Each year, the overwhelming majority of tax filers collect a refund from the Internal Revenue Service, often to the tune of several thousand dollars. But new IRS data suggests that refunds will be significantly lower this year across the board, with the average refund already coming in 8.4% less than at this time last year.
Not only that, but there's a good chance fewer tax filers will see a refund at all this year. The 2018 tax overhaul that lowered virtually all individual tax brackets also prompted the IRS to release new withholding tables that took effect last year. The result was that many workers had less tax withheld from their paychecks, and as such, won't be getting as much of a windfall from the IRS come April.
Now, generally speaking, smaller refunds are a good thing, as they mean workers managed to collect more of the money they were entitled to up front. The problem, however, is that because so many Americans have come to expect large refunds, any sort of decline might instantly affect their spending decisions in the coming months. And if you own a small business, that could spell trouble.
How tax refunds impact consumers
Though tax refunds aren't, in fact, free money, many Americans continue to regard them as such. And when folks get a windfall, they're more apt to spend that money thinking it's a bonus.
Given that the average refund is already lower this year, and that many workers who historically have gotten refunds might not get one, businesses large and small will have to brace for what could inevitably be a decline in spending (or at least not the usual post-tax-season uptick). But while larger companies are often well equipped to cope with missed revenue targets, small businesses don't have the same leeway. So smaller operations need to strategize in the coming weeks to avoid feeling the pain.
Giving your company an edge
Because consumers might not spend as freely in the coming months as they normally would, you'll need to take extra steps to make your business stand out. First, consider running promotions to draw customers in at a more appealing price point. Undercutting your competition is crucial when consumers have less to spend than expected and are apt to be more cautious about parting with it.
Next, get aggressive in your online marketing. It's far cheaper than print, and it's a great way to attract potential customers at a minimal investment. At the same time, look into creating a referral program where existing customers are incentivized to help bring in more business. Word-of-mouth marketing is cost-effective and a solid way to drum up sales.
And make sure your business' solid reputation stays intact. When people might be spending less, you can't afford bad publicity or negative reviews, so invest in a little customer service and take steps to spread goodwill.
Will this year's tax season hurt your business? It's too soon to tell. But since it does look like Americans across the board will have less spending money than usual, it never hurts to be prepared.