How to Get the Most Out of Your Tax Refund

By KBJR News 1

February 11, 2013 Updated Feb 11, 2013 at 9:34 AM CST

The tax season is upon us. And the good news is, it could cost you nothing.

"Those making $30,000 dollars or less or families making $50,000 or less are likely eligible for free tax services," says Tracy Fischman of Accountability Minnesota.

And the options are abundant.

"There are over 250 free tax sites across the state of Minnesota."

Whether you are paying someone or receiving the service for free, there is always a risk of fraud.

Dan Williams at Lutheran Social Service in Duluth says although it's tempting to get your money early, don't get sucked into a Refund Anticipation Loan.

"You'll get your refund within a week or two anyway so there's no need to pay a few hundred dollars for a Refund Anticipation Loan in most people's cases."

Look out for preparers pushing these extra services or tax credits.

"They may add on fees for every different tax credit that somebody might be eligible for," says Fischman.

Tax experts also say be weary of preparers who advertise immediate returns and free tax preparation.

"Beware of things that sound too good to be true."

And once you get that return, it may be tempting to blow it, but financial counselors say the smartest thing you can do is use it to secure your financial future.

"It might be, may be the one time of year where you have possibly thousands of dollars that you can make a decision with," says Anne Johnson of Accountability Minnesota.

"Thinking about it in terms of a proactive way of dealing with either rapidly dealing with debt or building up savings, it's a once in a year opportunity," says Williams.

Preparers say come ready with your social security card, W-2 form, any other income documents, and if you have kids, bring proof of dependents like medical records.

If you would like more information on free tax preparation, or how to put your refund towards paying down debt or starting a savings account, contact Lutheran Social Service Lutheran Social Service at (218) 529-2222

Also, check out the "Got some save some" video from Accountability Minnesota

Lutheran Social Service also offers these ideas for how to spend that tax return wisely:

Two thousand dollars is a nice chunk of change by any measure. What you do with that tax refund can have an incredible impact on your financial future. LSS Financial Counseling Service suggests the best ways to use your tax refund.

What should the consumer do with this windfall? Spend it? Save it? Invest it? LSS Financial Counseling Service says all three are correct, and suggest the following ways to responsibly use this money?

• Catch up on any past-due payments. Late fees on credit cards can be close to $40, not to mention the damage done to your credit report and score. Get current on any credit card or other bills that have fallen behind, and stay that way.
• Pay down debt. If you’re saddled with double digit interest rates on your credit cards, this is likely doing you the most harm. Financially speaking, the money should go to pay off or pay down the balance with the highest interest rate. However, some consumers find it more psychologically rewarding to totally pay off multiple small debts including medical bills.
• Build up an emergency savings account. It’s not a matter of “if” but “when” the unplanned emergency is going to strike, and it’s usually at the worst possible time. Without any savings to pay for that trip to the emergency room or the flat tire, you are left with poor resolution choices. You either pay cash, often taking money from a higher priority such as rent or utilities, or you charge the expense, adding to your debt load. Prepare for the inevitable by having at least one month’s salary in an accessible savings account.
• Make needed repairs. Whether it’s repairs to your house or car that you’ve been putting off, delaying repairs only makes matters worse. Make the necessary repairs while you have the money in hand. Focus on upgrades to your house that add to its value.
• Plan for your future. Open or add to your IRA account. Remember that what you do with your money dictates if you will live out your retirement years in poverty or plenty. Time is money’s best friend. Make it work for you.
• Make your house more energy efficient. Spend a little now, save a lot later. These are improvement that will pay for themselves. Weather-strip doors and windows, replace the air conditioning filters, buy energy-efficient light bulbs, and if new appliances are needed, consider those that have an energy seal.
• Consider making an additional payment on any secured debt. Putting $1,000 toward the principal on your mortgage can save you triple that amount over the life of the loan.
• Share. Choose a non-profit or charitable organization that has a cause you feel strongly about and make a donation. Every donation, no matter the amount, is always appreciated; plus you’ll feel personally rewarded for your good deed.
• Put the money toward a specific goal. For instance, you could earmark it for this summer’s vacation, a child’s orthodontic work, Christmas 2012, a college fund, buying a home, or any number of personal want or needs.

And finally, treat yourself! Eat dinner at that special restaurant, or buy that item you’ve had your eye on (within reason). Once you’ve aimed your refund at the goals above, you’ve earned a reward for a job well done.

For professional advice on how to get out of debt or make the best financial choices, set an appointment with a certified consumer credit counselor at LSS Financial Counseling Service at 888-577-2227 or visit www.ConquerYourDebt.org