6 Signs You're Paying the IRS More Than You Should Be, Experts Warn

1 | You're not taking advantage of specific financial planning tools.

Setting yourself up for success with taxes doesn't always come down to how you choose to file. It can also involve taking the proper steps when planning your finances and organizing your money.

"If you are not utilizing tax-deferred retirement funds like 401(k) plans and regular IRAs, you can be overpaying the IRS," says Doman. "You can transfer pre-tax money to these accounts, lowering your taxable income and ultimately your tax liability. Over time, maximizing these accounts can result in significant tax savings."

2 | You regularly get a big refund.

Perhaps one of the only parts of tax season that people look forward to is the prospect of a hefty refund. Usually, this influx of cash can help balance a budget or offset other expenses. However, experts say it could also be a warning sign that you're overpaying.

"Believe it or not, a big tax refund isn't necessarily a good thing," warns Varsha Subramanian, a certified public accountant with FlyFin.tax. "If you've been getting bigger refunds than you expected, it could be because your employer is withholding more tax from your paychecks than they need to. It's always a good idea to complete a Form W-4 to ensure your employer withholds the correct federal income tax from your pay, and you're not essentially giving the IRS a loan each year that you get back when you file your taxes."

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3 | You're not taking the proper deductions for your children.

Starting a family is a serious investment of both time and money. But if you're not taking advantage of some beneficial deductions after having kids, you're likely leaving even more money on the table.

"Once your kids do go to college, don't forget to claim such educational credits as American Opportunity Tax Credit (AOTC) and a Lifetime Learning Credit (LLC)," Roxanne Hendrix, certified public accountant and tax expert with JustAnswer, tells Best Life. "The AOTC covers only the first four years of post-secondary education, while the LLC can apply all the way through grad school—and even for qualifying courses that do not lead to any kind of a degree or certificate. The biggest difference however is that AOTC is partially refundable, while LLC is nonrefundable at all, so you must have a tax liability to take advantage of it."

And there are other options for younger children, too. "If your kids go to daycare, make sure to get the EIN from the provider to claim child and dependent care credit on your federal return," she recommends.

4 | Your colleagues consistently have a lower tax bill than you.

Have a sneaking suspicion that you're overpaying? Comparing your yearly bill with others who are in the same line of employment as you can be a quick indicator that something isn't adding up.

"This situation could be because your colleagues took advantage of every possible tax deduction that they qualify for," says Subramanian. "This includes deductions you might not even know exist, like IRA contributions, the self-employment tax deduction, HSA [health savings account] deductions, student loan interest deductions, educator expenses, and likely dozens more depending on your circumstances."

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5 | You're not filing correctly as a self-employed person.

People who work for themselves tend to have more complicated financial situations than your average taxpayer. However, you still might be sending off more money than necessary without the right setup.

"If you are self-employed or the owner of a small business, you can be overpaying the IRS if your business costs are not properly tracked and deducted," cautions Doman. "These costs may include office supplies, equipment, travel, and advertising. You can lessen your taxable income and eventually your tax liability by deducting these costs."

This is especially important if work is booming. "Once a business with fewer than 100 shareholders makes over $80,000 in profits annually, it may make sense to elect as an S Corporation when filing its taxes," says Hooman Radfar, CEO and co-founder of financial planning company Collective. "This is especially true for solopreneurs. The S Corp allows a business owner to split their earnings between payroll and business profits, which eases the burden of self-employment tax and could mean thousands back."

6 | You're not paying on time.

Whether you're struggling to get your information together or just can't figure out how to organize everything, the annual tax deadline can sometimes sneak up faster than you realize. Unfortunately, missing it can quickly become a costly mistake.

"Failing to file your taxes by the deadline can have significant consequences," says Jon Sanborn, investor and co-founder of SD House Guys. "Late filing means you may owe additional penalties and interest, so make sure to stay up-to-date with tax deadlines."

Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.