How to Put Your Federal Tax Refund to Work in Your Business

An extra influx of cash from a tax refund is always welcome. But don't squander that windfall away on things that won't help your business. Take time to consider the best way to use your tax refund in your business and use it wisely.

by LegalZoom Staff
updated May 31, 2022 ·  3min read

If you're expecting a sizable federal tax refund, it's tempting to use it for something fun like a vacation or a big-ticket splurge. But if you own a business, putting your tax refund toward the company might be a smarter idea.

The key is to focus on using your tax refund to boost revenues, cut expenses, or stimulate growth. Here are a few ideas to get you started.

Invest in New Equipment

Look around your office, shop, or studio. Do you have old equipment that isn't working as well as it should? Ancient computers and worn-out equipment might still be operational but investing in new equipment might help you run more efficiently and boost profitability.

Ramp Up Marketing Efforts

Using your tax refund to launch new branding or a new marketing campaign can help you get the word out to potential customers and cross-sell services to existing ones.

Every business needs marketing. Whether you're selling a product or a service, you need to get the word out about your business and convince customers to do business with you instead of the competition.

Some small business owners are hesitant to invest in marketing—especially digital marketing with content, email campaigns, and social media ads—because they view it as an unnecessary expense. But marketing isn't an expense; it's an investment. If you engage in the right kind of marketing, it won't cost money in the long run—it'll make you money.

Hire Help

Whether you're a solopreneur or have a team of employees, there comes a time when you need more help. So why not put that tax refund toward hiring someone?

Working with great people—whether employees or independent contractors—can make your life easier and help your productivity and profitability soar.

While finding and hiring the right person takes some time upfront, in the long run, it reduces stress and saves you time and energy so you can focus on what you need to focus on.

Pay Off Debt

If your business has credit card debt or a high-interest loan, using your tax refund to pay down that debt (or eliminate it entirely) can help your business in the long run. Paying off debt not only saves interest. It also frees up cash flow you can use on other things, like hiring employees or purchasing inventory.

If you have multiple debts, put your extra funds toward the highest interest rate debts first. This will have the biggest impact and help you get out of debt faster.

Start a Business Emergency Fund

Do you have an emergency fund for your business? Many small business owners don't because they put all their cash into starting and growing the business. But a business emergency fund can help you deal with large or unexpected expenses without turning to high-interest credit cards or loans.

Plus, having a little extra savings isn't just useful for emergencies. It can also come in handy when you have an unexpected opportunity. For example, a business emergency fund might allow you to purchase a competing or complementary business, buy inventory at a deep discount, or ramp up production at a moment's notice if one of your products goes viral.

An extra influx of cash is always welcome. But don't squander that windfall away on things that won't help your business in the long run. Take time to consider the best way to use your tax refund in your business and use it wisely. When you invest in new equipment or new talent, pay down debt, or set it aside for a rainy day, you'll reap the tax benefits of your refund well into the future.

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LegalZoom Staff

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This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.