11 Signs You Could Be Saving More on Your Taxes
Written by
Angela Mae Watson
Edited by
Levi Leidy
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Tax day is April 15, 2024, which means there’s not much time left before you need to file your taxes (unless you’re getting an extension). As you finish gathering your paperwork and finalizing any last-minute details, there’s one other thing you should do before filing: make sure you’re not overpaying on your taxes.
But what are the signs that you could be missing out on tax savings or paying too much on things you shouldn’t be? Here are the big ones.
You Get a Large Refund
“Getting a big refund might feel like a win, but it actually means you’ve overpaid during the year,” said Rhett Stubbendeck, CEO and founder of Leverage Planning. “It’s better to adjust your withholdings and have that money working for you sooner.”
When you get a huge refund, you’re withholding more than you should on your paychecks. Instead of that money working for you throughout the year — such as through the power of compound interest or tax-efficient investments — you’re essentially giving the IRS an interest-free loan.
You’re Not Maxing Out Retirement Contributions
“One significant indicator is [you’re] not taking full advantage of retirement accounts like IRAs or 401(k)s,” said David Blain, CFA and CEO at BlueSky Wealth Advisors. These accounts can provide tax benefits — and lower your tax burden. “If you’re not maximizing these contributions, you’re likely paying more taxes than needed.”
You’re Missing Important Tax Credits and Deductions
“One of the clearest signs that you might be missing out on tax savings is if you’re not exploring all eligible deductions and credits, especially those specific to your business industry or personal situation,” said Philip Wentworth Jr., co-founder of Rockerbox Tax Solutions.
Say, for example, you’re self-employed. It’s all too easy to overlook common deductions like your home office or vehicle expenses. But when you skip these, you’re also getting a higher tax bill.
You Aren’t Using Tax-Efficient Investment Accounts
If you’re neglecting tax-efficient investment accounts, you could be missing out on tax savings, too.
“For instance, placing high-income investments like bonds in taxable accounts while keeping equities in tax-deferred accounts can result in an inefficient tax scenario,” said Blain. Using these accounts can minimize your tax burden.
You’re Taking the Wrong Type of Deductions
When you file taxes, you have the option to take standard or itemized deductions. The standard deduction reduces your income by a fixed amount. Itemized deductions take into account all of your eligible deductions. Depending on your situation, one could save you more on taxes than the other.
“If you’re single and make payments on a mortgage, there’s a good chance you’ll itemize your deductions,” said Christian Putnam, a CPA and the owner of Augur CPA. “Review your tax return before filing to ensure that you’re taking the itemized deduction as opposed to the standard deduction.”
If you’re not a single homeowner with a mortgage, you might benefit more from taking the standard deduction. Consider your options carefully.
You’re Being Charged Based on Your Refund Amount
Be wary of any tax professional who charges you based on your refund amount.
“If a tax professional bases their fee on the amount of your refund, there’s a good chance that you’re overpaying for your tax-filing service,” said Putnam. “This suggests that they’re making things up on your return to increase your refund and, therefore, their fee.”
You’re Using an Expensive Tax-Filing Program
If you’re not taking advantage of free file programs in your state but are instead going through a service like Jackson-Hewitt or H&R Block, you could be paying more than you should. This is especially the case if you have a fairly simple financial situation and don’t need hands-on professional guidance.
That’s not to say you shouldn’t use a professional tax-filing service. You’ll just want to be strategic about it.
“Paying for expensive tax-filing services without receiving strategic tax-planning advice is a common oversight,” said Blain. “Investing in comprehensive financial planning, which includes tax optimization strategies, often yields significant long-term savings. For example, a client of ours benefited from shifting their investment advisory fees to be paid from their IRA account, which helped them preserve more of their wealth in a tax-advantaged way.”
You’re Missing Important Deadlines
Deadlines matter. If you aren’t maximizing your retirement account contributions for the year, you could be missing out on some serious savings. And if you file late, you could be penalized.
Plan ahead and get organized early to avoid missing important deadlines and getting charged more than you should.
You’re Using the Wrong IRS Forms
Are you using the wrong forms when you file? If so, you could be overpaying on your taxes. Make sure you’re using the correct forms and providing accurate information so as to keep your tax bill as low as possible.
You Approach Taxes Like a Chore
If you approach your taxes like an annual chore you need to get over with, rather than as an ongoing strategy to optimize your financial health, you could be overlooking tax savings.
“In my work at Rockerbox, we’ve guided clients through the benefits of structuring their business operations in a way that aligns with tax-efficient strategies, such as selecting the appropriate business structure (S-Corp, LLC, etc.) that best suits their financial goals and reduces their tax liability,” said Wentworth. “Business owners who aren’t regularly consulting with a tax professional to adjust their strategies throughout the year are likely paying more than necessary.”
You’re Missing Important Tax Law Changes
It’s hard to keep track of tax laws if you’re not a legal or tax professional, but you could be missing out on major changes that could be saving you money.
“Tax laws shift, and if you’re not on the ball, you could miss new savings opportunities,” said Stubbendeck. “We’ve seen people overlook deductions for energy-saving home improvements because they weren’t up to date.”
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