Tax day will soon come and go. Especially for Freelancers and Independent contractors who might be hit with unexpected taxes to pay. Aside from the relief of being done with taxes until next year, one thing many have to look forward to is a tax refund. With the average size of a tax refund at nearly $3,000, it’s not a small amount of money. This is especially true for small business owners. So, wouldn’t it be helpful to learn about how to get a tax refund.
A tax refund can be the biggest payday of the year for a small business. Before we talk about what to do with it, let’s get a few basic questions you might have out of the way:
How Much You Will Get
After preparing your tax return, you will find out if you will get a tax refund and how much. Depending on the form you filed, you can find your refund amount on these lines:
- Line 76A for Form 1040
- Line 48A for Form 1040A
- Line 13A for Form 1040EZ
There are also many tools online that can give you an estimate of how much you will receive. Check out one here.
When You Will Get It
The time it takes for you to receive your tax refund will depend on how you file and when you filed. If you filed via paper, you can expect to wait anywhere from 4 week to 6 weeks. If you filed electronically, your wait is much shorter, anywhere from 24 hours to 3 weeks.
Also, if you filed closer to the deadline, you may have to wait longer as the IRS has a larger batch of returns to process.
Next, comes the big question: when you get your tax return, what do you do with it? It’s important to spend it wisely. If you’re expecting a tax refund this season, here are ways you can spend it:
Add to your emergency fund
Unexpected costs can really sidetrack your business, making it difficult for you to get back on your feet. That’s why it’s crucial for any small business to have an emergency fund. It’s important to be prepared for emergencies or just those rainy days when business isn’t great. Aim to have 3 months of expenses on hand.
Invest your refund
As a small business owner, investing in your retirement might not be a priority. But if you don’t have a retirement fund already set up, consider investing your tax refund in one, such as a Roth IRA. You can choose from a traditional IRA, in which you avoid taxes when you put money in, or a Roth IRA, in which you avoid taxes when you withdraw money in retirement.
Pay off debt
If you or your business still has debt, it’s a great idea to use your tax refund to pay if off. The longer you have debt, the more interest you are accumulating. Start with your highest interest debt first and work your way down the list.
Think outside the box
If you’ve already done all of the above and want to spend your refund more creatively, think outside the box. You may want to invest in new technology to take your business to the next level. Or perhaps there is a course for you or your employees to help better your skills. These are just a couple examples of ways you can invest now in the future of your company.
If you find that your refund is taking longer than expected, don’t panic yet. You should wait at least 3 weeks if you filed electronically or 6 weeks if you filed by paper before contacting the IRS. You can check the status of your refund here. The earlier you file the better as you will see your refund faster.