Now that the deadline to file your tax return has passed, many investors will be thinking about how to make the most out of their tax refund. Some individuals will simply look at this new found money as an opportunity to go on a shopping spree, while others will consider how to maximize the cash they have received.
There are many ways to maximize your tax refund. One idea would be to use this cash to pay off some debt. If you are a person that is carrying a large credit card bill with high annual interest rates this may be the best way to maximize the money you receive back from the government. If you have no credit card debt then perhaps you should consider using this money to pay down some of your mortgage. If the interest rate on your mortgage is high, paying down some of the principal can be a great idea.
Another option for an individuals tax refund would be to use this money towards your RRSP contribution for 2010. The sooner you make that contribution, the sooner the money can work for you and grow. In my opinion, we are in a great environment for market and investment growth. It would be a great idea to try and take advantage of this opportunity as soon as possible. As well, by contributing to your RRSP, you will be receiving a tax deduction for your 2010 earned income.
Some investors are faced with the dilemma each year as to whether to concentrate building up their RRSP or contributing to their children’s RESP account. By contributing to your RRSP first, you can use your tax refund you receive back from the government and accomplish both goals. Any contribution up to $2,500 made into your Registered Education Savings Plan per calendar year, will receive a 20 per cent match by the government up to age 17. This is free money to you.
Lastly, for those investors that perhaps need more liquidity and flexibility with their investments, a Tax Free Savings Account can be another place to contribute your tax refund to. The maximum contribution anyone can make to their Tax Free Savings Account is $5,000 per year. In this account, you can hold different types of investments to grow your money tax free.
One thing to keep in mind is that if you are receiving a tax refund, it means that you have overpaid your taxes throughout the year. Thus, you have given the government in essence an interest free loan and the government is simply paying you back the extra money you gave to them throughout the year. If you find yourself receiving large tax refunds each year, I suggest you take a look at how much income tax you are paying throughout the year. Perhaps your employer can take less tax off your monthly paycheques. In this way you will not have the large refund at the end of the year, but will have more money in your pocket on a monthly basis.
If you have any questions regarding the above article or are looking for an Investment Advisor to help you with your portfolio, please send me an email at email@example.com. I will be glad to speak with you!
– Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities.