Are you leaving money on the table? 6 signs that you could be overpaying on your taxes
Overpaying on taxes is one of the most common and avoidable mistakes I see as a financial coach. Every year, new clients unknowingly hand over more money to the IRS than necessary — not because they're rich, reckless or shady, but because they simply don't know what to look for at tax time.
So let's break down the biggest ways you may be giving the IRS more than your fair share, and how you can fix it.
1. You're celebrating when you get a big tax refund
Approximately 64 percent of all tax returns filed in 2024 resulted in refunds, based on IRS data through Dec. 27, 2024. In fact, the average tax refund for the most recent tax season was $3,138.
If you got that amount back, you might be celebrating, but guess what? That was your money, and the government just borrowed it interest-free. Receiving a tax refund, especially a sizable one, is a sign that you overpaid in taxes throughout the year.
When my clients have received large refunds, we've worked with their tax advisors to adjust their withholdings and increase their cash flow throughout the year. That extra money in each paycheck has helped to:
Pay down high-interest credit card debt
Make extra car loan payments
Earn passive income in a high-yield savings account
Contribute to retirement savings
Save up for their next vacation
How to fix it
If your refund was more than a few hundred dollars, it's worth consulting with a tax professional to adjust your W-4 withholdings. You can use the extra money in your paychecks to meet your financial goals throughout the year, rather than waiting until the next tax season to get the money back.
2. You're filing under the wrong status
Your tax filing status affects your standard deduction, tax brackets and eligibility for certain credits. A common tax mistake occurs when single parents qualify as 'head of household' but file as 'single.'
Let's say you're a single mom with one child, and you earn $60,000 a year. If you select single as your filing status, your standard deduction for 2025 is $15,750 (under the Trump administration's new tax guidelines). But as head of household, your standard deduction is $23,625. The higher deduction amount reduces your tax liability and keeps more of your money in your pocket.
As a bonus, head of household filers receive a lower tax rate. Not accounting for the higher standard deduction, the single mom earning $60,000 would pay nearly $1,400 less in taxes.
How to fix it
There are five filing status options, and your choice can have a big impact on your tax burden. For example: If you're married, should you file taxes jointly or separately? You'll also have to decide whether to claim the standard deduction or itemize deductions. Check with your tax professional to ensure you are filing under the optimal status.
3. You're managing investments without a tax game plan
I see this a lot with newer investors: You get a good return on investments, so you sell them without realizing what kind of taxes you're on the hook for.
Short-term capital gains (investments held for one year or less) are taxed like regular income, with tax rates of up to 37%.
Long-term gains (held over a year) are taxed at 0%, 15% or 20%, depending on your income.
And if you have investments that have lost value, you can sell those to offset gains. It's called tax-loss harvesting, and it can seriously lower your tax bill if done right.
If you've recently been unemployed, switched jobs or taken a pay cut this year, it could be an opportunity to do a Roth conversion — moving money from a Traditional IRA or 401(k) into a Roth IRA to pay the taxes now so you don't have to pay taxes later.
Read more: How to avoid paying capital gains taxes on investments
How to fix it
Any changes in your investments can trigger a potential tax bill you weren't planning on.I don't recommend tax loss harvesting or Roth conversions without the help of a licensed financial advisor and a tax professional. I assure you that what you'll pay in expert help can save you thousands over time.A dip in income or losses in your investment can have a bright side for your taxes and your long-term investing strategy — if you move strategically.
4. You're not using tax-friendly accounts first
I've had countless clients tell me they started investing in a brokerage account because it was easy through their bank or an app, before contributing the maximum to their tax-friendly accounts first. Building savings in any high-yield vehicle builds financial resiliency, but prioritizing saving in tax-friendly accounts first can also help reduce your tax liability.
Here's why that's a big deal:
Traditional IRA or 401(k) contributions reduce how much you pay in taxes. For example, if you invest $1,000 in a traditional IRA, the income used to calculate your tax liability will be $1,000 less.
Roth IRA withdrawals are tax-free if they meet certain criteria. For example, if you invest $1,000 in a Roth IRA and that amount grows to $5,000, that entire $5,000 will not be taxed.
HSA (Health Savings Account) contributions can lower your taxes if you have a high-deductible health insurance plan (HDHP). The 'big beautiful bill' adds ACA bronze and catastrophic plans as qualified HDHPs. For example, if you invest $1,000 in an HSA, your taxable income will be lower by $1,000, and the earnings and withdrawals in the HSA will be tax-free if you use it for qualifying health expenses.
How to fix it
If you're not maxing out your retirement account before putting money in a brokerage or high-yield savings account, you're likely paying more taxes — both now and later. Consider moving the money in your brokerage account into one of these types of accounts to either save taxes now or in the future.
5. You're not claiming enough deductions for your business or side hustle
Small businesses take many forms — and in some cases, your side hustle counts as a business. Side hustlers often forget to track their expenses, which means they could be overpaying on their taxes.
For example, if you use your phone to promote your business on Instagram or answer client calls, part of your phone bill could be deductible. The same goes for things like subscriptions, mileage, office supplies and even a portion of your home, if you conduct business there.
Read more: Common tax mistakes businesses make every year
And if you're a solo entrepreneur and earning income from a side hustle or business, you can open a SEP IRA or Solo 401(k) to save for retirement and reduce your taxable income.
How to fix it
Don't be afraid to ask about all expenses if you're unsure. Whenever I incur a new expense, particularly a large one, I always consult with my tax advisor to determine whether I can deduct it.The worst-case scenario is that she'll tell me no, but I've been pleasantly surprised at how many times she's said yes!
6. You're not working with a vetted tax nerd
I love a good DIY moment, but taxes are not the time to wing it. I'm a money coach whose parents and brother were all accounting experts, and even I have never once done my taxes without consulting a tax professional.
If your situation is even slightly complex (you run a business, have investments, bought a house or had major life changes, like a birth or death), it's worth getting help.
But don't hire just anyone. Find someone who understands your specific situation. Because I run a consulting business, I needed a tax pro who actually understood my business to help me find the right deductions. Not all tax professionals are created equal, and the one that's best for you may not be right for me.
How to fix it
When shopping for a tax professional, ask for references and make sure they are knowledgeable about the latest tax code, especially since Trump's tax and spending bill passed in July 2025. The bill also ended the IRS Direct File program, which was used by more than 140,000 taxpayers in 2024 to file their federal income tax returns for free. I also encourage you to meet with your tax partner quarterly, or mid-year at a minimum, to check in on your taxes and ensure you're not caught by surprise during tax season.
Questions to ask your tax partner
You don't have to wait until tax time to clarify your tax strategy. Bring the following questions to your tax advisor during their off-season so you'll have plenty of time to create a plan if you need to make changes before filing.
Have I maxed out all the tax-advantaged accounts I'm eligible for? Double-check if you can still contribute to IRAs, HSAs, FSAs or retirement plans through your business.
Am I using the best filing status for my situation? Ask your tax professional to run scenarios under different statuses to show the difference.
What deductions or credits am I eligible for that I might be missing? Ask specifically about education credits, the saver's credit or self-employment deductions if they apply to you. Also, ask whether any of your regularly claimed deductions or tax credits are impacted by the new tax bill, and what that means for your money.
Should I adjust my withholding so I'm not overpaying during the year? If you got a big refund last year, this one's especially important.
Would a Roth conversion or tax loss harvesting make sense for me this year? If you lost money in investments, your income dropped or you expect to be in a higher bracket, this could save you money long term.
Does Trump's Big, Beautiful Bill have you feeling anxious?
With the passage of the Trump administration's so-called Big, Beautiful Bill, several popular tax breaks were axed. Proponents of the new law claim that it will reduce the tax burden for many Americans, but skeptics aren't so sure. If any of the following scenarios apply to you, your tax situation may be changing for 2025.
Paying for school for yourself or a family member
Saving for retirement
Managing student loans
Running a small business
Receiving tips as part of compensation
Receiving Medicaid benefits
With the big changes to the tax code, it's more important than ever to consult with a licensed tax professional to be sure you're claiming everything you're eligible for and meeting the requirements needed to qualify for certain tax credits.
Final thoughts: There are no bonus points for paying more than necessary
Paying taxes is a part of adulting. While you shouldn't try to pay less than your legal obligation, overpaying isn't going to help you reach your money goals faster.
Learning how to lower your tax bill is one of the smartest money moves you can make, and all the moves mentioned above were available even before the bill passed. You don't have to become a tax expert, but you do need a healthy wealth plan that includes an efficient tax strategy.
Whether you're investing for the first time, running a side hustle or trying to build generational wealth, paying the right amount of taxes frees up more of what you earn and supports your path toward financial freedom.
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