As a business owner, you may have opportunities to invest your tax refund into your business and greatly increase its value. Whether your refund is small or large, here are a few of the best ways to get the most out of your tax return.
What does a tax refund mean for small business owners?
For most small business owners, getting a tax refund is a big deal. Unlike most individuals, business owners are expected to pay their taxes on a quarterly basis—which is why when they finally get their refund from the IRS, it’s best to be wise about how to spend it.
Put simply, a tax refund is the taxes you withhold during the year. The amount of taxes withholding is usually more than what you owe, which is why you get money back, or a refund from the IRS.
The Best Ways for Small Business Owners to Spend a Tax Refund
Some people have a plan for spending their tax refund months in advance. Others are unsure of what to do with a tax refund — or don’t expect to get a refund at all. As a business owner, you have the unique opportunity to invest your tax refund into your business. Doing so could significantly increase the value of your refund.
Here are some ideas for how to get the most out of your tax refund.
1. Build a Business Emergency Fund
If you run a small business, your personal and business finances may be intertwined in many ways. But building separate personal and business emergency funds can often be a good idea.
Your personal emergency fund is there to cover your personal responsibilities, such as paying household bills, supporting your family, and covering medical expenses. Similarly, your business emergency fund can help you afford payroll or business expenses if sales slow down.
However, you can also use the fund when a great business opportunity presents itself. Perhaps you need to purchase supplies as you experience rapid growth or want to buy-out a local competitor. You might wind up turning down these opportunities unless you have a business emergency fund that you can use to cover the expense or help secure financing.
2. Pay Down High-Interest Debt
Many small businesses have some form of debt. Perhaps a large loan that was taken out to start the business, a form of cash-flow financing, or a line of credit. Using credit can be a vital and strategic part of running a business, particularly when you have opportunities to get a positive return on investment with the money you borrow.
But if you have high-interest debts, such as credit card debt, paying down (or off) these balances can be one of the best things to do with your tax refund. You’ll instantly get a great return on your money as you free yourself from the interest and fees in the coming months.
3. Purchase Technology Upgrades
For many business owners, time is a valuable (and limited) resource. While your time may be best spent finding new customers, strengthening your business relationships, creating efficient processes, and building a roadmap for your business’s future, it’s easy to get bogged down with day-to-day responsibilities. One way to get the most benefit out of your tax refund is to use the money to free up your time.
Consider which low-level tasks eat into your day. For example, you may want to invest in customer relationship management (CRM), time management, or accounting software that can help automate some of your administrative work while keeping you organized and focused. You could also outsource some of the monotonous tasks by hiring a virtual assistant.
4. Make Business Improvements
There’s probably something you’ve meant to do, but you haven’t had the money the time or money to act. Perhaps you want to hire an accountant to clean up your books, have an attorney review your contract template, get a new sign for your storefront, or update your website. Here’s your chance.
5. Invest In Your Employees
Finding the right employees can be difficult — keeping them is even harder. You might not have the budget to offer a raise, as that could lead to increased ongoing expenses, but you could use your tax refund to recognize and invest in the people that work for you.
You could offer everyone a one-time bonus. or may want to consider another type of benefit, such as a paid day off, a party at the office, or a company outing. You could use the money to start an employee-recognition fund that you can dip into whenever an employee exceeds your expectations.
6. Donate to Your Local Community
No matter how large your tax refund is, making charitable donations matter. As a small business owner, giving back not only allows you to claim a tax deduction but also creates better relations with your local community. The more money you invest in your local community, the more likely those in your community are likely to do business with you.
Bottom Line — Invest Your Tax Refund Back Into Your Business
As a business owner, you have the opportunity to get the most out of your tax refund by using the money to improve or expand your business.
While you think over what to do with your tax refund, consider which option (or options, if you have the means) will give you the greatest return on your investment. Start there, and then keep a list of what you can’t invest in right now and prioritize them for another time.
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