With April 15^th less than a month away, you are probably already thinking about how to spend your tax return. But instead of buying something that depreciates in value, why not make that tax return work for you. Here are a few ideas for getting the best return on your tax return.

1) Pay Off Debt

One of the best investments you can make is paying off high interest debt. It is a sure investment, because you know how much you will “make” (save) in interest and there is no risk of losing money. Paying off any debt is like opening a savings or money market account (or buying bonds, CDs, whatever) at the interest rate of the debt. Finding a money market account, bond, or CD that will pay you what you are paying in interest debt is unheard of, so paying off high interest debt is a no-brainer investment.

The 10 year Treasury Bond is currently at 3.30%, and my money market account is only earning 3.4%. For example, if your credit card is charging you 12% APR, by using your tax return you would profit an 8.6% return on your money buy using your tax return to pay off debt.

2) Buy Stocks (or Index/Mutual Funds)

As of last week, the majority of economists agreed that the U.S. economy is in a recession. The Dow Jones Industrial Average has fallen from 14000 to 12000 in the last six months and other economic factors are indicating that we are now in a recession. It’s not a crisis though, just another buying opportunity for the smart investor. The markets have not hit the bottom yet, but timing the market to only buy at the bottom is extremely hard, and usually a losing game because the market takes off before you can jump on the upswing. Better to buy consistently when you know the market is down. So what if the markets fall another 10% or more before the upswing? It’s not a big deal because the upswing will cover any short term dips of the market. Also, because of the decline in price of many stocks, the dividend yields are also looking quite attractive.

As always, you should do your research and analyze stocks before buying them. If you do not want to do the stock research, you could also look at an index fund, or even a mutual fund. With the current market conditions, any of these investments would be a great long term strategy for your income tax return.

Investing in stocks involves risk, please see my disclaimer.

3) Buy A House

This third option is not for everyone, but would also be a great investment for some of you out there. For those of you that were already thinking of buying your first home, or maybe thinking about purchasing a vacation or rental home, now might be the perfect time to put your tax return towards that purchase. Home prices are down, way down. It truly is a buyer’s market out there right now. On average home prices are down almost 20% and staying on the market for 12 months or more. This is creating a lot of motivated sellers that need to sell their homes quickly. The home bargains are out there, so if you were thinking about buying a home, now might be the time to use your tax return to help with the down payment.