Most people celebrate a big tax refund. And why not? It’s the only time of year we find the government giving us money rather than the opposite.
But a sizeable refund isn’t necessarily a good thing. It means you haven’t been putting that money to good use over the last 12 months. Whether you’re a business owner or comfortably ensconced in a corporate job, you have tons of options to make that money work a lot harder for you. Consider these facts:
You’re investing your money at 0% return. Know the term “ROI”? Trust us, zero isn’t a good one. And not only are you not making any money. With average inflation hovering around 2-3% the past decade, you’re actually losing money when you park it with the government.
You’re not making payments on your business line of credit. If you’re going the interest-only route, instead of overpaying the government you could be paying back the bank. With rates around prime +1.75%, this one’s really a money-losing proposition.
You may owe state tax next year. If you overpaid on your federal income taxes and itemized your deductions, it’s likely you’ll get stuck paying state tax on your federal refund the following year. If you find form 1099-G in your mail, that’s exactly what happened.
You’re not investing in your growth. The cash you “lent” the government last year could’ve funded a variety of revenue-driving initiatives. Think upgraded technology like marketing automation, professional development for your staff, or an investment in SEO to raise your profile in a new vertical.
You’re not funding your future. Tucking money into a 401(k) or other retirement savings vehicle is never a bad idea. And unless it’s a Roth, you gain tax benefits, too.
Start thinking now about better ways to invest a few hundred bucks a month or more. Next year, when everyone’s crowing about their big refund, you’ll know you’re ahead of the game.