Maximize Your Tax Refund: Smart Ways to Pay Less in Taxes

Tax season often raises one big question: how much will you get back? But a tax refund reflects how much you paid in throughout the year versus what you actually owed. Understanding how tax refunds work can help you lower your taxable income, maximize your refund when it makes sense, and avoid surprises. Below, we’ll cover ways to boost your refund, the pros and cons of large refunds, and what to do if you receive one.

3 Ways to Maximize Your Tax Refund

While there’s nothing you can do to drastically boost your return or eliminate a tax bill, there are a few steps you can take that will move the needle, and with this persistent inflation, every bit can help.

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1. Contribute to a Traditional IRA

You have until the tax-filing date of April 15, 2026, to make contributions to a Traditional IRA for tax year 2025. You can contribute up to $7,500 for the year (add an extra $1,100 in catch-up contributions if you’re over 50). These contributions can be deducted from your taxable income, but the full amount depends on your modified adjusted gross income (MAGI) and whether you have an employer-sponsored retirement plan.

2. Max out Your Health Savings Account (HSA)

This might not be an option for everyone, but if you can, try to max out your HSA. If you opened an account and were covered by an HSA-eligible health plan in 2025, you can make these contributions. Like your IRA, you have until the April tax-filing deadline to make contributions to an HSA (up to $4,400 for those on an individual plan and $8,750 for those on a family plan, plus an extra $1,000 in catch-up contributions for those over 55), and like your IRA, these contributions are not counted as part of your taxable income.

3. Miscellaneous Tax Credits

Several tax credits and deductions remain available for the 2025 tax year to help reduce your overall tax bill. For example, if you bought a new electric vehicle on or before September 30, 2025, you may qualify for a $7,500 tax credit as part of the Inflation Reduction Act. If you purchased a qualifying used electric vehicle on or before September 30, 2025, you may be eligible for a tax credit of up to $4,000.

Additionally, if you use clean, renewable energy in your home, you can qualify for Residential Energy Credits. A full list of tax credits and deductions can be found here.

The Pros and Cons of Tax Refunds

Those of you who are seeing money coming back might feel like the lucky ones, but that may not be the case. While it may feel like you’re being handed free money, there are downsides to that springtime pick-me-up.

The Pros

Who doesn’t like having a little extra spending money? Whether you’re getting hundreds or thousands in your refund, receiving a tax refund can provide added financial flexibility. While you’re free to use that money however you choose—whether that’s a new purchase or a vacation—a refund can also be an opportunity to put extra dollars toward your broader financial plan.

A tax refund may allow you to make progress on financial goals that can be harder to tackle month to month. Some people choose to use their refund to add to savings, make extra contributions to investment accounts, or reduce existing debt—all of which can strengthen their overall financial picture.

In addition, a refund can provide a sense of financial breathing room. Having a lump sum of cash on hand may make it easier to plan ahead for or absorb upcoming expenses without disrupting your regular budget.

The Cons

Tax returns aren’t gifts. They’re refunds you get because the IRS withdrew too much from your paychecks or had withdrawals from other investment accounts. While it may seem like a great thing to have a tax return come each April, you pay for it the other 11 months of the year. When you get a refund from the government, it comes in the exact amount they owe you, without interest for holding it for the last 12 months. If you more accurately reported your withholdings and kept that money each month, you could then invest it and have been earning interest on those dollars the whole time.

Additionally, if you don’t have pressing needs or bills to pay, you may be tempted to spend that money immediately. If you’re prone to this kind of behavior, it might be smart to utilize the direct deposit option to drop that money into a savings account where you may be less tempted to spend it.

What to Do If You Receive a Large Tax Refund

If you receive a large tax refund, it can feel like a financial win—but it’s also an opportunity to take a closer look at your overall tax strategy. A big refund often means you overpaid taxes during the year, which may be worth adjusting going forward.

In the short term, consider using a large refund intentionally—such as building an emergency fund, paying down high-interest debt, or contributing to tax-advantaged accounts. Over time, adjusting your tax withholding or working with a tax professional can help ensure more of your money stays in your paycheck throughout the year.

Tax Refund FAQs

Why is receiving a large tax refund sometimes a bad thing?

A large tax refund often means you overpaid taxes throughout the year, giving the IRS an interest-free loan. While a refund can feel like a bonus, it may also mean you had less take-home pay during the year than necessary.

Why is my tax refund so low?

Your tax refund may be smaller due to changes in income, tax credits, withholding amounts, or life events like a new job or fewer deductions. Smaller refunds don’t always mean you paid more in taxes—they can also mean your withholding was more accurate.

How does a tax refund work?

A tax refund is the difference between how much tax you paid during the year and how much you actually owed. If you paid more than required, you receive a refund; if you paid less, you may owe the IRS.

How can I increase my tax refund next year?

You may be able to increase your refund by adjusting your tax withholding, contributing to tax-advantaged accounts like IRAs or HSAs, and claiming eligible tax credits and deductions. Connect with a tax professional to help identify opportunities to reduce your taxable income and plan ahead for the year.

Can I adjust my paycheck to get less taken out in taxes?

Yes. You can update your Form W-4 with your employer to better match your tax withholding to what you actually owe, which can reduce over-withholding and increase your take-home pay.

Content in this material is for general information only and is not intended to provide individualized tax or legal advice. Discuss your specific situation with a qualified tax or legal professional.

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