Every year around tax season, we hear a familiar reaction from clients:
“I didn’t expect my tax bill to look like this.”

Tax surprises don’t necessarily mean mistakes were made—they’re often the result of income changes, market activity, or tax rules people didn’t realize applied to them. The earlier you understand what drives these surprises, the more opportunities you have to plan ahead and reduce them in the future.

Here are some of the most common tax surprises we see early each year.

1. Higher Taxes After a Strong Market Year

A good investment year can sometimes lead to a higher tax bill—especially if there were capital gains distributions, portfolio rebalancing, or sales of appreciated assets.

Many investors focus on performance but don’t realize how market activity inside taxable accounts can impact their tax return.

The takeaway: Investment strategy and tax strategy should work together—not separately.

2. Unexpected Taxes on Side Income or Bonuses

Freelance work, consulting income, bonuses, commissions, or side hustles often don’t have enough taxes withheld upfront. The result? A larger-than-expected bill in April.

The takeaway: Additional income streams are great—but they often require proactive withholding or estimated tax planning.

3. Social Security Becoming Taxable

A common surprise is realizing that up to 85% of Social Security benefits can become taxable depending on total income.

This often happens when people:

• Start drawing retirement account withdrawals
• Earn more investment income
• Return to part-time work

The takeaway: Coordinating income sources matters more than many people expect.

4. Required Minimum Distributions (RMDs) Creating a Bigger Tax Bill

For those required to take RMDs from retirement accounts, these withdrawals can:

• Push income into a higher tax bracket
• Increase Medicare premiums
• Trigger more taxes on Social Security

The takeaway: Planning withdrawals strategically can help smooth taxes over time.

5. Losing or Phasing Out Deductions and Credits

As income grows, some deductions and credits gradually phase out—sometimes unexpectedly. This can make it feel like taxes jumped even if nothing dramatic changed.

The takeaway: A rising income is positive, but it often changes how deductions apply.

6. Underestimating the Impact of Investment Income

Dividends, interest, and capital gains can quietly increase taxable income—even if no money was “spent.”

Many people are surprised by how much passive investment income shows up on their tax return.

The takeaway: Tax efficiency matters, especially for higher-net-worth households.

7. Thinking Tax Planning Happens Only in April

One of the biggest surprises is realizing after filing that opportunities were missed—Roth conversions, timing income differently, harvesting losses, or adjusting withholding.

The takeaway: The best tax planning happens before year-end, not after.

Turning Tax Surprises Into Tax Strategy

A tax return isn’t just paperwork—it’s a valuable planning tool. Reviewing it can reveal opportunities to:

• Reduce future tax bills
• Improve investment tax efficiency
• Adjust income timing
• Align tax strategy with long-term financial goals

At Lockwood Financial Strategies, we believe proactive planning helps clients feel more confident, avoid unnecessary surprises, and make smarter decisions throughout the year—not just during tax season.

If you’ve ever been surprised by your tax bill, it may be a sign that more forward-looking planning could make a meaningful difference.

This material is provided for general and educational purposes only and is not intended as tax advice. Please consult your tax advisor for advice regarding your personal tax situation.

Philip Lockwood | Founder + Managing Partner

Address | 1501 Ingersoll Ave. Suite 201  Des Moines, IA 50309 Phone | 515-274-8006

Email | Plockwood@parklandrep.com Website | Lockwood Financial Strategies  Securities offered through Parkland Securities, LLC, member FINRA (FINRA.org) and SIPC (SIPC.org). Investment Advisory services offered through SPC, a Registered Investment Advisor. Lockwood Financial Strategies, LLC is independent of Parkland Securities, LLC and SPC