4 Ways To Minimize Your Tax Refund and Save Money Next Year

Many Americans look forward to receiving a tax refund, but a large one often means they’ve given the government an interest-free loan all year.

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Instead, taxpayers can adjust their financial strategy to keep more of their money in each paycheck — without risking a big tax bill the following spring.

From adjusting withholdings to making accurate estimated payments, here are four smart ways to minimize your tax refund and hold on to more of your income throughout the year.

Taxpayers can use the IRS Tax Withholding Estimator to ensure that the right amount is withheld from their paychecks.

“Most people fill out their W-4 once and never touch it again,” said Carlos Ruiz, founder and principal advisor at Pivot Wealth Advisors. “But that’s a mistake. Adjusting it to reflect your real life — mortgage interest, student loans or charitable donations — can shrink your refund and boost your take-home pay.”

Individuals who consistently receive large refunds may want to update their withholdings to avoid overpaying throughout the year.

“If you are getting a $10,000 refund, it basically means you are over withholding by over $800 per month,” said Ashley Morgan, a debt and bankruptcy lawyer. “If your income is fairly consistent, then you could adjust your W-4 with your employer to take out less money each pay period to prevent getting a huge refund.”

Morgan also noted that a significant life change could warrant a withholding adjustment.

“For example, if you get a large raise or promotion, then you could be under withholding,” Morgan said. “Similarly, if you work a gig job or get a second job, even for a few months, it can noticeably change your tax balances.”

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Morgan emphasized the importance of understanding your tax refund, since it reveals how much you’ve paid the IRS during the year.

“At the end of the day, even if you use a preparer, you are responsible for what your tax return says,” Morgan said. “If you are getting a refund, you should understand why.”

For example, if your refund is due to over withholding, you can adjust for the following year. But if your refund stems from a credit — like the Child Tax Credit — and your child is turning 18, that benefit may no longer apply.

“Similarly, if your large refund is due to a one-time situation, like electrical vehicle credits or significant health care expenses from an illness, then adjusting withholding does not make sense,” Morgan said.