INCOME TAX REFUND AND PAYING OFF DEBT

Unlike the title of this post may imply, I'm not using my tax refund to pay off old debt.  Normally any tax refunds I'm lucky enough to get go directly to my investment accounts.  This year, however, I'll be using at least part of my refund to build up my cash reserves and a small amount for new glasses.  I'll still be investing at least 20% of my refund in dividend paying stock.  Still working on rebuilding my regular investment account after paying off my medical bills.

As far as the old debt goes, I've been taking advantage of transfer checks from my two remaining credit cards to retire higher interest debt.  Instead of paying 17.99% or 14.99% on the credit cards I've cancelled, I'm paying them off with transfer checks with 0% interest for the first 12 months.  Twelve months is more than enough time for me to pay them completely off, so I'll be saving a great deal in interest.  This has also allowed me to make larger payments on my remaining credit cards and reduce my outstanding credit at a faster pace, since I'm making payments on 2 bills instead of 4.  Normally I don't advocate balance transfers, but if the offer saves you money, then it makes sense to take advantage of it. 

WHERE DID MY TAX REFUND GO?

Seems a lot of people, around this time of year, find themselves asking where the money went from their tax refunds. If they were lucky enough to get a nice refund, chances are good that it's gone before they know it and they have little or nothing to show for it. I know because I used to do the same thing. I used to look at a tax refund as an opportunity to go on a spending spree. Then I'd suddenly find myself out of money and wondering where it all went.

This year I invested one quarter of my tax refund in Altria Group (MO:NYSE). With their dividend close to 7% and their price per share a little over $20 I think it will make another good source of dividend income for my portfolio. While I still believe that the Obama Administrations tax hike on tobacco products earlier this year has created an unfriendly environment for tobacco companies, I expect the Democrats to lose a great deal of power in the fall elections. With a recent NBC/WSJ poll showing Congress with only a 17% approval rating, it's most likely the Democratic party will lose congressional seats come election day. With their tax and spend approach to solving the nations problems it's my opinion that we'd be much better off with a more balanced, or even a Republican led congress, than the current Democratic majority.

Anyway, back to the tax refund. After investing 25% of the money, I took another 30% and paid off some high interest credit card debt. The remaining 45% I deposited in my savings account at my bank. I'm using that as a cash reserve for work I'll be needing to have done on my car soon.

While most of this may be of no interest to anyone other than myself, the point I'm trying to make is you should know exactly where your money is going all the time. Tax refunds, inheritances, rebates, lottery winnings or any type of windfall should be put to good use building future income and reducing debt, so you won't find yourself asking, "Where did the money go?"

TAX TIME!

I finally got the last 1099 form I was waiting on and sat down to do my taxes yesterday. It took about 5 hours to complete, but I was surprised to find I actually have a small refund coming. I'm already planning on putting that to work by investing it in additional shares of one of the limited partnerships I currently hold.

This year's taxes were a little more difficult than usual to prepare. I had several stock trades to report, dividend and partnership income and foreign taxes. Then I had unemployment compensation, which I had never collected before last year, so that was a first for me as well. I used an online tax preparation program and everything went smoothly. It really helps to have all your records together before you begin the process. Toward the end of each year, I always set up a file to collect all of my tax paperwork in, so when it comes time to prepare my taxes, it's all right there. Really simplifies the process.

I received an email notification that my return has been accepted by the IRS, so now it's just a matter of time before the refund rolls in. It's nice to actually get a refund for a change, instead of having to pay in. It will be even nicer to put the money to work and generate additional income for 2010 and beyond.