Do you have a tax refund? Here are the smartest things you can do with extra cash.
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The average tax refund this year is over $3,200. For a small business owner dancing an entrepreneurial tightrope, juggling a pandemic, broken supply chains and inflation, plunging that money back into your business could be a much-needed lifeline.
Aside from the state of the economy, there’s one thing you can bet on when it comes to entrepreneurship: Finding the money to run a business is hard work. The main challenge small business owners face is access to capital, an issue that is only exacerbated by biases, lack of credit history and other barriers typically reserved for women-owned businesses. and to minorities. To Hello Alice, the company I co-founded five years ago, our data highlights the limitations of not having access to working capital, including attracting and retaining top talent, slowing revenue growth and inventory management challenges. That’s why we’ve prioritized connecting small business owners to funding opportunities, like grants and fair loans — our data also shows that just $5,000 can make a difference in keeping a business alive.
Even for a healthy business, reinvesting your tax refund offers a chance to pay off credit cards, acquire assets, or pursue new opportunities. Our most recent data indicates that 84% of small business owners want to grow their business this year.
If you’re looking to grow your small business with a tax refund, here are some good places to start.
Related: 5 Tips for Finding the Tax Advisor That Will Save You Millions
1. Pay off your debt
Running a small business is a delicate balancing act. Believe me, I was on the losing end of this balance with my first bankrupt business nearly fifteen years ago. If you’re among the 38% of entrepreneurs with unpaid debt, you’re probably no stranger to juggling credit cards, business loans, or money lent by friends or family, which helps overcome unexpected cash flow disruptions. , open the door to new opportunities and allow you to grow.
There are many ways to pay off your debt responsibly, but here are a few things to consider:
- Pay off high-interest debt first – don’t let it spiral out of control and put your credit score and business at risk
- Do you have several credit cards? Evaluate your APRs and balances and start by paying off the one that costs you the most
- Consider using a credit card payment app like Tally to manage and consolidate all your cards in one place and pay off your debt, potentially at a lower interest rate.
Related: Business Investment for Business Growth
2. Advertise, advertise, advertise
Tinkering through advertising makes sense when you’re getting started. Both Instagram and TikTok accounts are free. You get full creative control of your content, be yourself (and your brand) authentic, engage with your market, test your messaging and more, all without spending a dime. But the algorithms! Ever-changing technology. The competition. It’s another full-time job! It’s no wonder our recent data indicates that 15% of female entrepreneurs and 11% of their male counterparts rate brand awareness as their biggest challenge.
With a refund in hand, there are several ways to increase your reach:
- Upgrade your website or e-commerce platform – now is the time to invest in plugins that can save you time and money
- Hire a copywriter to upgrade your social, email or content marketing
- Invest in new promotional materials or professional branding or rebranding – never underestimate the power of your logo, vision statement and voice!
- Attend a fair
Investing in digital ads or a paid social media campaign is another great option if you’re up for it. Even with all of these pieces at hand, you’ll still want to test and iterate to find the right ad mix; otherwise, you risk losing money quite quickly. You can also consider putting more effort into your organic posts and polls (and maybe even hiring some help to do this).
3. Contribute to your retirement
Want your refund to go directly to reducing your tax bill for next year and saving for your future? Contributing to a SEP-IRA or solo 401(k) can be a great tax benefit that helps you plan for life after entrepreneurship (if it exists!).
Here’s how much you could contribute and get tax relief when you file next year:
- For a solo 401(k): $20,522 in pre-tax income (plus an additional $6,500 if you’re 50 or older)
- For a SEP-IRA: 25% of net self-employment income (or up to $58,000)
4. Invest in better equipment and tools
In the age of e-commerce and remote working, we rely on technology to help us succeed, but we also seem to wear out our computers twice as fast. Reinvesting in your most valuable gear when you have the cash to cover it can save you major stress down the line. The bounty ? It can be taken as a tax deduction for your business next year.
Here are some additional upgrades and tools to consider investing in:
- Home office improvements or new office furniture
- A new point of sale system
- Accounting, payroll, invoicing, CRM or inventory management software
- A conference, retreat, webinar or course that helps grow your business – not equipment, of course, but a valuable tool that could lead to an “aha!” time and generate more revenue
Related: How to Choose the Best CPA Firm for Your Startup or Business
5. Invest in a CPA
If I can offer one piece of advice, it’s this: reinvest your tax refund in finding and working with a CPA on next year’s taxes (and every tax season thereafter). We may live in a world where automation has made keeping your books and your finances much easier, but software is a long way from having a competent tax expert on your side. And a strong relationship with a reputable accountant can not only uncover valuable future refunds, navigate ever-changing tax laws, and keep you up to date with the IRS, but they’ll also help you analyze your books to grow your business.
Looking for a trusted business advisor? A mentor? A confidant who can help you determine the value of your business, the most appropriate funding or funding opportunity to pursue, and when you should consider running for S-Corp? A CPA can be all of this and more.
Find an accounting professional who understands your business, industry, and local tax laws, so they can identify all your tax breaks, best reduce your tax burden, and set you up for success. The American Institute of Certified Public Accountants’ searchable directory is a great place to start!
One last thing: there’s no right or wrong way to put your tax refund back into your small business. I’ve found in my own journey that clarifying priorities often leads to the breakthroughs we need to succeed, so go your own way – even if it means a well-deserved vacation on a remote island without your laptop. Here’s to reinvesting in your growth.