The scene
The scene
Oscar set up his tax deductions when he started his current job three years ago. At the time, he was renting an apartment, had no dependents, and worked at the office five days a week.
Since then, his situation has changed twice. He bought a property a year ago (which created deductible expenses he could be claiming). He started working from home two days a week eight months ago (which added home-office expenses he could be claiming, depending on his country's tax rules). He has not updated his deductions to reflect either change.
The result: every paycheck for the last year has had slightly too much tax withheld. The "extra" tax will come back as a refund at the end of the financial year, but in the meantime it is sitting with the tax office instead of in Oscar's account where he could use it (or, in a savings account where it could be earning interest).
More importantly, Oscar is not aware of all the deductions he is entitled to claim. He files using the same template he used three years ago. New categories of deduction that became applicable when his situation changed are not on his template. Some of them may be applicable to his current situation. He has not checked.
The cost is not dramatic in any single year. Over five years, the cost compounds. And it is not just the money. It is also that Oscar has never sat down to understand his own tax situation, which means every year he is making the same uninformed decisions about the same questions.
What your brain just did
What your brain just did
Our minds treat tax as a topic that we cannot influence and therefore do not need to understand, even when small changes in understanding produce real money. Oscar is not careless. His brain ran the standard avoidance calculation that all our brains run when the topic is technical, the language is intimidating, and the consequences feel small per year, the way all our brains do when "I should look at this" gets postponed indefinitely. This behaviour has a name: Status Quo Bias combined with Ostrich Effect.
What to do instead, in one move
What to do instead, in one move
The skill is one hour, once a year, ideally before the end of the financial year in your country. Open the tax authority's website. Look at the list of deductible categories. Match each against your situation. The first time, it takes an hour. After that, it is half an hour annually. The savings, even if modest per year, compound over your working life.
TL;DR
- Situation: Your tax situation has changed (new property, new work arrangement, new dependents, new expenses) but you have not updated your deductions or your understanding of what you can claim.
- What your mind does: It avoids the topic because it feels technical, intimidating, and slow to repay (this is called Status Quo + Ostrich Effect, see below).
- Consequence: Money is withheld unnecessarily each pay period, and deductions you are entitled to claim go unclaimed at tax time.
- What to do: Set aside one hour annually to review your tax situation against the tax authority's list of deductible categories. The first time takes longer. Each year after is faster.
What to do
- Set a recurring annual calendar reminder for two to three months before your tax year ends. The reminder is "review tax deductions for current year".
- Visit your country's tax authority website. Look at the list of deductible categories that apply to individuals. Match each category against your current situation.
- For categories where you are unsure whether you qualify, consult a registered tax agent or accountant. The cost of one consultation is usually a small fraction of the deductions they identify.
- Keep a simple file (a folder, a spreadsheet, an app) for receipts and records during the year. The file makes the annual review take minutes instead of days.
- For larger situations (multiple properties, businesses, complex investments), an ongoing relationship with a tax professional is usually worth the cost.
What not to do
- Do not assume your situation has not changed. Most people's tax situations change every year in small ways.
- Do not file using the same template year after year without checking. The template was right for the year you set it up, not necessarily for now.
- Do not avoid the topic because it feels technical. The categories are usually plain language. The mechanics are not as complicated as they look.
A tax return is not a form to fill out. It is the annual conversation with the tax system that determines how much of your salary you actually keep.
Want to understand why this happens?
Status Quo Bias combined with Ostrich Effect produces a particularly stable form of avoidance. Status Quo handles the inertia (the current setup is the current setup, and changing it requires effort). Ostrich Effect handles the avoidance of the underlying topic (tax is technical and intimidating, so we do not look at it).
The combination is powerful. Each year, the topic arrives. Each year, the brain finds reasons to defer ("I do not have time right now", "the deductions are probably small", "I will look at this next year when things are clearer"). The deferral continues. The deductions stay unclaimed. The pattern persists for years.
The brain treats tax as adversarial. The tax authority is on the other side, and engaging with the topic feels like potentially making things worse. In practice, the tax authority publishes the deductions specifically so that people can claim them. The deductions exist because the law has decided that those categories should be deductible. Not claiming them is the same as paying tax that the law has said you do not have to pay.
What the research found
Studies on tax compliance and deduction claims have consistently found that a significant portion of eligible deductions go unclaimed. The unclaimed amounts vary by country and category, but the pattern is robust: many people do not claim deductions they are entitled to, even when the claiming process is straightforward.
The reasons are not financial. The same people who would happily save the equivalent amount through better grocery shopping or lower utility bills do not claim equivalent amounts through tax deductions. The difference is psychological. The deductions feel like they require expertise, attention, and engagement with a topic that the brain has filed under "intimidating and not for me".
Research on tax avoidance behaviour (not in the legal sense of evasion, but in the psychological sense of avoiding the topic) has documented the Ostrich Effect specifically. People delay opening tax documents, delay reading tax notices, and delay starting their annual return, even when the delay produces worse outcomes.
The fix is to interrupt the avoidance with a structured annual review. One hour, once a year, before the financial year ends. The review is not pleasant. The financial outcome is.
"We avoid the information that feels hardest, even when the avoidance has its own costs that compound over time." — Karlsson, Loewenstein and Seppi (paraphrased from The Ostrich Effect, 2009)
This is called Status Quo Bias combined with Ostrich Effect. Samuelson and Zeckhauser, Journal of Risk and Uncertainty (1988), and Karlsson, Loewenstein and Seppi, Journal of Risk and Uncertainty (2009).
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