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Invest Your Tax Return

Updated: Mar 30, 2021

During the tax season

millions of Americans will be waiting for their tax refunds. According to the IRS, it's estimated that roughly 80% of taxpayers get some sort of refund annually, and 2017 was no exception. This year, the IRS issued over $302 billion in refunds on 2016 tax returns, at an average of $2,782 per tax filer.

Dr. Credit King tells us that rather than blowing the money on tangible items, consider investing your money to gain passive income. When you gain assets over liability, it creates a solid, steady income for a long period. Instead of relying on your job or business.

Surveys prove America is becoming smarter with their refunds which is good news for Americans. — saving and investing will always benefit overspending.

Experienced investors have paved the way for new venturists wanting to gain financial freedom. Yes, every investment has different risks and potential rewards, so make sure you understand the options before putting your money to work. Below is a list of options to make money with your tax refund.

  1. How to Make Money in Real Estate

The first concept to understanding profit is the only way to get a tax benefit. So, let’s start with estate investing.

Income: Regular cash flow from rents or interest payments.

Depreciation: A required accounting method that spreads the cost of an asset over multiple years (27.5 years for residential real estate). Paper expense to “shelter” or protect other income from taxes and reduce taxes.

Equity: If you buy the property with an investment of say 15,000 to 20,000 you profit each month with a steady income flow. Yes, you have expenses but the passive income far out ways the costs. The property builds equity as the year's pass, increasing your overall worth.

Appreciation: Over the long-run real estate has gone up in value, this passive style of inflation helps, but active appreciation is even more profitable. Active appreciation happens when you force the value higher over a shorter period, like with a house remodel.

Leverage: Many investors use debt leverage to buy real estate. This means, for example, $100,000 can buy four properties at $25,000 down instead of just one property for $100,000. Leverage magnifies the profits mentioned above (and potentially the losses). Plus, interest on the debt is deductible as a business expense.

2. Create a Tax Deduction for Next Year

By using your tax refund to create yet another refund for next year. If you’re in the 35% combined marginal tax bracket (say, 28% for federal and 7% for your state), you can create a $1,050 refund for next year by putting a $3,000 refund into a tax-sheltered traditional IRA account now. In addition, the money in your IRA will grow on a tax-deferred basis.

3. Paying off debt

The question you must ask is how much is your debt costing you? How much are you paying for the privilege?

Minimum payments every month cost you money, but how much?

Take each card balance and multiply it by the APR. If your rate is 20 percent, multiply your current balance by 0.20.

If the balance is near the credit limit, you are cutting off your emergency fund. Not to mention, the damage to your credit.

The next area is strictly a mathematical standpoint. Pay off the cards with the higher APR will lower not only your debt but decrease monthly costs. However, paying off the smallest card first can be motivating, granting a reward for all the hard work. One final option is to consider a balance transfer that way every dollar goes to your principal, not interest.

4. Invest in an HSA account

Health Savings Accounts (HSAs) are employer-sponsored health plans that were created by federal legislation in 2003. An HSA is much like a savings account and is typically maintained and administered by banks or insurance companies.

An HSA offers triple tax savings and can be extremely beneficial to employees should they need to pay off a hefty bill for a medical emergency. An HSA will also cover a variety of health expenses that aren’t covered by traditional employee health insurance.

Ø Refinance your mortgage or make a home improvement.

When refinancing a mortgage, you must pay closing costs and fees. But, use the refund to pay for the closing costs, and you can save thousands of dollars per year on mortgage interest.

If your mortgage interest is good then, take a look around the house.

  • Do you need a new roof?

  • Is your kitchen outdated?

  • Could new energy-efficient appliances lower your utility bills?

Home improvement projects can immediately increase the value of your property while simultaneously making your home more comfortable. Plus, save money on electric bills and mortgage payments per month.


Think carefully about how your tax refund is spent. You could certainly spend it on having a good time, but a more advantageous decision would be to improve your financial situation. Once you’re stable financially, then go and have a good time. The reward will be much more satisfying when you can truly afford the expense.

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