Overview
Paying taxes is part of life. But you don’t have to pay more than you legally owe. Many people overpay simply because they don’t realize there’s a more efficient way to approach their tax situation. The rules are complicated, and without regular, ongoing planning and professional advice, it’s easy to miss opportunities that could keep more money in your pocket.
Key Takeaways:
A large tax refund could mean you had too much tax withheld from your paycheck throughout the year.
Year-round tax planning is especially beneficial if you have business income, rental properties, or investments.
Using the wrong filing status or skipping tax-advantaged accounts can increase your tax bill without you realizing it.
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6 Signs You’re Paying Too Much in Taxes
If you’ve ever wondered whether you’re overpaying, look out for these six signs.
1. A large tax refund feels like a win every year
Receiving a large tax refund can feel like a welcome windfall. But it’s usually a sign that you paid too much tax throughout the year. When you have extra tax withheld from your paycheck (or make larger-than-necessary quarterly estimated payments), you’re essentially giving the federal government an interest-free loan.
Rather than anxiously awaiting big refunds every tax season, adjust your withholding or estimated payments to keep more of your money working for you month by month.
2. You own a business, rental property, or investments, and only think about taxes at filing time
Some people have simple tax returns. All or most of their income comes from a W-2 job, and they claim the standard deduction or have a handful of other deductions, like home mortgage interest, property taxes, and charitable contributions. For simple situations, thinking about taxes once a year might be enough.
But if you have a business, rental properties, or investments, and only think about taxes when it’s time to file, you may miss out on opportunities to reduce what you owe.
Many tax-saving strategies depend on timing. For example, holding an investment longer than one year allows you to pay a lower capital gains tax rate on any gains generated from selling the investment.
In a business or rental property, you may be able to time the receipt of income or the payment of expenses or take advantage of bonus depreciation to lower your tax burden.
But waiting until the year is over means fewer options. You’ll likely have a better outcome when you engage in ongoing tax planning throughout the year with advice from an experienced tax professional.
3. You take required minimum distributions and make charitable donations
Once you reach age 73, you generally have to start taking required minimum distributions (RMDs) from your retirement accounts, including traditional IRAs, SEP IRAs, SIMPLE IRAs, and workplace retirement plans.
But if you withdraw funds from your IRA to satisfy an RMD and then write checks to charity, you may be increasing your taxable income unnecessarily.
A qualified charitable distribution (QCD) allows people age 70.5 and older to transfer up to $108,000 annually from their IRA directly to a qualified charity. This transfer counts towards your RMD, but it doesn’t count as taxable income on your return.
Just keep in mind that the money must go directly from your IRA custodian to the charity, and the charity must be IRS-approved. You can check the status of the charity using the IRS’s Tax-Exempt Organization Search tool.
4. You don’t use tax-advantaged accounts to their full potential
Tax-advantaged accounts exist to encourage saving for retirement, healthcare, and education. Yet many people don’t take full advantage of them.
Here are a few ways to make sure you’re getting all of the tax benefits available to you:
Max out your employer-sponsored retirement contributions. For 2025, you can contribute up to $23,500 to a 401(k). If you’re age 50 or older, you can contribute up to $31,000, or $34,750 if you’re age 60 to 63. Pre-tax contributions to these accounts lower your current taxable income, and growth in the account is tax-deferred until you start pulling money from the account in retirement.
Fund your health savings account (HSA). An HSA lets people with a high-deductible health plan set aside money to cover out-of-pocket medical expenses. HSAs offer triple tax benefits: tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses, including deductibles, copays, and prescriptions. For 2025, you can contribute up to $4,300 for self-only coverage or $8,550 for a family.
Place investments wisely. If you have a combination of tax-advantaged accounts (401(k)s and IRAs) and taxable investment accounts, where you hold investments matters. You’ll benefit from tax-deferred growth when you have investments that generate ordinary income, like bonds, actively managed mutual funds, and real estate investment trusts (REITs) in a tax-advantaged account. Taxable brokerage accounts are a better fit for investments that generate long-term capital gains or tax-exempt interest.
Save for education with a 529 plan. A 529 plan is a tax-advantaged way to save for education. While contributions to the plan aren’t deductible on your federal income tax return, these accounts offer tax-free growth and tax-free withdrawals as long as you use the money for qualified expenses like tuition, books, room, and board. You can also use up to $10,000 annually to pay for elementary or secondary tuition at a public, private, or religious school. In 2026, that limit increases to $20,000. Many states offer tax deductions or tax credits for contributions to certain plans, so check with your state plan or your tax advisor.
Skipping these accounts may mean paying more tax than necessary, either now or in the future.
5. You use the wrong filing status
Filing status plays a bigger role in your tax bill than you may realize. It affects everything from tax brackets to deductions and eligibility for certain tax credits.
There are five filing statuses to choose from:
Single: For unmarried, divorced, or legally separated individuals
Married Filing Jointly: For married couples
Married Filing Separately: For married couples who want to file separate returns for legal or tax purposes
Head of Household: For unmarried individuals who paid more than half the cost to keep up a home for a qualifying person, like a child or dependent relative
Qualifying Widow(er): For a taxpayer whose spouse dies within the previous two years, with a dependent child
In some cases, more than one filing status may apply to your situation, and choosing the wrong one can mean overpaying your taxes.
For example, you may file as Single even though you qualify for Head of Household because you pay more than half the cost of maintaining a home for a qualifying dependent. Head of Household status comes with a higher standard deduction and more favorable tax brackets, which can reduce your tax bill without changing anything else on your return.
Another situation involves married couples who file separately without a real tax or legal reason for doing so. Filing separately makes sense in some situations, such as when one spouse wants to shield their income from the other’s tax debts. But it also disqualifies or restricts access to valuable tax benefits, including education credits and the student loan interest deduction. In many cases, filing jointly results in a lower tax bill.
Review your tax filing status regularly and after major life events to ensure you’re not paying more than necessary simply because you’re using the wrong category. If you’re not sure which filing status applies to your situation, use the IRS’s What is my filing status? tool.
6. You spend money just to “save on taxes”
This last sign is more about overspending elsewhere than overpaying taxes, but it’s crucial to understand that spending money purely for a tax deduction is rarely a good financial strategy.
While deductions reduce your taxable income, they won’t reimburse the full amount spent.
For example, say you buy a piece of equipment for your business that costs $1,000. Assuming you’re in the 24 percent tax bracket, that purchase saves you around $240 in taxes. If you actually need the equipment, the tax write-off is a nice bonus.
However, if you bought the equipment only to lower your tax bill, you would be better off keeping your $1,000. Otherwise, you’re paying more out of pocket than you save in taxes.
Make financial decisions based on your actual needs and goals. When the tax benefits support smart financial choices, you’re far less likely to overpay in the long run.
Paying Less Starts with Paying Attention
Overpaying taxes is usually about missing opportunities and making misinformed decisions year after year. The good news is that these issues are fixable with awareness and a little advanced planning. A qualified tax professional can review your situation and make recommendations about your withholding, and other tax-saving strategies can open up options you might not be aware of.
If any of these signs felt familiar, consider it an invitation to take a closer look at your tax situation. Paying taxes is unavoidable, but paying more than necessary doesn’t have to be.
Level up you tax filing game with TaxSlayer
File your taxes with TaxSlayer and get your maximum refund.
by your friends at The Daily Navigator
