Maximize Your Tax Refund: Smart Strategies for Your Financial Future

Many people treat tax refunds like found money and simply spend it.

If you're receiving a refund this year, don't fall into that trap. Remember, that's your hard-earned money — essentially a loan to the government without any interest. If your refund is substantial, the first step you should take is to update your tax withholding by filing a new Form W-4 with your employer. Then, use the reduction in taxes withheld throughout the year to help you reach your financial goals.

What should you do with your tax refund? Here are a few smart options:

• Pay down high-interest debt. Credit card debt carries significant interest, often without any tax benefits. Using your refund to eliminate or reduce this burden can free up cash flow.

• Contribute to an IRA. In 2025, you can contribute up to $7,000 to a traditional or Roth IRA (plus an extra $1,000 if you’re 50 or older). Even a small contribution helps build your retirement savings over time.

• Start or grow a college fund. If you’ve been meaning to save for your children’s education, a Coverdell Education Savings Account or a Section 529 plan are excellent tools. In 2025, you can contribute up to $95,000 (or $190,000 with your spouse) in a single year without gift tax implications.

Your tax refund is an opportunity. Treat it like a stepping stone toward your financial goals rather than a temporary spending spree.

Need help optimizing your finances this year? Contact Verity CPAs today at info@verity.cpa or 808.546.5026 — let's build a strategy that works for you.