is to file your taxes first.

“File your return as quickly as possible because if someone wants to steal your identity, they want to do it quickly before you’ve filed. So when you try to file your return, they say wait a minute we already got a return for you and then you know someone else has stolen your refund,” said Krahel.

And just know that the new tax law won't affect this year's refund but it will next year.

“This is a very big change. This is about the biggest change in 30 years to tax law,” said Krahel.

Check your withholding allowance. Many people are finding that not enough is being deducted from their paycheck.

“I got in touch with HR. I said, ‘Listen, you need to take a little bit more.’ It wasn't a fun conversation but the sooner you are aware of these things, the less painful it's going to be. It's much easier to have an extra $30 taken out of each paycheck than to lose an extra thousand at the end of the year,” Krahel said.

That minor change could save your refund for next year so you add to your pocket instead of paying Uncle Sam.

IRS scams are so common, the agency releases a list of the "Dirty Dozen scams" each year. For more information on all of the ones going around in 2018, click here.