The IRS says that congress' late action on the alternative minimum tax means they won't be able to start processing five AMT-related forms until February, delaying potential refunds for those people until that month, Thursday, Dec. 27, 2007. (AP / CBS)
Before you get the urge to splurge with that new tax refund you're getting, think carefully about how you spend your windfall.. If you think you really need to, give youself a little "mad money" as a reward for your hard work. But take the bulk of your refund and apply it to something constructive.
Jim Hanna recently offered these suggestions to get you started.
Build your safety net. Your tax refund can help you establish financial reserves for a rainy day. The recommendation is to have 6 months to one full year of salary set aside in an easily accessible account, such as a savings or Money Market account, to cover unexpected expenses or replace interrupted income.
Pay down your debt. It may take credit to build credit, but it's important to keep debt to a manageable portion of your overall financial picture. If you carry a balance on revolving credit card debt, consider applying your refund to reduce or get rid of what you owe. High interest rates have a way of snowballing over time, especially if you don't pay more than the mininum on your bills every month.
Save for your retirement. Someday, you'll want to retire or at least cut back on your work schedule. You'll need multiple sources of income the day your regular paycheck stops. Why not fund an IRA with your tax surplus? You'll multiply your tax advantages if you place your money in a traditional IRA, since your contributions will be tax deductible -- as long as you don't exceed the allowable annual maximums.
Protect your investments. If you're a homeowner, it's important to maintain the value of your investment. Consider making repairs and improvements which will increase the value of your home, and make living in it more enjoyable!
And if you're feeling charitable, you may choose to donate some or all of your refund to a worthy cause. Giving to charity is an honorable thing to do and can provide some tax advantages, too. By making a donation to a qualified charity, you may be able to receive a tax deduction, if you itemize.