It’s always a happy day: You received that fat, juicy tax refund check in the mail or deposited into your bank account. Perhaps your refund was due to the impact of the “TCJA” (“Tax Cuts and Jobs Act” of 2017) – Did your business overpay during the year due to the reduction in tax rates to 21% for corporations? Or did your partnership perhaps overpay due to the 20% deduction for pass-through entities, the so-called “QBI” (Section 199A “Qualified Business Income”) deduction?
Twiddling your thumbs in glee ( … in your office … with the door closed), you nonetheless ponder within yourself: Eeny, meeny, miny, moe – spending tax refund, saving tax refund, spending tax refund, saving tax refund? The good news is, since it’s your tax refund, really, you can enjoy a twofer, and both spend and save it. The even better news is, there are so many great ways you can invest that “found money” to improve your business operations:
1. Pay down debt
Interest costs may be one of the larger or typical business owner expenses you frown upon. That nagging loan may not have the most favorable terms, or that company credit card is carrying an exorbitant interest rate. Use some (or all) of the refund to prop up your income statement by reducing interest expense, or to breathe a sigh of relief when lightening your debt load. This is a classic scenario where spending money today saves money tomorrow.
2. Focus on marketing
An area worthy of your attention might be your company’s advertising or marketing efforts. Maybe you always wanted to try that catchy radio ad for your business? Perhaps you prefer to focus on your online business channel and so would like to do better on the SEO front? Whatever the endeavor, you know that spending the refund on marketing is beneficial to your business and, as such, money well spent.
3. Invest in your employees
Along with your customers, employees are the lifeblood of your business. You could implement a paid family leave policy under the new regulations and also get a tax break on some of those payroll costs. Consider sending your key people to seminars or continuing education, which helps them develop personally and professionally while also improving the quality of their work and potential contributions to the company. The ways in which you can make your employees happy today and improve your bottom line tomorrow are almost endless.
4. Invest in yourself
Yes, go ahead, as the owner you deserve it. The avenues open to you are innumerable here, too. Perhaps upgrading to that business smartphone you’ve been longing after will also bolster your work productivity by leaps and bounds? How is your SEP IRA, and how is your Keogh Plan looking these days – could it use a little bit of a tax-deferred boost? If for no other reason, then, a happier boss is also a better boss, right?
5. Purchase machinery and equipment
As far as business owner expenses go, you could reduce your taxable income and invest in that machine the business so badly needs – the new tax law allows for full write-off of business equipment the year it is placed in service. Yes indeed, 100%. Maybe it’s finally time for that new pick-up truck your business can’t live without? The favorable bonus depreciation and Section 179 regulations surely add incentive to invest in your company’s capital equipment.
6. Opportunity awaits
Opportunity Zones, that is. If your business had a capital gain in some area during the year, following certain procedures under the new law, you could invest it in a so-called “QOF” (“Qualified Opportunity Fund”) to defer taxes on it. At the same time, your investment helps raise the overall community economic situation, which in turn can only benefit your business, too.
7. Save some, donate some
There’s nothing wrong with saving some of that refund, either. Be it for a rainy day, or that one outrageous expense nobody could possibly foresee, saving money is always one of the wise choices in life. Perhaps you need to bolster your cash position to apply for that new loan you need to expand the business? You may be looking to grow the business through acquisitions, and that extra cash could certainly come in handy.
The flip side of the coin might be considered donating some of your refund to a charitable organization or cause. Aside from the true spiritual satisfaction of participating in a good deed, this is similar in some ways to an intangible asset:
your donation or contribution also enhances goodwill in the community toward your business and helps build a foundation for an excellent reputation.
In so many different ways and sometimes even inadvertently, spending money today can also be an indirect route to either saving money or earning more money in the future.
Finally, despite all of the magnificent options for what to do with your refund, it behooves us to still remember this basic principle: While bringing on a sense of elation at receiving this large stash of “extra” money, it is not, actually, “extra” at all. It is really just the return of an interest-free loan given – to some extent voluntarily and unnecessarily – back to its rightful owner by the national government.
Of course, we’re human, and we feel like jumping with joy when this unexpected “gift” comes our way. In this regard, though, it’s always useful to remind ourselves with a lesson from Finance 101 ( … yes, that class way back when, the one where we’d wake up with a calculator clenched in our hand…): the time value of money. In general, money is worth more the sooner it is received (and invested).
Possessing an extra $100 routinely each month during the course of the year usually just can’t compare with the gratifying jolt of receiving $1,200 in one big, celebratory chunk. We’re just human. So, it’s reassuring and comforting to know that there are – really, truly – wonderful options to spend your tax refund in a manner that significantly improves your business operations.