Getting a tax refund check in the mail is not at all like winning the lottery. Your amygdala, however, can't tell the difference.
- Ed Slott, CPA: I do not receive a tax refund, but if I did, the first thing I would do is pay down any credit card balances owed (luckily I don’t have that either). Then I would use any remaining money to pay the tax on a Roth conversion, converting my IRA to a Roth IRA (but the tax is not due for a while). The last thing I would do is spend it now, unless there was a pressing emergency need that you would otherwise have to borrow for.
- Laird Hamilton, professional surfer: If I received a tax refund for the average amount of a little over $3,000, I would give it to The Beautiful Son Foundation, which my friend Don King started to help families with children with autism. Every bit of contribution goes a long way toward helping.
- Christine Fahlund, senior financial planner, T. Rowe Price: There are two things your readers can’t live without: One is their health and the other is their money. So take that refund and get yourself a really thorough physical: head to toe, lab work, X-rays, stress test, the whole nine yards. And then assuming you have money left, get yourself a comprehensive review of your overall personal financial plan. Look at everything including how you are allocated with your investments, whether you have enough insurance coverage, whether you’re saving or spending the appropriate amount and whether you’re going to reach your goals, based on the program you’ve got in place.
- Kenny Perry, professional golfer: If I get a tax return this year, I’m going to spend the money on some of my old GM muscle cars. I love getting under the hood and working on cars. That’s my therapy.
- Jeff Probst, host of Survivor: A tax refund? Oh yeah, I remember those, I think my parents used to get them. A check would come from the government and suddenly we had more money. Not so much anymore. If I did get a tax refund, I’d probably fantasize about all the fun selfish things I could do but ultimately, I’d put it into my charity, The Serpentine Project. We help foster kids realize their dreams and I can’t think of a better place to put the money.
- Jerry Della Femina, Chairman, Della Femina Rothschild Jeary and Partners: I would put it in a mattress where Barack Obama can’t get his hands on it. Since no one will be getting a tax refund until hell freezes over, I will invest in firewood, which burns more slowly than money.
- Kate White, editor-in-chief of Cosmopolitan magazine: I’d put it toward a David Bailey photograph, which I’m dying to buy. I haven’t bought any art since the recession and I would love to have something special.
- Olivia Munn, actress: I would donate to Kiva, an aggregator of microfinance companies. I can donate loans to people around the world to start their own businesses so they can one day support themselves and I guess, no matter where they are in the world, be able to attain the “American Dream.” And if there’s some left over, I might treat myself to a banana cream pie.
- Dan Ariely, professor of behavioral economics, Duke University: Sadly, I’m not getting any money this year. But if I were, I would get myself a scooter for zipping around campus and getting home quickly. I’d enjoy the summer weather and think about how good I am to the environment.
- Jeff Koons, artist: If you find yourself lucky enough to get a refund after doing your taxes this year, it can be a great time to give any extra to the causes that you hold close to your heart. My charity of choice is the International Center for Missing and Exploited Children. It provides resources to children in crisis, while building international awareness for one of most vulnerable groups in our society.
- Noah Rothbaum, Editor-in-Chief, Liquor.com: If you’re getting a refund, congratulations. The best way to celebrate a tax refund check is with the one of the finest champagne I’ve ever tasted, the Krug Grande Cuvee ($170). But bourbon drinkers might want to splurge on a bottle of Four Roses 17-Year-Old Single Barrel ($100), which is just being released. And if you owe the government a check, my sympathies — you definitely deserve a drink. Pick up the Four Roses Small Batch Bourbon ($35), at a price even your accountant would approve.
- Chris Jacobs, host of The Insider: I’d spend a tax refund on a weekend golf school out in the desert at PGA West. Now that would be money well spent!
- Loren Mooney, Editor in Chief, Bicycling magazine: What could be a better use of the cash than buying a great bike? I’d recommend the smooth-riding Specialized Roubaix Comp Specialized Roubaix Comp ($2700), named after the famous French cobblestoned race. This all-carbon fiber road bike is fast and comfortable, a tough combination to achieve, and you’re getting some pro-level performance without spending top dollar. You’d still have enough left over to splurge on an absurdly comfortable pair of Castelli Body Paint shorts ($250) — if you’re going to splurge in one place, make it shorts — and a few cases of Clif bars. If your idea of a bike ride is more about cruising the town and less about lycra, save money and go for a Globe Live 3 ($1550) with its hip, functional basket and no-hassle belt drive (no chain to get your pant leg greasy). These days, city biking is as much about style as utility, so the Live 3 sports cream color tires, which also happen to be highly puncture resistant.
- Tom Marchant, co-founder, Black Tomato travel outfitters: I’d recommend a vacation — a trip that’s a complete change from resorts or foreign lands where you’re surrounded by tourists. The Shakti Village Walks (starting at $1,200) in the foothills of the Southern Himalayas take you to a part of India that’s more than stepping back in time, it’s like going to another planet. It’s an area that’s really untouched by globalization. You trek during the day and stay in village houses at night, where dots of fires across the valley are the only sign of human existence. You can read by starlight. Finish the trip with three nights in the stone lodges of 360° Leti; high-end luxury but not in an ostentatious way. Ian McEwan went there to work on his most recent novel, Solar.
The rush that comes with opening that crisp check from the U.S. Treasury overrides the brain’s rational systems and gets those neurons firing in the part of your brain that processes emotions. So it feels like a windfall, even though it’s really just part of our paycheck that was mistakenly diverted to the government. “We view a refund differently than our own money,” says Dan Ariely, a professor of behavioral economics at Duke University. “It’s like winning the lottery from the perspective that people are often willing to spend it on things they wouldn’t buy otherwise. We have a guilt that goes along with all kinds of spending, and this eliminates the guilt.”
As the economy crawls out of recession, you might be using your refund for sensible purposes such as refueling your depleted savings account or paying the taxes on a Roth IRA conversion. For a guaranteed return on investment, there are few better uses of a windfall than to pay off credit card debt, points out CPA Ed Slott.
But the average refund so far this year is $3,036, which means you can fund your IRA and buy an iPad too. And by rewarding yourself, you’ve put yourself on track for future good behavior. “Very few of our decisions are based on independent, rational decision making,” says Ariely. “They are based on habits — if you’ve done something before, there’s a good chance you’ll do it again and again and again.”
What if you have the latitude to spend some and save some? We asked a bunch of taxpayers — starting with a CPA known for being particularly fastidious, but then moving on to artist Jeff Koons, actress Olivia Munn and surfer Laird Hamilton — for advice on how to spend the cash.