How to put your federal tax refund to work in your business

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 goal is to focus on using your tax refund to boost revenues, cut expenses, or stimulate growth. Remember that any money spent on the business will be deductible in the current year, so this will lower your tax liability (or increase your refund) next year. Here are a few ideas to get you started.

Upgrade or invest in new machinery and equipment used in your business

Take a look at the machinery you use in your business. Is it time to upgrade your current tools and machinery to faster, more efficient models? Computer technology continues to make tools safer, more precise, and dependable.  In some cases, there may be new safety standards that have come to pass, and making an upgrade could reduce some potential exposure to a liability issue.

For instance, would your contractor business benefit from investing in battery-powered tools instead of older electric and gas models? Would now be a good time to purchase a more efficient automobile to decrease fuel costs? This may be the ideal time to increase efficiency, reduce risk, and decrease overall costs by investing in newer advanced models of tools and machinery used in your day-to-day business.

Do you have old office equipment that isn't working as well as it should or did in the past? Ancient computers might still be functional, but investing in newer, faster computers as well as newer software may help automate redundant back-office tasks and increase efficiency. Reducing the time spent on administrative activities allows you to focus on your main business, increasing your overall profitability.  

Maybe your workspace itself could stand to be expanded. You know what’s good for your business, and perhaps now is the time to go beyond something that’s merely “good enough.” 

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 just a business expense to report on your tax return; 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.

Keep in mind that marketing can take many forms and may serve as a way to help develop your business through positive customer engagement and response. Trivial giveaway items that have your company’s logo, such as a pen, a ruler, or a magnet, might yield good results. For example, you can have a coupon or print advertisement featured in a local school’s band program, or your business can be a named sponsor of a local youth sports activity. 

Additionally, many 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.  Marketing is an investment in current and prospective clients to remember your name and your business. 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 but 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. Having 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.