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Will taxes impact your savings?

By David McMillin · Bankrate.com
Friday, March 23, 2012
Posted: 2 pm ET

As the deadline for filing your taxes approaches, it looks like plenty of consumers are planning to spend any refund dollars they receive. A new survey from Capital One Bank shows that 33 percent of consumers plan to spend all or part of their tax refunds.

However, the survey shows that plenty of respondents are planning to put those dollars to work for the future. With 27 percent planning to save a portion of the money and 17 percent planning to pay down their debts, it's clear that many consumers recognize tax season presents an opportunity to get their savings into shape.

Before you cash in your check from the government, I recommend considering a few crucial questions.

1) Do you have an adequate emergency savings fund?

From medical expenses to unemployment, an emergency savings account can come to the rescue if you find your finances in a worst-case scenario. Before you spend all of your tax refund dollars on a new flat-screen, be sure to determine if you have enough cash stashed away for the unexpected.

2) Should you climb out of credit card debt?

This may seem like a no-brainer: If you have outstanding credit card debt, a bump in your bottom line from Uncle Sam can be just what the credit doctor ordered. Use the unexpected cash in your checking account to avoid paying finance charges for your plastic spending.

3) Are you planning for any big expenses?

If you're in the market for a car or house, putting that tax refund toward your down payment can help you make a bigger dent in the cost. The more you pay now, the more you may be able to save down the road.

Of course, you may be on the unfortunate side of the tax equation, too: the group who owes money. The survey uncovered some revealing statistics about this segment, too. Of those who will owe taxes, 32 percent of respondents indicated that they will need to use some of their savings to pay them. If you fall into this category, I recommend using this year as a lesson for next tax season. By setting aside money specifically for estimated taxes, you can avoid the dreaded feeling of withdrawing money from your savings account.

How do your plans fit into the survey's results? Will you be spending or saving your tax refund in 2012?

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