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5 Surprisingly Smart Ways to Blow $1,000 of Your Tax Refund

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Tax refundBy Cameron Huddleston, contributing editor, Kiplinger.com

I want to share a poem my 7-year-old daughter wrote last night:

I have had no money for a while
Then for my birthday someone gave me 1,000 dollars.
Let's go buy all we want!
Oh, now we have no more money.


Plenty of you have probably received -- or will soon -- checks for that amount from Uncle Sam. In fact, the average refund has been nearly three times that amount for the past two years. It's tempting to spend on something you really want -- say a big-screen TV, tech toys or new clothes -- but you'll be better off it you put that money to work for you.

Here are five good uses of your tax refund (or birthday check, or any other small windfall). And check out our 10 Smart Uses for Your Refund slide show for more ideas.



If you had $1,000, how would you spend it? Share your ideas in the reader comments box below. (And, in case you're wondering, I've never given my daughter $1,000 for her birthday.)

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TurboTax Articles

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

What are ABLE Accounts? Tax Benefits Explained

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.

What is IRS Form 8829: Expenses for Business Use of Your Home

One of the many benefits of working at home is that you can deduct legitimate expenses from your taxes. The downside is that since home office tax deductions are so easily abused, the Internal Revenue Service (IRS) tends to scrutinize them more closely than other parts of your tax return. However, if you are able to substantiate your home office deductions, you shouldn't be afraid to claim them. IRS Form 8829 helps you determine what you can and cannot claim.

What is IRS Form 8859: Carryforward of D.C. First-Time Homebuyer Credit

Form 8859 is a tax form that will never be used by the majority of taxpayers. However, if you live in the District of Columbia (D.C.), it could be the key to saving thousands of dollars on your taxes. While many first-time home purchasers in D.C. are entitled to a federal tax credit, Form 8859 calculates the amount of carry-forward credit you can use in future years, not the amount of your initial tax credit.

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.

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23 Comments

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Wayne Bradshaw

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May 05 2012 at 11:49 PM Report abuse rate up rate down Reply
grampz05

The smartest thing is not have a refund coming. That way you have use of your money all year long. Why have the government hold your money for over a year when it's just sitting there doing nothing.

April 01 2012 at 10:27 PM Report abuse rate up rate down Reply
larry

One of the smartest things to do is get a Suze Orman "smack down" on your debt and finances and the best part is: it won't cost you a thing !!!

April 01 2012 at 9:14 PM Report abuse rate up rate down Reply
aeturnus

The smartest thing to do with the $1000 is to stash it in an "emergency fund". If you did that every year, you would soon have a pretty comfortable "nest egg". Either that, or adjust your withholding...if your return is that big you are actually just "shorting" you paycheck and giving the government an interest free loan.

March 26 2012 at 9:46 AM Report abuse rate up rate down Reply
1 reply to aeturnus's comment
larry

Great advice, especially for those individuals that find it hard to save money.

April 01 2012 at 9:09 PM Report abuse rate up rate down Reply
summerctz

HA! I wish I was getting ANY money back. I owe more and I was/am unemployed. Go figure...............

March 26 2012 at 8:00 AM Report abuse +1 rate up rate down Reply
Danny

I keep $500.00 to $700.00 in my desk drawer. When I need money quick I loan it to myself . When I get paid I pay the dawer back. I always hae money of the books and on hand when a bargan pops up unexpectedly. It is nice to have a little cushion ,but you can cheat yourself and not pay it back or you will end up with nothing again.

March 26 2012 at 5:48 AM Report abuse rate up rate down Reply
Lisa

MIne gets thrown in the bank to help pay my yearly extortion bill, better known as school taxes.

March 25 2012 at 9:36 PM Report abuse +2 rate up rate down Reply
1 reply to Lisa's comment
larry

Lisa----I'm with you although my city also takes a bundle for "Parks and Recreation" and to make million dollar bike lanes instead of improving the streets and filling the "pot holes" for the 99.8% that drive a car.

April 01 2012 at 9:12 PM Report abuse rate up rate down Reply
Cindy

lame

March 25 2012 at 7:21 PM Report abuse rate up rate down Reply
IraRadnick

$1,000.00 is chump change in comparison to an amount that would be significant enough to warrant writing an article of interest. Oh yeah, don't forget this little surprise - That refund check from IRS is subject to income tax on your next filing, so about 25% or more of that big $1,000 is going to evaporate courtesy of your federal and state income tax load - so now how cool do you feel? Gee, what remains may be enough for 6 or 7 fairly nice dinners out with a bottle of wine. Or you could fill your SUV's fuel tank about 12 times. If your vehicle has a timing belt that needs to be replaced (60,000 miles for affected makes/models) you could do that. Or you could make the smart play and pay down your credit card debt and call the bank to ask them to lower your credit line to prevent getting trapped again (nah, that is way to smart a thing to do, eh?). So $1k is a fairly nice chunk of cash to play with, but until you get into a $10,000 windfall there really is not a lot to talk about that could be life changing unto itself. At that, even $10k can go pretty fast if restraint is not exercised, as there are plenty of folks that would love to help you spend it (new car with a nice down payment anybody?) In my case even $10,000 would not excite me unless it was truly unencumbered of income tax. Then we could talk about making an investment somewhere.

March 25 2012 at 11:50 AM Report abuse -1 rate up rate down Reply
1 reply to IraRadnick's comment
johnk01000

Paying down a credit card is good... but think twice about asking the bank to drop your credit limit. It can lower your credit rating as well. Instead just show restraint and dont get yourself in the credit card game again. Better to take all your credit card debt and with the help of a loan calculator put all your credit cards on an fasttrack repayment plan. Just a few dollars more than the minimum can and will take YEARS of the payback the credit card companies charge.

March 26 2012 at 10:28 AM Report abuse rate up rate down Reply
hughembriaco

The smartest thing anyone could do with $1000 is to spend it getting a 15 minute investment consultation from me. It will change your life.

March 25 2012 at 1:27 AM Report abuse -3 rate up rate down Reply