Tax refund season is upon us and with it the option to save or splurge
The annual ritual of celebrating the nation’s overpayment to the government is upon us. Tax refund season has arrived and with it all the many dreams and aspirations that can be purchased for about $2,500.
Overpay to get paid
“There really isn’t much to be happy about,” said Bryce Jordan, 38, a financial advisor at Jordan Capital. “By receiving a refund, you’ve essentially paid the government more than their share over the past year and are simply getting a portion of that back.”
In 2016, the IRS reported an average refund of $2,857 on 110,986,000 returns. Meaning the nation as a whole and regardless of political affiliation gave the federal government a sizeable $317 billion loan with which it could play.
“No one wants the feds planning their future,” Jordan added. “At least, no one I know. With how much hatred there is toward taxation and government spending, it’s hard to fathom that the celebratory thinking about a refund continues to prevail.”
Spend your money on us!
Though most of the country – according to the IRS about 73 percent of all returns receive a refund – has given the federal government a blank check over the past year, it still feels good to receive a check in return. That is why so many marketing campaigns in March and April are aimed to help taxpayers spend their refund.
“It’s not quite the same as a holiday sales promotion,” said Matt Weaver, 44, marketing director at Wynsap Advertising. “There is no specific time frame for receiving a tax refund. You know when Black Friday falls, you know when President’s Day is going to be, but when people receive their tax refund is dependent on when they file and how quickly the IRS gets it to them. For some it could be weeks, for others months. Trying to plan a promotional campaign around that is difficult.”
Yet it happens all the same. Furniture stores, car dealerships and cruise lines are more than happy to take your refund check as are a bevy of department stores and online retailers. According to the IRS, the average refund to Coloradoans in 2016 was $2,540, just under the national average of $2,859. That average isn’t expected to fluctuate much this year, which begs the question: what will you spend your $2,500 on?
Where is your refund going?
“I’ve done a lot of work on my shop,” said Peter Escalante, 48, who restores and customizes motorcycles in his garage in Aurora. “I’ve got a lot of new tools to play with and a couple of old bikes that I’m excited to restore, so I’m going to probably spend all of it on that.”
Considering the median monthly housing costs in Colorado are $1,141, according to smartasset.com, $2,500 is good enough to cover a little over two months worth of rent, which is what Celeste Navarro plans to spend her refund on.
“Mine isn’t going to be that much,” said the 33-year-old Denver resident. “I’m going to get back $1,680, but that will cover rent, utilities…all that other stuff, so my paycheck can go to savings and student loans.”
Student loans and credit card debt is another hurdle that an average tax refund help Colorado’s taxpayers overcome.
“I really can’t think of spending it on anything else,” said Marco Ruiz, 23, Denver. “I’ve got a lot of debt backlogged from a college education, so I have to use any additional money along with what I get from my paycheck to pay that down. I don’t want to be paying off loans when I’m 40.”
Experts also advise spending a tax refund on retirement investments, “rainy day” funds, home repairs, hospital bills and charity.