Navigating Tax Season Surprises: What to Do When Your Refund Isn’t What You Expected

By Gregory A. Miller, CPA/PFS, CVA 

Tax season can bring unexpected outcomes—sometimes pleasant, sometimes frustrating. If your tax refund wasn’t quite what you had anticipated, it’s essential to understand why and how you can better prepare for the future. A proactive approach to tax planning can help reduce surprises and maximize financial opportunities. Whether your refund was larger or smaller than expected, here’s how to make the most of it and set yourself up for success next year.

When Your Refund Is Larger Than Expected

Getting a bigger refund than you planned for might feel like a bonus, but it could also indicate that too much was withheld from your paycheck throughout the year. Rather than treating it as extra spending money, consider these smart financial moves:

• Strengthen Your Emergency Fund – If you don’t already have three to six months’ worth of living expenses saved, this is a great opportunity to bolster your financial safety net.

• Tackle High-Interest Debt – Paying down credit cards, personal loans, or other high-interest debt can help you reduce financial stress and free up more cash flow over time.

• Invest for the Future – Consider contributing to a retirement account like an IRA or Roth IRA, or explore investment options that align with your long-term goals.

• Take Advantage of Tax-Advantaged Accounts – Contributing to accounts like a Health Savings Account (HSA) or a 529 college savings plan can offer potential tax benefits while preparing for future expenses.

• Adjust Your Withholding – If your refund was significantly larger than expected, you may want to update your W-4 form with your employer to keep more of your earnings throughout the year rather than giving the IRS an interest-free loan.

When Your Refund Is Smaller Than Expected

If your refund was less than you expected—or if you unexpectedly owe money—don’t panic. Instead, use it as an opportunity to refine your tax planning strategy:

• Reassess Your Withholding – A lower-than-expected refund (or an unexpected tax bill) could mean you need to adjust the amount withheld from your paycheck or consider making estimated tax payments throughout the year.

• Review Changes to Your Tax Situation – Factors such as increased income, job changes, investment gains, or shifts in deductions and credits can impact your tax liability. Evaluating these changes can help you plan more effectively for next year.

• Maximize Contributions to Tax-Advantaged Accounts – If you haven’t already, consider contributing to retirement accounts like a 401(k) or HSA to lower your taxable income and potentially reduce your tax bill in the future.

• Consult with a Financial and Tax Professional – Working with a financial advisor and CPA can help you develop a tax-efficient strategy that aligns with your overall financial goals and helps ensure you’re not caught off guard in the future.

Why Year-Round Tax Planning Matters

Taxes are an integral part of your financial picture, not just a once-a-year event. A thoughtful tax strategy can help you minimize liabilities and take advantage of opportunities throughout the year. From tax-efficient investing to strategic retirement withdrawals, proactive planning makes a difference.

At Davie Kaplan, we understand that financial success goes beyond tax season. If your tax outcome this year wasn’t what you expected, let’s discuss how we can refine your financial plan to optimize your tax situation all year long.

The strategies mentioned may not be appropriate for all investors. Please consult your tax and or financial advisors to determine a strategy that works best for you. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Past performance is not a guarantee of future results.