Think filing taxes as a W-2 employee is simple? Not so fast. Even if you’re getting a steady paycheck with taxes automatically withheld, there’s a good chance you’re overpaying the IRS without realizing it.
Most employees assume their taxes are on autopilot but tax laws are not designed to work in your favor unless you know how to use them. Let’s break down the six most common tax mistakes W-2 earners make and how you can keep more of your money where it belongs.
1. Thinking You Can Still Deduct Work Expenses
Once upon a time, W-2 employees could write off things like work-related travel, home office costs, and professional development expenses. Then came the Tax Cuts and Jobs Act (TCJA), which eliminated these deductions for most employees.
How to fix it: Unless you’re self-employed, those deductions are gone. Your best bet? Negotiate with your employer to cover these costs or consider starting a side business that lets you legally claim them. A small business CPA in Austin can help you set this up the right way.
2. Not Adjusting Your Withholding After Major Life Events
Marriage, kids, buying a home, getting a raise… all great things. But if you don’t adjust your W-4 withholding after a big life change, you could get hit with a surprise tax bill.
How to fix it: Any time your income or household situation changes, update your W-4 using the IRS calculator or check in with a CPA in Austin, Texas to make sure you’re withholding the right amount.
3. Missing Out on Retirement Contribution Strategies
You’re putting money into your company’s 401(k)—great. But if you’re only contributing up to the employer match, you’re leaving tax savings on the table.
How to fix it: Consider increasing your 401(k), Traditional IRA, or Roth IRA contributions to lower your taxable income and build long-term wealth. Not sure which one is right for you? A tax advisor in Austin can break it down based on your financial goals.
4. Failing to Take Advantage of HSA & FSA Tax Savings
If your employer offers a Health Savings Account (HSA) or Flexible Spending Account (FSA), and you’re not using it, you’re missing out on one of the best tax-free ways to cover medical expenses.
How to fix it: HSAs offer a triple tax advantage—contributions, growth, and withdrawals (for qualified expenses) are all tax-free. FSAs reduce taxable income but require you to use the funds within the year. Need help maximizing these benefits? A CPA firm in Austin, Texas can guide you.
5. Overpaying Taxes by Not Itemizing Deductions Correctly
Many W-2 employees default to the standard deduction because it’s easy. But if you own a home, donate to charity, or have large medical expenses, itemizing could save you more.
How to fix it: Work with a trusted Austin tax accountant to compare your standard deduction vs. itemizing. Homeowners, high-income earners, and anyone with significant deductions should run the numbers.
6. Ignoring Potential Side Hustle Deductions
Your side hustle is taking off—congrats. But if you’re not tracking expenses properly, you’re probably overpaying in taxes. Unlike W-2 income, self-employment income allows for deductions that can dramatically reduce what you owe.
How to fix it: Keep records of all business-related expenses (software, home office, marketing, etc.), and work with a small business CPA in Austin to ensure you’re maximizing deductions while staying compliant.
Stop Overpaying the IRS and Get a Tax Strategy That Works for You
Just because you’re a W-2 employee doesn’t mean you should settle for overpaying in taxes. The right strategy can put more money back in your pocket.
At Insogna CPA, we help professionals and business owners optimize tax savings and avoid costly mistakes. Whether you need help with withholding adjustments, tax deductions, or retirement planning, our Austin accounting service is here to help.
Let’s make sure you’re keeping more of what you earn. Schedule a consultation today with Insogna CPA, your trusted Austin tax accountant...