Saturday, April 24, 2010

Tax Season is Over

Tax season is over and those of you that got their IRS refunds at the last minute probably have holes burning in their pockets from the stimulus plans out there. There definately is a lot of good refunds coming back, but should you reward yourself by spening the money quickly?

I would not condone this behavior. You paid taxes on that money and now it is being given back to you. It was your money to begin with, not the governments. Also if there were any complications in the return they have to be resolved after words so they can be accounted for audits, admendments, and anything else that falls into the tax catagory.

When the smoke truely clears, you have three options to use your tax money: a) you can wait for the smoke to clear and save your hard earned cash, b) you could spend it on something that you want, or c) you could re-invest it. I would go with a combination of either a) or c) or just do c). b) should be covered under the 1 luxury per month plan.

So everybody knows how to save a tax return, but how do you invest a tax return? Well, there are a number of options. There are stocks, bonds, index funds, real estate, and speculative ventures. The most prudent of the 5 when starting out is stocks and bonds. Here is why: stocks can be  bought in either small amounts or large amounts and the amount used can be controlled by how much you put into a company. Bonds on the other hand is like an IOU either from a company the U.S. government. You can buy bonds at fixed amounts and just hold on to them and cash them in when they mature. Note that bonds are mainly a long term investments so I would not bother trying to cash them until they totally mature or until you can sell a bond for more than what you paid for it. There are advantages to the bond in the sense that you can sell them at loss and write off the loss on next years taxes.