What should I do with my tax return?

In My Humble Opinion
1

Well, when I get it that is… Here’s the details…this is all off the top of my head, I’m not at my computer with all the details.

My current debts are my:

  1. (first) home mortgage. The payment remains the same regardless of the balance
    2)HELOC, this has an interest only minimum payment. The rate, I think is around 3%, I owe just under 20K and the payment is about $65/mo. I typically make a $200 payment on it.
    3)Motorcycle. I owe about 4K at about 8.5%, Payment remains the same regardless of balance. Payment is $125 (about $30 is interest I think), I make a $150 payment each month.

If everything remains the same as it is right now, I owe nothing on my credit cards (though I’m sure that’ll change a bit with Christmas) and by the time I get my refund I should have about 1 to 2 months worth of living expenses in my primary savings account, if I add in my HSA and my daughters college account it would bring me closer to 5 months.

I paid last years property taxes in this tax year, I plan to pay this years property tax also in this year, between that and refinancing my house (and taking some cash out), I’m expecting a very nice tax refund. If I had to take a guess, I’m guessing it’s going to be in the neighborhood of $5000, but for the purpose of this, let’s call it $4000, the same amount I owe on my bike.

My question is, do I put some towards my HELOC, some in savings and some towards the bike? Or, my thought, put it all towards the bike. If I can pay off the bike that would give me an extra $150 per month that I could use to ramp up my savings and make bigger HELOC payments. Having more money in my savings would be nice, having a lower HELOC principal would also be nice (interest is based on prime, 1st mortgage is locked), but paying off the bike is the only thing that would actually free up money on a month to month basis.

Thoughts?

Oh, one other thing, no matter what I decide to do, I’d pay off any credit card debt I would have at the time first.

I know this is early, but one of the ‘perks’ of being divorced is that this year my refund is all mine. We used to pool some of it to buy something ‘big’ and then split what’s left. So I’m a bit excited to have it all to myself.

I’m pretty sure my thinking is correct on this. Pay off the bike, it has the highest interest rate and, like I mentioned before, it’s the only thing that will free up money monthly that I can use to put towards the other things. Also, I’d like to get a bigger bike someday and having a totally paid off bike, in good shape, would be a nice trade in.

2

nothing to see here

3

Hookers and blow is always the first thing you do with any financial windfall.

I saw this on Money World or one of the other advice shows, I think.

4

Well, that’s just a given, I mean, I figured it was implied. I meant after the hookers and blow.

5

I would suggest you file your tax return promptly.

Now, as to what to do with your tax refund, hookers and blow is as good as anything.

6

Well, I assume you mean your refund… ;).

In your boat, I’d say (assuming you have at least some emergency fund savings), I’d plan on paying off the bike first off. It’s the highest interest rate, and is most likely to make the biggest difference in your monthly cash flow.

If you paid extra on the HELOC, as noted your mandatory cash flow (the 65) isn’t likely to change all that much. Even if you dropped it from 20K to 16K, that’s going the change your interest payment only 16 bucks or so.

Paying extra on the primary mortgage would save cash in the very long term by shortening your final payoff period by a few months, but no immediate feel-good.

To support paying extra on the HELOC, of course, you could always tap that in the future if you needed cash; the bike loan and primary mortgage money would not be accessible.

Similar to your paying off your bike loan: I’m throwing extra money at our car loan every chance I get. Not a lot, but we’ll pay it off by late spring and that frees up 280 a month (360 really, as that’s what I’ve been paying). That’ll be a GOOD feeling. Just in time to buy a replacement for Typo Knig, I expect…

We’re also looking at a small windfall next year (not tax refund) and I will be throwing a bit at the primary mortgage, among other things, because of the long-term savings.

7

Pay off the bike.

Five cents please.

Next!

8

Immediately adjust your W-4 to have less money taken out for taxes. You’re giving the government an interest-free loan of that money and I’m quite sure that you can spend it much more productively than they can.

9

Yeah, I was thinking about it last night. Next year she get’s to claim the kid so my paychecks will go down about $50 a week. Getting the bike paid off will more then make up for that. Besides it’ll be nice to have one less debt…Of course it’ll make getting a new one waaay more tempting (and waaay more affordable).

10

X2

11

Thank you. As someone who works with taxes, nothing is more obnoxious than when a client calls up, screaming and yelling, ranting and raving that they never received their tax return when I know for a goddamned fact they received it. After a little prodding, it always ends up that they are just dumb as a bag of bricks and meant “refund” (which I have no control over). Just like people also constantly mix up “lien” and “levy,” which are two very different things with very different consequences. There should PSAs about both of these things for my sanity.

But other than that, what Clothahump said. Stop giving the government an interest free loan all year.

12

Adjust your W-4 so you might not have to go into cc debt this Christmas.

Pay off the bike.

And if you are refinancing, why take extra money out? Why not, you know, have less debt?

btw, I calculate your HELOC to be 4%

13

Okay, I mixed up return and refund. Easy mistake. Diosa, I don’t know why you had to be so nasty about it. I’m a pretty smart guy, I just make a mistake.

I’m not in any CC debt at the moment. I know most people disagree with me on this, but letting the IRS hold on to my money, even though it’s interest free, forces me to save a good chunk of money. Personally, I’d rather overpay and get a nice refund at the end then pay less and risk owing money. It’s just the way I like it. This is just an odd year for me, that’s why the refund will be so high.

I took cash out to pay off my ex-wife. I had to refinance to get her name off the mortgage and deed, and I’d just wanted to be done with all the divorce crap so I took they money out of my HELOC when I re-fi’d. Also, the bank wouldn’t let me close still owing her money. I had to not only tell them where I would be getting the money from, but I had to prove I had the money (ie show them a bank account with a balance that could cover it) AND I would have had to write the check to the bank and the closing company would pay her. Using the HELOC made everything go much smoother since the bank just took care of everything.

The HELOC% you calculated sounds about right.

14

Yes, gosh darn you’re giving up what- a whole fucking 1/2%:stuck_out_tongue:

Really, a semi-large tax refund is a Good Idea for those that aren’t good at saving.

OP- always pay off the highest interest 1st, and keep back maybe $500 for Christmas.

15

That’s what I said above until I edited it out. Duder said the refund was related to some strangeness about lumping deductible payments into this year, so I dunno.

I think you can just write in a number on the W-4 for the IRS to take out each month. So, if you are super-jazzed on this enforced savings idea, you can kick it into high gear if you want to.

16

I know, but in your original post you said

Keeping a bit more of your pay now may help out at Christmas.