5 Smart Ways to Spend Your Tax Refund

Zillow

Uncle Sam Moneybag
An estimated 75 percent of taxpayers are expected to receive a tax refund this year, with the average check coming in at about $3,000, according to the IRS. What will you do with your refund? Some ideas:

Add to your investment portfolio

With the stock market hovering at 5-year highs, why not apply your refund to your portfolio as your rebalance? Take a look at where you are, and then beef up your exposure in areas that are now lacking so that you can return to your target allocations without having to sell anything (and thus pay taxes).

Apply toward remodeling/renovation project

Have you been thinking about redoing the kitchen or giving the bathroom a much-needed face-lift, but putting it off? You’re not alone, but in 2013, many Americans are now planning to take the plunge! In fact, the remodeling industry appears to be pulling out of its downturn and headed for a banner year, according to the Joint Center for Housing Studies of Harvard University. So … where to begin? Start with Zillow Digs (free on the iPad and Web), where you can not only browse tens of thousands of inspiring photos and get estimated costs, but also create, save and share boards of ideas/decor you love, browse boards created by others and even connect with local home improvement professionals — from contractors and designers to architects — for help.

Consider energy-efficient improvements

FYI: If you make energy-efficient improvements — such as new doors or windows, for example — you might qualify for a residential energy tax credit. It’s worth up to $500 (in investment terms, that’s about a 15 percent return on the average tax refund of $3,000.), and is due to expire at the end of this year. For more on this/qualifications, go to energystar.com.

Make a lump-sum mortgage payment

If you don’t qualify for a refinance, can’t afford the slightly higher payments that come with shortening your term or are simply looking for a more flexible alternative to paying down your mortgage debt, why not apply some — or all  — of this money to your principal balance? After all, this is money you didn’t count on having in the first place (so you won’t miss it!), and even making a single $5,000 payment on, say, a 30-year fixed-rate mortgage of $225,000 would save you more than $13,000 in interest and reduce your repayment term by 15 months.

Splurge

Assuming you have an emergency fund established, you’re saving regularly for retirement, you’re debt-free (credit card debt is the big killer!), then OK, go ahead and splurge. Just make sure you’ve done your comparison shopping in advance, and are getting the best possible price for whatever it is you’re looking to buy, whether a flat-screen TV or a vacation.

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Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at http://veragibbons.com/.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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