A big tax refund isn't a gift -- it's your money

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Do you know the feeling when you finish your taxes and see a big number on the line that says "Amount to be refunded to you?"

Ron Santini, a Plantation, Fla.-based CPA and financial planner calls it 'intaxation,' the "euphoria of knowing you're getting a refund on your tax return until you realize it was your money to start out with."

We let our employers take more than we'll ever owe out of our paychecks.

That's why about 70% of Americans who file a federal income tax return get a tax refund -- an average of $2,366 this year, according to the Internal Revenue Service.

Wouldn't you rather keep that money, and get a bigger paycheck, instead of giving the government an interest-free loan?

You'll need to fill out a new Form W-4, which determines how much income tax is taken from your check. To figure out how much you should have deducted each pay period, grab your most current pay stub and your 2006 income tax return, go to the IRS Web site and use its withholding tax calculator.

When you're finished, print out the final screen, take that information to your payroll department and use it to complete a new W-4.

Once that money is back in your paycheck, don't fritter it away. Put it to work. Here are 7 smart ways that extra take home pay can enrich your life:

Smart move 1. Pay down high-interest credit card debt.

You'll earn the best possible return by paying down credit card balances that charge 18% or more a year. Once that debt is gone it frees up even more cash you can put to better use.

Smart move 2. Save it for retirement.

Put that money in your employer's 401(k) plan by boosting your payroll deduction. If you reduce the amount withheld for taxes by 2% of your pay just increase your contributions by 2%.

This is an especially smart move if your employer will match all or part of your savings and you aren't taking full advantage of that. Since those contributions are also tax deductible, you can move all of the overpayment into your retirement plan and still see a small bump in your take home pay.

If a 401(k) isn't available to you, set up an Individual Retirement Account.

Smart move 3. Create or add to an emergency fund.

You should have enough cash on hand to cover three to six months of basic expenses. Then you have a cushion if you get sick or get in an accident, lose your job or have an unexpected major expense, like a big car repair bill.

Smart move 4. Pay extra on your mortgage.

Just as an example, if you had a $100,000, 30-year fixed-rate mortgage at 6%, you'd pay $115,800 in interest over the life of the loan. If you paid an extra $200 a month towards the principal, you'd slash 14 years off the mortgage and knock off $58,400 worth of interest.

Smart move 5. Save for something important to you, such as a down payment on a house, a car or family vacation.

Just be smart about it, says Paul Haarman, vice president of Renaissance Mortgage Corp. in Salem, N.H. If you "want to save it and use it for vacation, then rock and roll, but put it in an interest-bearing account," Haarman says. "Then when vacation comes around, you'll have the money and the interest and you'll come home from vacation without a big pile of bills waiting for you."

Smart move 6. Invest in education.

This could be in the form of paying down student loans or saving for your children's college education with a 529 plan or a Coverdell Education Savings Account.

If college costs keep rising at their current pace, Margaret Van Brunt, assistant dean of business at Rowan University in Glassboro, N.J., says four years at a private college 18 years from now could cost more than $320,000.

Smart move 7. Give some or all of it away.

Let's get real. If you have an extra $200 a month in your pocket, you are truly fortunate, and lots of people aren't. According to JustGive.org, the average American donates 3.1% of pre-tax earnings to charity.

If you're making $25,000 a year, that's $775, or about $2.12 a day. Not only can you make a big difference for other people, or animals, or the planet, or whatever you have a passion for, but if you itemize your tax return, charitable contributions reduce your taxable income.

Still wondering how to use the money? Then maybe it would be easier to tell you what not to do.

"Don't blow it on something frivolous; don't spend it on gadgets and gizmos," says David Bergstein, a CPA and tax analyst for CCH CompleteTax, an online tax preparation and e-filing program. "If you want to splurge a little, maybe go out to dinner but don't go overboard. If you have the extra money, use it to make more money later on."