The first of July is a very exciting year for many South African citizens. This date marks the opening of the tax season and SARS tax refunds. You will hear people talking about IRP 5’s, tax returns, E-Filing, auditing and more during the next few months. Consumers scurry to find their usernames and passwords and hope that they will be getting some money back this year.
Basically, a tax return is completed by salary earning consumers that meet the tax thresholds. The South African Revenue Service, SARS for short, has a fantastic website with loads of tips and advice and steps to follow. Read here to find if you need to submit a tax return. Under certain circumstances, especially if you pay for medical aid and have a retirement annuity (RA), you may be eligible for a tax refund.
A tax refund is awarded to people that have contributed to certain expenses, such as a retirement annuity, that is deemed tax deductible. Some tax deductible items’ refunds are fixed whilst others depend on the amount contributed and your tax bracket. People could get anything from a few hundred rands to tens of thousands in tax refund. We are going to explore a few uses for this ‘bonus’ payment that tax-payers may be received over this time.
Pay Back Short-Term Debts
Paying back over-spent credit cards or other personal loans is a great use of your tax refund. Short-term debts cost a lot of money because they have high interest rates and fees. Reducing debt will help you in the long run and ease your financial pressure. Everyone should aim to have as little debt as possible so settling your debts with your tax refund is a smart option. If your debt is already overwhelming and you need some extra advice, chat to a debt counsellor to receive professional tips and options.
Put Some Extra Money Into Your Car Or Home
If your short-term debt is in control or perhaps non-existent, why not use your tax refund to pay off some of your secured debts. By piling in extra money into home loans and vehicle financing, you can save lots of money and reduce the loan duration. Instead of using the money for unnecessary luxuries and more ‘stuff’, consider using it wisely and think about the long-term consequences.
Increase Your Savings Pot Or Emergency Fund
If you are saving up for something special and have control over your debts, add your tax refund to your savings. Having savings goals is important. Any boost to your savings pot increase its value and your overall wealth. The rule of thumb is to have an emergency fund which could fund your lifestyle for 3 months. This is a fantastic safety net and something the everyone should aim to accumulate.
Make A Smart Investment
Investing can be daunting, but there are loads of professionals and even websites which could help you make a decision. Buy a stock or put the money in a fixed deposit. Your investment decisions should take your risk, as well as your investment horizon into account. Making your money work for you is a smart option and can be seen a passive income source.
A Combo Of The Above
Another great option is to use your tax refund for a combination of the above options. Use a little to settle some debt, put some into your car or home then invest or save the rest. At the end for the day the decision is yours but perhaps consider your options before you rush into using that money on a new TV set or cellphone.