by Joseph Weidenburner

Created on: September 30, 2010

Before we know it, tax season will be upon us again.  Accountants and tax professionals will enter their sleepless months as hundreds of millions of Americans will get ready to file their income tax returns. Tax time is vitally important for both the person trying to smooth out his or her personal financial situation and for the investor, whether beginner or expert.

Tax time can be a great opportunity to pay down a significant amount of debt based on the amount of money returned to you by the federal government and your state's government. It's not often that we see a lump sum of money like we do if we're getting a substantial tax return. It's what we do with this money, however, that is of utmost importance.

Perhaps you've budgeted aside whatever money you're getting back from taxes for a nice vacation or a large purchase. That's perfectly fine. But if you haven't, and you're trying to figure out what to do with this new wealth, here are two important, yet often overlooked ways to use your tax returns.

Pay Down Debt

Tax time is perhaps the best time to take steps to reduce the amount of debt you have, whether it be credit cards, student loans, or other loans you may have. People often get tempted to buy things they don't need when they come into a nice sum of money such as an income tax return. A nice trip to the mall goes a long way to making some people feel better. However, in the long run, the best way to feel better is to pay down your outstanding debt and break free from the chains with which your debt has shackled you. By paying down some of your loan balances, you will be saving yourself money by reducing any finance charges you may encounter, as well as reducing the effect of interest rates on your principal balance. You may find that putting your tax returns to work for you in your battle with your debt will go a long way towards winning the debt war.

Save, Save, Save!

If you don't have a savings account, open one up with the money you get back from taxes. This can easily be done, especially if you don't budget your anticipated returns into your day to day budget for the year. This way, you won't be relying on any potential returns for purchases or other uses. This money can be put aside into a savings account and left alone. Even if the only additions you make to your savings account each year are the returns you get on your taxes, you'll find that, after some time, you've set aside a nice chunk of change. As interest rates start to rise,

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