Spend Your Tax Refund Wisely

tax refundIt’s tax time and many homeowners receive large tax refund checks. Here’s some advice I’ve put together for you on different ways to use that money.

This article is part of my series “The Affordable Home.”  In the series I seek to focus on the intangible benefits of homeownership by making them, well, tangible.  I believe the affordable home is the sensible and proper approach to homeownership; so many new homebuyers today specifically focus on the affordability of the mortgage loan instead of the “HGTV” aspects of a house. I find this attitude refreshing for two reasons.

First, it’s an “old” attitude: in decades past the idea of buying a home revolved around diligent budgeting to save up the down payment and the concept the monthly payment should be affordable.


The features of the house—granite countertops, high end appliances, paved driveways—were minor considerations and certainly did not make for sound decision-making when buying a home.  Those features could be added later, if one so desired, and those “old-timers” (I was once one of them) knew that.

Second, during the past decade, during the “Boom” the focus was on something I considered completely nuts: buy a home, an amazing home packed with big rooms, big features, and big monthly payments, at any cost.  Affordability be damned.  I struggled as a mortgage professional during those years to try to talk sense into people.

Since it’s tax-time, the advertising from folks who want your refund checks are everywhere.  There was the TV advertisement: “Just in time for your tax refund we’ve received a new stock of bamboo flooring!”


It occurred to me that this is the time of year when many people, especially homeowners, get large tax refunds and the sharks start circling looking to take a bite out of that refund check.  To this I say, “STOP!  Take a minute to reflect on what you should do with your money!  You worked hard for it, and you bought an affordable home so you could get that refund, don’t throw it away without giving it due consideration.”

Here are my suggestions to spend your tax refund wisely:

1. Consider investing the money for your future.  My pal Nick, the owner of the Westside Steakhouse  was at one time a stock broker.  Here’s his take on wisely using your money:: “Never spend more than you make and save some money every week.”  Awesome advice and I believe that fits very handily into my concept of the affordable home.   Especially in this day and age of doubt over pensions, we consumers must be smarter and more responsible with our planning for retirement.  Follow Nick’s advice and invest your tax refund to begin or supplement your savings plan.

The New York Times “Your Money” section featured a wonderful piece recently about a new vehicle that makes it easier for us to create a sound investment strategy without all the costly bells and whistles.  Here’s the link to that article:  Financial Advice for People Who Aren’t Rich

I have long advised my clients to consider retaining a Financial Advisor to provide counsel on all things finance-related: investing, budgeting and insurance.  You can find a local Financial Advisor in the your area here:  National Association of Personal Financial Advisors

And here is sound advice from a CPA about investing not just your refund, but investing throughout the year and the tax benefits/ramifications: Fund Your Retirement Or Your Child’s College?

2. Create an Emergency Reserve.  Take some or all of that refund check and put together your emergency reserves.  Park the money somewhere it’s inaccessible by debit card!  You’ll need ease of access, but putting it within reach of a debit card is a surefire path to disaster.  pile of cash

3. Pay down debt.  This tends to be the long held standard amongst many homeowners I’ve known over the years.  I believe this is an admirable activity, but I believe taking your tax refund to pay down debt should be part of a comprehensive plan for debt management.   To take a page out of my friend Nick’s finance playbook: don’t spend more than you earn.  I advocate tending to your credit use respectfully and as part of your total family budget every month.  This way you won’t necessarily have to take your hard won refund check and pay down a credit card balance.  Of course, if, during the year you experienced an emergency and needed to access your credit to assist with that emergency, then paying off that debt at tax time is a sound strategy since it’s a one time event.

I’ve found that Consumer Action is the best site on the ‘net for sound advice on all things credit related, including how to obtain lower credit card rates and fees and great counselling on preparing and maintaining a family budget.  Find them here: Consumer Action

 Another Smart Strategy for The Affordable Home: Take home more money in your paycheck; get a smaller refund at tax time.

I hope my suggestions are useful to you at this exciting time of year.  Of course, I also advocate that you really shouldn’t get such a large refund at tax time if you’re a homeowner.  I’ve long believed that you should incorporate into your homeowners’ “network of advisors” a great tax professional or CPA.  By doing so, you can lean on your tax professional/CPA to advise you on the correct withholding throughout the year to increase your take-home pay, reduce your end of the year tax refund (and prevent having to pay!), and enjoy the benefits of homeownership every month instead of once a year. Here’s the IRS page on how to calculate correct withholding, but I recommend you do this only under the guidance of your tax professional/CPA:  IRS Withholding Calculator

Do you have questions?  Click on ASK TREVOR and I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

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First-Time Buyer Tax Credit Fraud: Get $8,000, GO TO JAIL

The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme

The IRS is closely watching the First-Time Buyer Tax Credit program for fraud.  I’m glad they are.  I have personally heard of two situations where people have collected $8,000 under the program and they have not yet purchased homes.  In one of those instances, I was told that 3 people in one family received the credits—totalling $24,000—and they had not yet purchased a home, were planning to, and were told by their tax person that, “If you don’t buy the house by the deadline you just have to repay it.”

I can’t imagine why anyone would think a stimulus program allows receipt of the stimulus money without actually undertaking the stimulus activity: BUYING THE HOUSE!


Here’s an excerpt from the IRS press release and a link to the IRS site for more information:


“The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

‘We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,’ said Eileen Mayer, Chief, IRS Criminal Investigation. ‘The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.'”

IRS Warns Taxpayers To Beware Of First-Time Buyer Credit Fraud

Erica’s Mom is Harrassing Her to Buy A House!

My Mom is harrassing me to buy a house. She keeps telling me I have to get this $8,000 stimulus refund and I have to close this year!

I met with Erica this evening to prequalify her for a mortgage for a 2 family house she wants to buy in the Bronx. I gave my usual “tcurranmortgage” mini-homebuyer-seminar, not knowing when to shut up and stop talking (that’s why Gary set up this blog when he built my website four years ago; he knows me too well!) as usual.

Near to the end of our visit, I mentioned to Erica that Uncle Sam was going to send her a check for $8,000 for buying her first home this year. Erica responded by telling us, “Yes, I know. My Mom is harrassing me to buy a house. She keeps telling me I have to get this $8,000 and I have to close this year!”


YAY to Erica’s Mom! YAY to President Obama and his 2009 Stimulus Package and the $8,000 Refundable Tax Credit!

Just FYI: the tax credit is a truly refundable credit of either $8,000 or 10% of the purchase price of the house (whichever is lower; in NY, that’s going to be the 8k!!!). You don’t have to wait until 2010 to get the cash in your wallet. You can file an amendment to your 2008 tax return and get the money this year. There are restrictions, so be sure to check out the IRS website HERE to verify. You can even download the appropriate filing schedule to bring to your tax professional to file the amendment. Get to it so you can heed Erica’s Mom’s haranguing: GO GET THE MONEY!!!

Thanks Erica for the inspiration for tonight’s blog.

Prepare for Tax Time

Homeowners and Renters alike need to prepare for a different kind of conversation with their tax professional during these troubled economic times.

In the next few weeks, employers all across the country will begin sending out 2007 W-2 forms so that we taxpayers can get our papers together and submit our annual tax returns.

As you await the arrival of your W-2, might I suggest spending a Saturday afternoon preparing for your meeting with your tax professional?

If you are a homeowner, you’ll need also to receive from your mortgage Lender your annual 1098 form indicating how much interest and taxes you paid throughout the year. For most of us, the mortgage interest and property taxes on our primary residences are seriously important tax deductible items. Often, these deductions can bring about a large refund for a homeowning family.

Homeowners should also bring to their tax pro any and all documentation to support any other potential tax deductions they may have the right to claim: charitable contributions, Union dues, unreimbursed employee expenses, proof of medical bills in excess of 2% of your adjusted gross income, and more. Bring as many items as you may feel are deductible; let your tax pro be the judge of what is feasible as a deduction, and what’s not. As a homeowner, you’re most likely filing a Schedule A for itemized deductions and that’s where the mortgage interest, property taxes and all those other deductions will be collected to provide a substantial reduction in your adjusted gross income—usually much larger than the standard deductions provided for by Uncle Sam.

I’d like to suggest this year that you Homeowners also consult with your tax professional about important tax-saving strategies for 2009. In the current state of the economy, we could all use a boost in our take-home pay or at least solid advice on how to save on your 2009 income taxes.

For instance, you can change your withholding at work and reduce the tax dollars deducted from your weekly paycheck, thus taking home more of your hard-earned dollars. Next year, you’ll get a lower refund, but, so what? That’s your money the government is returning to you—a loan you made, interest-free to Uncle Sam—not a windfall from the Treasury.

Your tax pro might also suggest refinancing your mortgage at what are right now the lowest interest rates since a man named Eisenhower was in the White House. Your tax professional will likely tell you to pay points not only to obtain the lowest possible rate, but also to obtain a further tax deduction over the next two years on your annual returns.

Homeowners, when you meet with your tax professional this year, go for the maximum deductions and discuss money-saving, tax-reducing strategies. It’s your money, it’s your home and you worked danged hard for both of them!

For those of you who are renting, I’d recommend similarly probing for the sage wisdom buried in your tax professional’s mind as to ways you can save money on your 2009 taxes. There are certainly things you can do now and throughout the year—contributions to an IRA and the like—that will invest your money for the future and lower your tax liability when you file your 2009 return next year.

I’d bet that for many renters your tax professional may look at your income, look at your lack of deductions and your inability to file a Schedule A for itemized deductions and make a radical suggestion: Buy a Home!

If ever there was a reason to ignore all the bad news about falling home prices, instability in the economy and the payroll of the New York Yankees, buying a home for the purpose of paying less income tax is as good a reason as you can find.

So, renters, get ready for a serious conversation with your tax professional this year. Then, ring me up to get prequalified for a mortgage. I’d be happy to oblige in your quest to pay less income tax next year. And, it would be my pleasure to help you make a dream come true: that of owning your own home!