We are days away from the end of the tax season, which means that most people have already filed their tax returns or are taking advantage of the time left to file their tax returns.
After you file your tax return, you will get a tax refund from the taxman.
Edwin Theron, CEO at Sanlam Indie, said that the best thing about a tax refund is that it’s extra money that people did not consider in their budget.
Here are seven ways people can make the most of their tax refunds:
Emergency fund
FNB shows that 80% of middle-income earners have little to no access to emergency savings. An emergency fund is useful for an unexpected event such as a sudden job loss, a medical emergency, or car repairs.
Tonia Pavlou, Deputy CFO, RCS, said: “Generally, the rule of thumb is that emergency savings should amount to about three months’ worth of your monthly salary.
Theron said that a tax refund is a wonderful opportunity to help people start or grow their emergency fund, allowing them to be prepared for whatever life throws at them.
Community service
After receiving your tax refund, you may be in a good position and want to help those who are less fortunate. You can give your return to a local organisation or charity. Whether the amount is big or small, helping others can be very fulfilling.
“In addition to doing good, if you donate to a registered NGO, you can add your donation as a tax deduction,” Theron said.
Home improvement
People can use their tax refund to add value to one of their primary assets, their homes.
James Williams, head of marketing for Wonga, said that with the tax refund, people could start with those renovation or extension plans that have been put off and make improvements that would add value to the future potential selling price of their property.
A tax-free savings account
According to Pavlou, tax-free savings accounts are a great way to make the most of your savings and get returns without having to pay taxes.
“The great part about tax-free savings accounts is that they don’t require large investments. The maximum you can invest in a tax-free product is R36,000 per year, which makes it an effective way of saving in small increments and earning maximum results.”
Save the money
Parents can put away their tax refund to cover any future big-ticket expenses for their children.
“Save your refund in a long-term deposit or another safe, long-term, interest-earning investment so that you can later use it for your kids’ tertiary education or their first car,” Williams said.
Further your education
Pavlou said: “Using your tax refund to further your education and pay for a short course, workshop, or training programme will produce long-term benefits for your career.”
Pay off your debts
Paying off debts is one of the most effective ways that a person can make use of their tax refunds.
Pavlou said that making payments towards debt has two major advantages.
– a reduction in the amount individuals have to pay on a monthly basis, allowing them to free up more cash to use month-to-month.
– getting ahead on your debt repayments will help improve your credit score, decrease your credit utilisation ratio, and reduce the amount of interest you have to pay.
Williams said that a small payment goes a long way towards bringing down your outstanding balance and reducing the amount of interest charged.
Theron reminds people that we are in tough economic times, so they should think twice before spending all of the money that they get from the tax man. Instead, they should put the money aside and carefully spend it.
IOL Business