What to do with my tax return this year??

[Sebastian]

Every year I get about $1500-1800 in tax returns. I have a feeling I might get a little more this year because of all the 401K contributions and Roth IRA contributions, but I'm not super knowledgeable about how taxes work so maybe I'll get less. Either way I'll probably get at least a grand back.

What should I do with this money?? At this point, I have an e fund so I certainly don't want a grand laying around to waste as I already have enough rotting away in my savings. The only real bill I have is a car payment(I know trust me, I plan on selling the dumb thing when it warms up here and it isn't buried in snow every other day).

I was thinking maybe I could throw that grand towards my car because I would end up getting that back when I sell the car? orrr maybe I could dump it into my Roth IRA? But then I'm not really doing DCA and I might lose a little money because the market is so fricken high right now.

So I thought I'd come on here and ask the group what they think I could do with my money to make the most of it.

Any creative ideas are greatly appreciated! Thanks.

[Khan]

Buy 1800$ worth of your favorite stock.

Wait... what were you expecting? This isn't even found money, or reward money or something... it's money that you overpaid the government. It's not something I'm gonna give you advice to splurge 10% of or something.

Unfortunately I screwed up in the game and had W-4 withholdings turned off for most of the year. Looks like I'll have to return some money to the government that should've gone to them throughout the year.

I wonder how close I can cut it on next year's taxes...

Edit: reread your post. Roth it probably.

[Sebastian]

Buy 1800$ worth of your favorite stock.

Wait... what were you expecting? This isn't even found money, or reward money or something... it's money that you overpaid the government. It's not something I'm gonna give you advice to splurge 10% of or something.

Unfortunately I screwed up in the game and had W-4 withholdings turned off for most of the year. Looks like I'll have to return some money to the government that should've gone to them throughout the year.

I wonder how close I can cut it on next year's taxes...

Edit: reread your post. Roth it probably.

This wasn't a post to brag or anything at all. I figured with all the sharp minds on this forum that someone might have a more creative way to use that extra cash left over. I'm fine with dumping it in a Roth, but I just wanted to see if someone else had a better idea!

Just trying to pick people's brains :)

[clarkm04]

What's the APR on the car? 

To me, that seems the way to go unless it's very low.

In the future, you should consider adjusting your W4 so you get your money upfront instead of giving an interest free loan to the government.

[Nothlit]

Not to nitpick, but you've tweaked a minor pet peeve of mine, and that's the terminology of "tax return" vs. "tax refund": a tax return is the paperwork you fill out and send to the IRS every year. If the IRS sends you money back as a result, that's a tax refund. :)

As far as what to do with your refund, your first priority should be to pay down debt, so I suppose I'd put it toward the car loan assuming that's the only debt you have (otherwise, I'd put it toward whichever debt has the highest interest rate). Once the debt is paid off, I'd put any remaining income into tax-deferred savings like an IRA. Once you max out tax-deferred space in a given year, that's generally when you should start looking at taxable investments.

[Eric]

I was thinking maybe I could throw that grand towards my car because I would end up getting that back when I sell the car? orrr maybe I could dump it into my Roth IRA? But then I'm not really doing DCA and I might lose a little money because the market is so fricken high right now.

I think investing the money as soon as you get it is pretty much the definition of Dollar Cost Averaging.

[milla]

You invest it. No need to get creative. If you haven't hit the max on your T-IRA (or if you don't have one) you can put it there and further reduce your taxable income. You file with a planned contribution and then when you get your refund you park it there.

[Sebastian]

Not to nitpick, but you've tweaked a minor pet peeve of mine, and that's the terminology of "tax return" vs. "tax refund": a tax return is the paperwork you fill out and send to the IRS every year. If the IRS sends you money back as a result, that's a tax refund. :)

Sorry to have rustled your jim jams with that one! I'll know from now on to call it a tax refund :)

I was thinking maybe I could throw that grand towards my car because I would end up getting that back when I sell the car? orrr maybe I could dump it into my Roth IRA? But then I'm not really doing DCA and I might lose a little money because the market is so fricken high right now.

I think investing the money as soon as you get it is pretty much the definition of Dollar Cost Averaging.

I thought DCA was contributing a fixed amount on a schedule. For example with my Roth IRA I do about 100$ per week every week. Throwing a grand in at once would be 10x what my normal DCA is? Unless I'm wrong, I'm totally open to the constructive criticism.

And to everyone else that posted. Thank you for your input! Sounds like I had the right idea in mind. You guys helped me solidify that. Thanks again!

[Khan]

I thought DCA was contributing a fixed amount on a schedule. For example with my Roth IRA I do about 100$ per week every week. Throwing a grand in at once would be 10x what my normal DCA is? Unless I'm wrong, I'm totally open to the constructive criticism.

And to everyone else that posted. Thank you for your input! Sounds like I had the right idea in mind. You guys helped me solidify that. Thanks again!

In the grand scheme of things, investing ~2k next Thursday, instead of splitting it up over x months is absolutely meaningless. I admire your dedication to DCA... But it's not a salve to all ills. It is a very, very good strategy to employ with your money. But DCA'ing your tax return just isn't going to matter much in the end.

[MooseOutFront]

I do my taxes as a running tally throughout the year.  For example 2014 is already done and will simply adjust as income varies or deductions become more precise.

The upside here is that there are no surprises and I can maximize last minute tax things in December.  Downside is that any refund is already included in the budget as saved or spent so I never get to ponder what to do with this particular windfall. :(

[b4u2]

I do my taxes as a running tally throughout the year.  For example 2014 is already done and will simply adjust as income varies or deductions become more precise.

The upside here is that there are no surprises and I can maximize last minute tax things in December.  Downside is that any refund is already included in the budget as saved or spent so I never get to ponder what to do with this particular windfall. :(

Curious as to how to do this? I have fluctuating overtime plus all my itemized deductions. I would like to learn how to do this so that I could use my money weekly to pay debt rather than rely on large refund. I already adjusted my withholding based on income calculators online. So far they were pretty close but no idea how bad this will hit me at end of year. I am sure I will still get a refund though. Less than $2k I'm sure.

[DougStache]

I also have a big refund coming in this year because I forgot to file a new W4 after getting married last year (oops).  What will I be doing?

1) Investing the money as soon as I have it.  Dollar cost averaging is good, but waiting to invest it is timing the market.  On average, you're better off the longer your money is invested.
2) Giving myself a raise.  I'm adjusting my W4 so I don't get a refund next year, which will add a good chunk to each paycheck.

If your car loan has a high APR (more than 5%), I would consider paying that instead of investing.

[MooseOutFront]

I do my taxes as a running tally throughout the year.  For example 2014 is already done and will simply adjust as income varies or deductions become more precise.

The upside here is that there are no surprises and I can maximize last minute tax things in December.  Downside is that any refund is already included in the budget as saved or spent so I never get to ponder what to do with this particular windfall. :(

Curious as to how to do this? I have fluctuating overtime plus all my itemized deductions. I would like to learn how to do this so that I could use my money weekly to pay debt rather than rely on large refund. I already adjusted my withholding based on income calculators online. So far they were pretty close but no idea how bad this will hit me at end of year. I am sure I will still get a refund though. Less than $2k I'm sure.

I have an excel spreadsheet with the calculations in it.  It certainly helps that my wife and I are salaried and the income doesn't fluctuate much.

I take each month worth of paystubs and enter W-2 income and Federal tax withheld in columns for each of us. (W-2 Income is what's left after HSA, FSA, medical insurance, 401k, defined contribution, and disability insurance for us.).

Then I add up all the other income for Gross Income
Subtract Student Loan Interest, Tuition expense, and any non payroll HSA contributions. 
This is your AGI.
"From AGI" is your number of exemptions X $3,900 plus either the standard deduction or itemized deductions. Summed and taken away from AGI gives you:
Taxable Income.
Use the IRS charts to calculate the tax owed (easy).  For Married filing jointly with $60,000 in taxable income the math is: $1,785+ 0.15*(60,000-17,850)
2013 tables: https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/2013-Federal-Tax-Rate-Schedules/INF12044.html
Then, since I have 2 kids, I take away $2000 for child tax credit and have to calculate the Dependent Care Credit.
For this the calculation uses $3000 per child minus any dependent care FSA contributions you made.  Then you multiply the result by a number based on your income, 0.20 in our case.  Our calculation:  ((3000*2-5000)*.2).
What's left minus what was already withheld is what you owe.

Calculating exactly what the adjustment of 1 withholding allowance does to your income works similarly.  Start at page 41 here:
http://www.irs.gov/pub/irs-pdf/p15.pdf

[samdbtto]

I personally no longer give tax free loans to the government (if I can help it). 

Adjust your dependents claimed so you break even each year.  Take the extra money each check and put it into 401k/brokerage account/CD's etc...

More money in your pocket.