Got a Tax Refund? Here’s How to Put It to Work
Chad Dickinson • January 2, 2026
Receiving a tax refund can feel like an unexpected windfall, a bonus from the government that’s all too easy to spend on impulse buys or a fancy dinner out. While there’s nothing wrong with a little celebration, your tax refund presents a golden opportunity to significantly improve your financial health. With a little planning, you can transform that one-time payment into a lasting investment in your future.
This guide offers practical, age-specific tips to help you make the most of your tax refund. Whether you’re just starting your career, juggling the demands of a growing family, or preparing for a comfortable retirement, we’ll show you how to put that money to work in a way that aligns with your life stage and financial goals.
For the Young Professionals (20s and 30s)
In your 20s and 30s, you have the invaluable advantage of time on your side. The financial decisions you make now can have a profound impact on your future. Here’s how to leverage your tax refund to build a strong financial foundation.
Build an Emergency Fund
Life is full of unexpected twists and turns, from a sudden car repair to a temporary job loss. An emergency fund is your financial safety net, a dedicated savings account to cover these unforeseen expenses without derailing your budget or forcing you into high-interest debt. Financial experts generally recommend saving three to six months’ worth of living expenses. If you don’t have an emergency fund, your tax refund is the perfect way to start one. If you already have one, use your refund to bolster it.
Tackle High-Interest Debt
High-interest debt, such as credit card balances and personal loans, can be a major drag on your financial progress. The interest you pay on these debts can quickly snowball, making it difficult to get ahead. Use your tax refund to make a significant payment on your highest-interest debt. This strategy, known as the “debt avalanche” method, can save you a substantial amount of money in interest over time and help you become debt-free faster.
For many young professionals, student loans are a significant financial burden. While federal student loan interest rates are often lower than credit card rates, they can still add up over the life of the loan. Consider using a portion of your refund to make an extra payment on your student loans, which can help you pay them off sooner and reduce the total interest you’ll pay.
Invest in Your Career
Investing in yourself is one of the best investments you can make. Use your tax refund to acquire new skills, earn a professional certification, or attend a conference in your field. These investments can lead to a higher salary, greater job security, and more career opportunities down the road.
For the Established Professionals (40s and 50s)
By your 40s and 50s, you’re likely in your peak earning years, but you’re also juggling more financial responsibilities, such as raising a family, paying a mortgage, and caring for aging parents. Here’s how to use your tax refund to balance your current needs with your long-term goals.
Boost Your Retirement Savings
If you haven’t been saving as diligently for retirement as you would have liked, now is the time to catch up. Your tax refund can provide a significant boost to your retirement nest egg. If your employer offers a 401(k) match, make sure you’re contributing enough to take full advantage of it. If you’ve already maxed out your employer match, consider opening or contributing to a traditional or Roth IRA.
Invest for the Future
If you have a solid emergency fund and are on track with your retirement savings, consider using your tax refund to invest in other long-term goals, such as a child’s education or a down payment on a vacation home. A diversified portfolio of stocks and bonds can help your money grow over time.
Help Your Children (and Yourself)
Many parents want to help their children with the cost of higher education. A 529 plan is a tax-advantaged savings plan designed to help families save for college. Contributions to a 529 plan grow tax-deferred, and withdrawals for qualified education expenses are tax-free. Some states also offer a state tax deduction for contributions to a 529 plan.
For Those Nearing or in Retirement (60s and beyond)
As you approach or enter retirement, your financial priorities shift from wealth accumulation to wealth preservation. Here’s how to use your tax refund to ensure a comfortable and secure retirement.
Fortify Your Retirement Nest Egg
Even if you’re already retired, it’s not too late to strengthen your financial position. If you’re still working, you can continue to contribute to your retirement accounts. If you’re no longer working, you can use your refund to build a cash reserve to cover unexpected expenses without having to sell your investments at an inopportune time.
Pay Down Your Mortgage
Carrying a mortgage into retirement can be a significant financial burden. If you have a mortgage, consider using your tax refund to make an extra principal payment. This can help you pay off your mortgage sooner and free up cash flow in your retirement years.
Plan for Healthcare Costs
Healthcare is one of the largest expenses in retirement. If you’re not yet eligible for Medicare, you can use your tax refund to help pay for health insurance premiums. If you are on Medicare, you can use your refund to pay for supplemental insurance or to build a dedicated savings account for out-of-pocket healthcare costs.
Make a Plan for Your Refund
No matter your age or financial situation, the key to making the most of your tax refund is to have a plan. Before you receive your refund, take some time to think about your financial goals and how your refund can help you achieve them. By being proactive and intentional, you can turn your tax refund into a powerful tool for building a brighter financial future.
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The passage of the One Big Beautiful Bill Act (OBBBA) has reshaped the tax landscape in a big way. Many tax cuts that were set to expire at the end of 2025 are now permanent, and several new planning opportunities have opened up. With the year quickly coming to a close, now is the ideal time to review your tax situation and see what steps you can take to reduce your 2025 tax bill. Before making any moves, work with your professional advisors to estimate what you’ll owe this year and identify which strategies best fit your situation. The earlier you begin, the more flexibility you’ll have to put these plans in motion before December 31. 1. Establish Your Tax Baseline Start by having your tax advisor prepare a pro forma 2025 tax return. This gives you a clear picture of where you stand—your projected income, deductions, and how different decisions may affect your final tax bill. If you're working with a financial team, request a year-to-date tax summary of your investment accounts. With this snapshot, you’ll have a solid foundation for determining which strategies are worth implementing before year-end. 2. Evaluate These Tax-Smart Strategies Harvest Tax Losses Markets have generally performed well this year, so you may be sitting on more taxable gains than expected. Tax-loss harvesting can help offset these gains by selling investments at a loss before year-end. If you want to repurchase the same investment, be sure to avoid the wash sale rule , which disallows a loss if you buy a substantially identical security within 30 days before or after the sale. One workaround is to double up —buy more now, wait 30+ days, then sell the original losing position. Important date: November 28, 2025 (the day after Thanksgiving) is the final day to sell at a loss and have it count for the 2025 tax year. Loss harvesting isn’t just a year-end task. Even in strong markets, individual positions may decline, creating opportunities throughout the year. Maximize Charitable Contribution Deductions If you plan to make charitable gifts, timing matters. Transfers of stock or other assets can take time to complete, so check with your financial institutions to ensure the donation is finalized before December 31. Because OBBBA imposes new charitable deduction limitations starting in 2026 , it may be advantageous to front-load charitable giving in 2025 . Beginning in 2026: Itemized charitable deductions are reduced by 0.5% of AGI Total itemized deductions for taxpayers in the 37% bracket are capped at 35% of AGI For high-income taxpayers, that may make a 2025 donation more valuable than the same gift in 2026. If you’re undecided about which charity to support, consider a donor-advised fund (DAF) . You receive the deduction immediately, but you can distribute the funds to charities later. Optimize Estimated Tax Payments Many high-income taxpayers must make quarterly estimated tax payments to avoid underpayment penalties. You can meet the requirements using the “lesser of” safe harbor : 110% of your prior year’s tax liability, or 90% of your current year’s projected tax liability If you expect your 2025 taxes to be significantly higher than in 2024, it may be strategic to base your estimates on 2024’s lower liability and invest the difference in short-term, principal-protected fixed-income investments. This lets you earn some return on money you’ll eventually pay in taxes. 3. Optimize Retirement, Compensation, and Benefits Max Out Retirement Contributions For 2025, the contribution limits are: IRAs: $7,000 (or $8,000 if age 50+) 401(k)/403(b): $23,500 $31,000 for those age 50+ $34,750 for those turning age 60–63 in 2025 If you’re eligible, consider whether a Roth conversion makes sense—especially if you expect higher income tax rates in the future and can pay the conversion tax using funds outside the IRA. Take Required Minimum Distributions (RMDs) Anyone age 73 or older generally must take RMDs by December 31 each year. If charity is part of your plan, a qualified charitable distribution (QCD) from your IRA can satisfy part or all of your RMD. This strategy, however, may not always be the most tax-efficient depending on your broader financial picture. For inherited IRAs where the owner died after 2019, new regulations beginning in 2025 require many beneficiaries to take annual distributions over a 10-year period , with the remaining balance distributed in year 10. The rules are complex, so work closely with your tax advisor. Consider Deferring Compensation If your employer offers a deferred compensation plan, election deadlines typically fall before December 31, 2025 for 2026 income deferrals. Deferring compensation delays income taxation until you receive the funds, potentially allowing you to take advantage of future lower tax rates. However, deferred compensation is subject to employer credit risk, so weigh the pros and cons carefully. Review Stock Options Executives with stock options may want to consider exercising some in 2025. Strong candidates for exercise include options that are: Deep in the money On high-dividend stocks Close to expiration Your advisory team can prepare an options breakeven analysis to help you decide. 4. Make Tax-Efficient Gifts to Family Use Lifetime Exclusion While It Lasts The current gift and estate tax exclusion is: $13.99 million per individual $27.98 million per married couple These increase to $15 million ($30 million for couples) in 2026 under OBBBA. If you anticipate a taxable estate and have unused exemption, making large gifts now may help lock in additional tax-free transfer capacity. Take Advantage of the Annual Gift Exclusion For 2025, you may give: $19,000 per recipient (individual) $38,000 per recipient (married couple electing to split gifts) This exclusion is use-it-or-lose-it —unused amounts cannot be carried over to future years. Many families use this strategy to fund 529 education plans , where earnings grow tax-free when used for qualified education expenses. 5. Work With Tax Professionals to Finalize Your Plan Year-end tax planning is full of opportunities—but also details, deadlines, and complex rules. Arch Tax can help determine which actions make the most sense for your personal and financial goals. Starting now gives you time to implement strategies that may strengthen your financial position and reduce your overall tax liability. Schedule your free consultation today
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It’s a question that can send a shiver down your spine, a classic nail-biter that pops up right around tax season: “How much do I really owe the IRS?” Let’s be honest, navigating the world of taxes can feel like trying to solve a Rubik’s Cube in the dark. Whether you’ve hit a few financial bumps in the road or simply lost track of your tax returns, figuring out your standing with the Internal Revenue Service (IRS) is the first crucial step toward getting your financial house in order. This guide will walk you through the different ways to uncover that magic number, from sleuthing online to making a good old-fashioned phone call. And once you know what you’re up against, we’ll even explore some expert-backed strategies for settling your score with Uncle Sam. Cracking the Code: How to Figure Out What You Owe Finding out your tax liability is easier than you might think. The IRS has several methods available to help you get the information you need. Here’s a breakdown of your options: Your Online IRS Account The quickest and most convenient way to get to the bottom of your tax situation is by using the IRS’s online tools. The “View Your Tax Account” feature on the IRS website is your one-stop shop for all things tax-related. To get started, you’ll need to create an account and verify your identity. You’ll need some personal information on hand, like your Social Security number, date of birth, and the filing status and mailing address from your most recent tax return. Once you’re in, you’ll have access to a wealth of information, including: Your payment history Any outstanding balances you owe Information about your payment plans Digital copies of certain IRS notices This is the fastest way to see what you owe and even make payments online. Just be mindful of any potential bank fees associated with online payments. A Little Help From a Friend: Calling the IRS If you prefer a more personal touch, you can always give the IRS a call. The general inquiry line is 1-800-829-1040. Before you dial, make sure you have your personal information and a copy of your most recent tax return handy. An IRS representative can help you with a balance inquiry, explain any outstanding balances, and walk you through your payment options. While it might take a bit of patience to get through, speaking with a real person can be incredibly helpful, especially if you have questions about your tax records or payment plans. The Paper Trail: Reaching Out by Mail For those who appreciate the tangible nature of snail mail, you can also request your tax information by mail. You’ll need to send a written request to the IRS, and it’s a good idea to use the address listed on the most recent notice you’ve received. If you don’t have a recent notice, you can find the correct address on the IRS website. Keep in mind that this is the slowest method, and with taxes, time is of the essence. Unpaid taxes can quickly accumulate penalties and interest, so it’s best to use a faster method if possible. You’ve Got the Number, Now What? Strategies for Settling Your Tax Bill Knowing how much you owe is half the battle. Now it’s time to come up with a plan to pay it off. Here are some effective strategies for settling your tax bill: File on Time, Every Time: The easiest way to avoid getting into tax trouble is to file your taxes on time, every year. This will help you avoid late filing penalties. Explore Payment Options: If you can’t pay your entire tax bill at once, don’t panic. The IRS offers several payment options, including installment agreements and offers in compromise. You can apply for these online or with the help of an IRS representative. Use Your Refund to Your Advantage: If you’re expecting a tax refund, you can have the IRS apply it directly to your outstanding balance. Look into Penalty Waivers: If you have a good compliance history, you may be eligible for a first-time penalty waiver. It’s worth looking into! Don’t Be Afraid to Ask for Help: If you’re feeling overwhelmed, consider seeking advice from a tax professional. They can help you navigate the complexities of the tax system and find the best solution for your unique situation. Frequently Asked Questions How long does the IRS have to collect unpaid taxes? The IRS generally has 10 years to collect unpaid taxes from the date they were assessed. This is known as the Collection Statute Expiration Date (CSED). However, certain actions, like entering into an installment agreement or filing for bankruptcy, can extend this period. Should I take out a loan to pay my taxes? This is a tricky one. While a loan can provide immediate relief and help you avoid IRS penalties and interest, it’s not without its own risks. You’ll need to be sure you can afford the loan repayments, and you’ll want to compare the interest rate on the loan to the penalties and interest charged by the IRS. It’s always a good idea to consult with a financial advisor before making this decision. How can I check my IRS balance myself? As we’ve covered, you have three main options: online through the “View Your Tax Account” feature on the IRS website, by phone at 1-800-829-1040, or by mail. For the fastest and most comprehensive information, the online portal is your best bet. Dealing with the IRS can be stressful, but it doesn’t have to be a nightmare. By taking a proactive approach and using the resources available to you, you can take control of your tax situation and get back on the path to financial freedom. You don’t have to face the IRS alone. Contact Arch Tax today and we’ll help you understand your options and take the next step s forward .
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