It's tax time! What should I do with my refund?

Craig Baldwin holds a sign advertising a tax preparation office for people that still need help completing their taxes before the Internal Revenue Service deadline.

It's income tax season. As taxpayers prepare for filing, we've got some practical advice on how you should prepare your taxes and what you should do with your refund (if you get one). We also took a closer look at the psychology behind filing tax returns.

Most taxpayers fill out their forms early to get their money back quicker. However, if you're writing a check and not collecting one, you'll probably want to wait as long as possible before filing your taxes. But how does a person decide how to set up their tax withholdings? It's nice to get a big refund once a year, but wouldn't you rather get more money from each paycheck?

Kelly Phillips Erb is a contributor at Forbes and runs the blog Taxgirl.com. She said it really all depends on where a person is at financially. Erb said that conventional wisdom tells us that we shouldn't get a big refund, because you don't get interest with it. Erb says that historically, if someone received a big refund they were looked at as doing something wrong. She said now, more taxpayers are under the gun financially and are looking at a refund as a forced savings account.

"A lot of taxpayers are now holding onto this big hope that they're going to get a big check and they're going to use it to pay off credit cards or they're going to use it to pay rent," said Erb.

Erb said she has always advised against getting a big refund, but she says that given the current economic climate it makes to sense to bank on that big chunk of money.

But once you get your refund, what should you actually do with it? CNBC personal finance correspondent Sharon Epperson said it should go towards retirement first.

"That might seem really kind of crazy. Especially if you're in your twenties and you've got this money and you really just want to go to Cabo and you really just want to have a great vacation and get out of this weather," said Epperson.

Epperson said the best advice she can give is to put it in a Roth IRA, since contributions you put into it can be taken out free of penalty.

Epperson said that paying off long term and high interest debt is also a priority.

"I'm just hoping that people are not getting this huge refund and getting a ton of credit card debt," said Epperson.

We asked folks on Twitter how they're going to spend their tax returns. Here's what we got:

Follow Sharon Epperson on Twitter @sharon_epperson. Kelly Phillip Erb is on Twitter as @taxgirl.

About the author

John Ketchum is an assistant producer for Marketplace’s wealth & poverty desk.

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