66°F
weather icon Mostly Cloudy

13 worst things you can do with your tax refund

People typically don’t want to pay more taxes than they need to, but a tax refund implies just that. Withholding more money than necessary each paycheck means that an individual forgoes the opportunity to earn interest on that money elsewhere. Approximately 77 percent of taxpayers receive a tax refund, according to the IRS.

Furthermore, some of the most popular ways to spend tax refund money can easily turn into some of the biggest tax refund mistakes. A recent GOBankingRates survey revealed several popular uses for tax refunds that can boost your financial well being, or work against it. Read on for 13 of the worst ways to spend your hard-earned tax refund check.

1. Avoid Paying Down Credit Card Debt

Using a tax refund check to pay off debt is the most popular way to spend a tax refund, as 27 percent of respondents plan to do so, according to the GOBankingRates survey. “The goal in spending a tax refund should be long-term financial security,” said Tim Gagnon, a professor of accounting at Northeastern University’s D’Amore-McKim School of Business.

“Just reducing [a credit] card balance to run it back up does no good,” he said. Eliminating a credit card completely, paying off a high-interest loan and avoiding another similar debt is, however, evidence that your spending habits are under control.

“If you’re incurring credit card debt throughout the year and then paying it off with a big tax refund, you should consider moderating your spending and adjusting your tax withholding,” said Benjamin Sullivan, a certified financial planner with Palisades Hudson Financial Group.

2. Put It in a Low-Interest Savings Account

Putting your funds into a savings account was the second most popular way to spend a tax refund, according to the GOBankingRates survey. Twenty-five percent of respondents chose this option, despite the low interest rates currently offered on most savings accounts.

“This option may make sense if you don’t have a sufficient emergency fund, but otherwise that money could do better elsewhere while interest rates remain so low,” said Sullivan. “Especially for younger taxpayers, consider contributing your refund to your retirement savings or other long-term investment accounts, where your long-time horizon can result in more robust growth.”

This is a good strategy, said Jessie Seaman, a managing licensed tax professional at Tax Defense Network. Seaman suggested taxpayers consider “a high-interest bond, or consulting with a financial advisor to identify smart, long-term investments.”

3. Deposit It in a Checking Account

Perhaps worse than putting the check into a low-interest savings account is placing it in your checking account and watching it dwindle. With a nice chunk of cash now lining your coffers, it might be tempting to take off your budgeting hat and splurge on steak or quality wine. You’re also probably not earning much, if any, interest on that money.

“Refunds are made of your hard-earned money, and they should be spent like a normal paycheck,” said Michael Eckstein, a tax accountant with Eckstein Tax Services. “That means avoiding the urge to splurge, and paying down debt or saving for the future.”

4. Pay for a Vacation

Putting the money toward a vacation was how 9 percent of respondents said they would spend their refund check, according to the GOBankingRates survey. However, “an expensive vacation, though not a money pit, is a means of instant gratification that is not tangible … you do not gain anything subsequent to this expenditure,” said Ravi Ramnarain, a CPA and an accounting and tax expert.

Seaman, however, said that a vacation is not such a bad thing, but added that you shouldn’t plan so far ahead that you spend the money before you have it. “The government may take longer than you’re expecting to process your refund,” Seaman explained. “You might get lucky, but there are a number of reasons why there might be a legitimate delay in getting your payment from Uncle Sam.”

5. Buy a Car or Home

Putting a tax refund toward a major purchase, like a car or a home, was the fourth most popular way to spend a tax refund check, with 5 percent of the respondents planning to do so, according to the GOBankingRates survey. However, Ramnarain said that a purchase that disregards the long term is tantamount to throwing money away.

When deciding whether to purchase a car or a home, it’s important to make sure you can afford any monthly payments and upkeep. “Calculate the significant interest payments and maintenance required, and those two elements could empty out your bank account in no time,” he said.

Ramnarain said that individuals should make money work for them, rather than the other way around. “Depending on the actual amount received, good choices would be government securities, or possibly a down payment on an inexpensive piece of real estate that has long-term cash-generating potential,” he said. “Subsequent tax refunds can be used to pay off any mortgage balance that is still outstanding.”

6. Splurge on a Luxury Purchase

Using a refund check to splurge on a purchase, such as a TV or shoes, was also a popular choice for 4 percent of respondents to the GOBankingRates survey. However, Sullivan recommended taking some time to plan the most effective way to use tax refund money. “If you opt for a big-ticket purchase, it should be something that works within your overall budget,” he said.

“While it may feel like free money, a tax refund is actually the government repaying you for an interest-free loan,” said Sullivan. “It’s money you earned, and should be used as responsibly as any other funds. Don’t consider your refund a separate bucket for free spending.”

When it comes to splurging on luxury purchases, it’s important to develop good fiscal habits rather than bad, said Pauline Paquin, founder of Reachfinancialindependence.com. “Blowing the money on stuff you don’t really need — nights out, shoes — will condition yourself to thinking that when a windfall happens, the money should disappear as soon as possible,” she said. “That is a terrible idea.”

7. Finance New Debt

Three-quarters of taxpayers get a tax refund check, and the IRS reported that the average refund is slightly less than $3,000. However, think of it this way: Your tax dollars have already functioned as an interest-free loan to the government. If you use it to finance new debt, you essentially lose money again by paying on interest.

If you have cash, consider a purchase outright that does not involve financing or interest payments. “Don’t use your tax refund as a down payment on a car that is financed,” said Yvette D. Best of accounting and tax preparation service Best Services Unlimited. “It would be a better choice to buy a car in full. Then all you have to worry about is upkeep and insurance.”

8. Gamble It Away

For those who do choose to go on vacation, if gambling is on the itinerary they might want to first consider their odds. Unfortunately, the odds of making money from gambling are extremely low. Your chance of winning at craps is 13.9 percent, for three-card poker it’s 30 percent and slot machines it’s 6.6 percent, according to the latest figures from the Nevada Gaming Control Board.

“I have seen clients take their refunds to Foxwoods [Casino] for the excitement (a bad idea), or buy that playoff ticket which is very overpriced, which gives no future financial reward,” said Gagnon. “Refunds should be put toward a future benefit, like funding an IRA, 401k, a child’s educational fund — a goal for the future.”

9. Try a Get-Rich-Quick Scheme

A sudden influx of cash can whet the appetite and lead to irresponsible and rash decisions — such as investing in a get-rich-quick scheme. It might be tempting to place the cash somewhere where you are convinced that it will grow quickly, but many such schemes are just scams, according to the Federal Trade Commission.

“Sometimes when people receive a lump sum of money, they think of ways on how to make more of it,” said Best. “Investing in get-rich-quick schemes is the fastest way to blow it all. Despite the fact that your tax refund money may seem like a sudden bonus, this is your money. Before investing it in any venture, check it out thoroughly and, when in doubt, don’t invest at all.”

10. Spend the Money Before You Have It

The expectation of a sizable tax refund can encourage people to overspend. For example, if a couple thinks they will be getting a large refund check from the IRS, they might extend their home renovations. However, this can be a dangerous strategy — especially if your tax refund is delayed.

The IRS is increasing strategies to fight fraud and, therefore, increasing processing time, which is expected to lead to long waits for refunds this year, according to CBS News. Experts recommended filing early for a quicker refund. It’s also a good idea to not spend it before you have it.

“It is easy to start spending when you know a tax refund is on its way,” said Best. “But don’t do it. You don’t want to find yourself overextended if your tax refund doesn’t arrive as scheduled.”

11. Apply the Refund to Next Year’s Taxes

When you submit your documents, the IRS asks whether you want to apply the refund to next year’s taxes. This option might be a good idea if you find that you often owe taxes and are not withholding a sufficient amount from your paycheck. However, if you typically receive a refund, there’s no need to pay more at the outset.

“One of the worst things you can do with a tax refund is apply it towards next year’s taxes,” Scott Alan Turner, a personal finance podcaster and expert. “You’re essentially letting the government borrow your money for free for a year and not pay you any interest on it.”

12. Use It to Buy Stock

If you decide to buy stock, make sure you devote time to research and understand the market first. Additionally, investing in one type of stock will not give you a balanced portfolio, which is required for a steady, long-term return.

A better option is to diversify — for example, by adding funds to a 401k, or buying bonds, according to US News. Exchange-traded funds are also an option if you like to invest in certain industry sectors. Those close to retirement might consider choosing bond funds that appeal to them.

13. Lend It to a Friend

It can be hard to say no if someone close to you is in need. In fact, trying to help a friend by giving them money could merely exacerbate their questionable fiscal habits and not help them at all, according to wealth psychologist Kathleen Burns Kingsbury in MoneyTalksNews.

A better option, according to Kingsbury, might be to help them set up a budget or encourage them to find help for their financial difficulties. If you must lend money, realize that you might not get it back. You can obtain a promissory note that you could have notarized, but consider whether you really would take that person to court if they failed to repay you.

Ideally, your goal in spending a tax refund would be to consider a long-term strategy, and not waste the cash on unnecessary items. It might also be wise to consider withholding less during the year so that you can invest more and benefit from the interest, rather than allowing the IRS to assume your interest.

From GoBankingRates.com: 13 worst things to do with your tax refund

Don't miss the big stories. Like us on Facebook.
Business Videos
How much do Las Vegas casino CEOs make?
Las Vegas gaming CEOs made anywhere between $1 million and $24 million last year, according to company filings with the U.S. Securities and Exchange Commission. ((Las Vegas Review-Journal)
30-year-old Rio needs a little TLC
Nearly 30 years after the Rio opened, the red and blue jewel that helped catapult Las Vegas to a new level with its buffet and nightclub has lost its status along with its shine.
The latest on the Drew Las Vegas - VIDEO
Eli Segall recounts his tour of the Drew Las Vegas, formerly the Fontainebleau, on the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
Pinball Hall of Fame to move near south Strip
Operators of the Pinball Hall of Fame have been approved to build a new, larger arcade near the south edge of the Strip on Las Vegas Boulevard near Russel Road. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
National Hardware Show underway Las Vegas
The National Hardware Show kicked off Tuesday at the Las Vegas Convention Center (Mat Luschek / Review-Journal)
Caesars for sale?
Caesars Entertainment Corp. has been swept up in takeover speculation since the company’s share price tumbled last year amid disappointing earnings and concerns over a recession. Amid the decline, hedge funds scooped up shares. Billionaire activist investor Carl Icahn began buying shares of Caesars as early as January. Icahn acquired nearly 18 percent by mid-March. In February Icahn called on the Caesars board to study a sale as a way to boost shareholder value.
Las Vegas home prices
Las Vegas home prices grew fastest among major markets in February for the ninth straight month. But amid affordability concerns, the growth rate has slowed down. Southern Nevada prices in February were up 9.7% from a year earlier, according to the latest S&P CoreLogic Case-Shiller index. The last time Las Vegas' price growth fell below 10% was in September 2017, S&P Dow Jones Indices reported.
Free Parking Coming To Wynn
Free parking will come to the Wynn and Encore resorts on May 1, 2019. (Mat Luschek / Review-Journal)
Founding Venetian employees talk about 20 years at the Strip resort
The Venetian, which opened May 3, 1999, is celebrating 20 years on the Las Vegas Strip. Seven original employees talk about opening the luxury resort and working there for two decades. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Circa aiming for December 2020 opening
The 1.25-million-square-foot property will have 44-stories and 777-rooms. It will also have a separate nine-story, 1,201-space parking garage.
Boxabl official explains the building concept
Boxabl business development manager Galiano Tiramani shows off a room built by his company. (Blake Apgar/Las Vegas Review-Journal)
TI/Mirage Tram reopens
The tram that shuttles guests between TI and Mirage reopened this week after being closed for much of 2018.
Las Vegas Convention Center expansion taking shape
Renderings and actual footage show how the Las Vegas Convention Center is evolving.
Former Starbucks CEO Howard Schultz at Las Vegas convention
Former Starbucks CEO and potential presidential candidate Howard Schultz spoke at the Epicor Insights user conference at Mandalay Bay Convention Center Wednesday, April 17, 2019. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Drew Las Vegas to open in the second quarter of 2022
The 67-story Drew Las Vegas is slated to open in the second quarter of 2022 at the north end of the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
NAB Day 1 (Time Lapse)
NAB kicked off at the Las Vegas Convention Center on Monday, April 8, 2019. (Mat Luschek / Review-Journal)
National Association of Broadcasters Show shows 1mm thick 8K TV with 22.2 channel digital sound
Japan’s NHK Science & Technology Research Laboratories booth featured a 1mm thick 8K TV system used in conjunction with a 22.2 channel digital sound system at the National Association of Broadcasters Show at the Las Vegas Convention Center. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Nevada shoppers react to Smith’s no longer accepting Visa credit cards
On March 1, Smith’s announced that it would no longer be accepting Visa credit cards at any of its 142 supermarkets, including the 45 in Nevada.
Massachusetts Gaming Commission asks how long Wynn executives knew about misconduct
Business reporter Rick Velotta gives an update on the adjudicatory hearing on the suitability of Wynn Resorts to retain its gaming license in Massachusetts.
Henderson app developer part of Startup in Residence
Henderson based developers of the app On Point Barricade are taking part in Startup in Residence, a North America program dedicated to pairing tech companies with governments. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Sam's Town employees and customers talk of their love for the iconic casino
Longtime Sam's Town employees and customers love each other and love their casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Las Vegas apartments rents
Las Vegas’ apartment market has accelerated in recent years. Developers are packing the suburbs with projects, landlords are on a buying spree, and tenants have filled buildings.
William Boyd talks about the birth of Sam's Town
On the eve of the 40th anniversary of Sam's Town, William Boyd, executive chairman of Boyd Gaming and son of hotel namesake Sam Boyd, talks about how the casino became one of the first local properties in Las Vegas. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
High Roller observation wheel turns five
The world’s tallest observation wheel celebrates it’s fifth year on Sunday, March 31, 2019. (Michael Quine/Las Vegas Review-Journal) @Vegas88s
Escape Room Industry Growing In Las Vegas
Escapology employees discuss the growing escape room industry in the U.S. and Las Vegas. (Bailey Schulz/Las Vegas Review-Journal)
Impact of parking fees on visiting the Las Vegas Strip
There are no data showing a relationship between Strip resort and parking fees and the number of out-of-state visitors to Las Vegas. But there are data showing a relationship between Strip parking fees and the number of local visitors to the the Strip. ‘’As a local, I find myself picking hotels I visit for dinner or entertainment, based on whether they charge for parking or not,”’ said David Perisset, the owner of Exotics Racing. ‘’It is not a matter of money, more of principle.’’ A 2018 survey by the Las Vegas Global Economic Alliance found 36.9 percent of Clark County residents reported avoiding parking at Strip casinos that charge for parking. 29.1 percent reported avoiding using any services from a Strip casino that charges for parking.
MGM's sports betting deals
MGM Resorts International signed a sports betting sponsorship agreement with the NBA in July It was the first professional sports league to have official ties with a legal sports betting house. The deal came just two months after the U.S. Supreme Court overturned a law prohibiting sports betting in most states. In October, MGM became the first gaming company to sign a sports betting partnership with the NHL. In November, MGM became the first gaming company to sign a sports betting partnership with the MLB. Financial terms of Tuesday’s deal and earlier partnerships have not been announced.
Faraday puts Las Vegas land on the market
Nearly two years after Faraday Future bailed on its North Las Vegas auto factory, the company has put its land up for sale. (Michael Quine/Las Vegas Review-Journal)
El Cortez owner Kenny Epstein on running the iconic property
Kenny Epstein, owner of the El Cortez Hotel in downtown Las Vegas, talks about Jackie Gaughan mentorship and answers rumors about bodies in the basement at the mob-era casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
LVCVA recommends construction of underground people mover
The Las Vegas Convention and Visitors Authority announced the recommendation for an underground people mover for the convention center. The system would have the potential to expand and connect Downtown and the resort corridor all the way to McCarran. (Michael Quine/ Las Vegas Review-Journal)
THE LATEST
Lucky Dragon’s foreign investors demand refund

The Lucky Dragon’s developers and prior management are facing lawsuits from Chinese investors, the project’s main lender and a Canadian high-roller who paid a $400,000 deposit to lease the casino just one month before it abruptly closed.

Trump removes tariffs on Mexico, Canada, delays auto tariffs

President Donald Trump took steps Friday to ease tensions with America’s allies — lifting import taxes on Canadian and Mexican steel and aluminum and delaying auto tariffs that would have hurt Japan and Europe.

Boeing finishes software update for grounded 737 Max jet

Boeing says it has finished updates to the flight-control software implicated in two deadly crashes involving its 737 Max, moving a step closer to getting the plane back in the sky.