3 Ways to Use a Tax Refund for Your Business


June 10, 2021

As a business owner, any money that comes in is vital to keeping your organization running. For small businesses, tax refunds are a good way to support ongoing opportunities, fund new projects, or boost inventory inexpensively. It’s tempting to find yourself wanting to use a tax refund for other miscellaneous expenses — trust us, we know. But putting those funds towards bettering your business further is the way to go!

There are many ways tax refunds can benefit your business; the key here is to focus on ways that directly impact your ability to operate and reduce costs. Here are three expert recommendations from New Valley Bank to help get you on the right track:

#1. Pay off Debt

There’s simply no better way to get the most out of a tax refund than to apply it to debt. The sooner you reduce the debt you owe, the less amount of interest you are paying. The longer a debt remains, the more it costs your bottom line, and no one wants that.

Perhaps you have debt from a previous loan or a business credit card that’s growing. These may have interest rates of 20% or more, depending on your current financial state. You may see hundreds of dollars (or more) in interest piled onto these loans each year that the debt goes unpaid. That’s why paying off debt is so important! It creates an opportunity for you to save all of that interest year after year.

Also, we suggest working towards paying off the most expensive debt first. For example, if you have unsecured loans with high-interest rates holding your business back, then it may be best to put these extra funds towards those debts first. Any debt with a higher interest rate should be your priority when it comes to paying it all down.

#2. Reinvest in Your Business

Another way to use a tax refund is to put the money back into the business in some way to help support your business’s growth. What does your company need right now that will directly impact your bottom line? Business owners can use those funds to help achieve new opportunities.

Here are a few key examples:

  • Ramp up your marketing efforts. Use the funds to launch a new campaign or create a new offer that drives prior customers back into your business.
  • Put the money towards developing a new product or service. If you’ve been thinking about enhancing or growing your business’s reach, a tax refund is an amazing way to support the effort.
  • Consider expansion goals. Is adding a new location, improving your website to reach a global audience, or expanding into a different community or state the ideal move for your organization? Use these funds as a good starting point for creating that opportunity.

When considering any type of investment in reinvesting in your business, focus on profit boosters. What’s going to bring in more money, new customers, and better results? That’s where you should put your funds whenever possible.

#3. Start an Emergency Fund

If your tax refund cannot help you in the previous methods, consider the advantages of creating an emergency fund. These are funds tucked away into a savings account of some type. They are untouched unless there is a time when you absolutely need them to keep your business operational or to cover existing problems.

Keep in mind that an emergency fund cannot eliminate big problems. If your business is not profitable, it may be important to consider why first before using emergency funds to cover cash flow problems or standard expenses.

Rather, use these funds as a way to cover the unexpected expenses that you can’t overcome without borrowing. That’s the essential benefit of having an emergency fund — it enables you to eliminate the risk of turning to credit cards or unsecured loans to cover the costs. That means it saves you money over the long term, and who doesn’t love that?

Here are some examples of times when you may need to use these costs:

  • You’re unable to work. Whether it’s due to a medical emergency or other situation, you need to pay employees more to cover your time at work.
  • A significant repair needs to happen. This unexpected repair is critical to operating your business or ensuring the safety of your employees.
  • Other unexpected costs. This is an event that you cannot pay otherwise without borrowing and a one-time need.

Discover the New Valley Bank Difference

We’re here to help you! Put our team to work on investing your tax return, or just stop in to talk to us about keeping your business financially healthy.

Learn more about New Valley Bank’s business banking services when you call our team today!

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3 Ways to Use a Tax Refund for Your Business