Give Yourself A Gift Instead of Uncle Sam: 18 Smart Tax Tips
Taxes drain your paycheck faster than a bad investment. Most people assume there’s nothing to do but accept it, but that’s exactly how the IRS wants you to think. The tax code is complicated, but it’s full of opportunities for those who take the time to use them.
A recent National Tax Literacy Poll found that 61% of people don’t understand basic tax concepts. That means most taxpayers are leaving money on the table, simply because they don’t know what deductions, credits, and strategies exist.
This guide breaks down 18 ways to legally lower your tax bill, covering retirement contributions to deductions most people miss. No gimmicks. Just straightforward strategies that work.
Every financial situation is different. Before making big tax moves, talk to a professional who can make sure these strategies work for you and help you save as much as possible.
Table of Contents
Max Out Contributions to Retirement Accounts
Most people like the idea of free money, but a shocking number don’t take full advantage of it. Contributing to a 401(k) or IRA not only builds future wealth but also slashes taxable income.
The government rewards people for saving for retirement, offering tax-deferred growth and, in some cases, immediate deductions. In 2024, you can stash away $23,000 in a 401(k) or up to $30,500 if you’re 50 or older.
IRA contributions cap at $7,000 ($8,000 if 50+), and depending on income, you might get a tax break. Not putting in at least what your employer matches is basically lighting money on fire.
Even if maxing out isn’t possible, bumping contributions just a little makes a difference. Every dollar put into these accounts is a dollar that isn’t getting taxed this year.
Should I Max Out My 401k? A CFA Who Retired Young Answers
Utilize Tax Loss Harvesting
Losing money in the market stings, but at least you can turn those losses into tax savings. Tax loss harvesting is a strategy where you sell investments that have dropped in value to offset gains on other investments.
If you still have losses after offsetting all of your gains, then the IRS lets you write off up to $3,000 in losses against regular income. Anything over that carries forward to future years.
If you reinvest, you’ll need to sidestep the wash sale rule, which prevents rebuying the same asset within 30 days.
This move can significantly reduce what you owe and keep your investments working for you, even in a down market. Smart investors know that even losses can be leveraged to their advantage.
20 Basic Tax Rules Most People Get Wrong
Defer Your Bonus
If you’re set to receive a hefty year-end bonus, consider delaying it until the following tax year if your employer allows it. Pushing income into the next tax year can make a big difference, especially if it keeps you in a lower tax bracket.
This strategy works best when you expect to earn less in the following year, either due to a job change, planned time off, or increased deductions. Timing matters when it comes to taxes, and shifting income even slightly can mean keeping more of it.
If deferring isn’t an option, looking for other deductions to offset the extra income is a smart next step. Bonuses are great, but they’re even better when they don’t come with an unnecessary tax hit.
🙋♂️If this is interesting, follow DadisFIRE on MSN, then hit like to see more articles on financial freedom, personal finance, and smart money moves.💪
Maximize Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)
Medical expenses are inevitable, but paying full price with post-tax dollars is optional. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) let you set aside pre-tax money for medical costs, reducing your taxable income in the process.
The HSA contribution limit for 2024 is $4,150 for individuals and $8,300 for families, with an extra $1,000 catch-up for those over 55. FSAs operate differently, requiring funds to be used within the plan year, but they still offer tax savings on eligible expenses.
Unlike an FSA, an HSA stays with you for life, functioning as a long-term, tax-advantaged health fund. If an HSA is available, skipping it is like saying no to free tax savings.
Don’t Let the IRS Take More Than They Should: 15 Smart Tax Moves W2 Workers Can Use
Contribute to a 529 Plan for Education Savings
If paying for college is on the horizon, a 529 plan can provide serious tax benefits. Contributions grow tax-free and withdrawals for qualified education expenses like tuition, books, and room & board aren’t taxed either.
Many states also offer tax deductions or credits for contributing to a plan, making it a double win. Even if kids aren’t college-bound, recent changes allow 529 funds to be rolled into Roth IRAs under specific conditions.
The flexibility and tax perks make these plans one of the best ways to save for education without Uncle Sam taking a cut.
15 Myths About 529 Plans That Stop Parents (and Grandparents) From Using Them Right
Convert Traditional IRA to a Roth IRA in a Low-Income Year
Most people assume once money is in a retirement account, it’s stuck in that tax category forever. Not true. A Roth conversion lets you move money from a Traditional IRA or 401(k) into a Roth IRA, paying taxes now so future withdrawals are tax-free.
This strategy is especially smart in years where income is lower than usual, like during a job transition or early retirement. The market also plays a role, if investments are down, converting at a lower value means paying less tax on the transfer.
There’s a tradeoff since converted funds count as taxable income, but if done right, the long-term tax savings outweigh the upfront hit. Retirement accounts are powerful tools, and the way they’re structured can make a huge difference down the road.
Why a Roth IRA Isn’t Always the Best Choice: A Campfire Conversation
Take Advantage of the Standard or Itemized Deduction
Most people automatically take the standard deduction, but for those with significant deductible expenses, itemizing might be the better move. For 2024, the standard deduction is $14,600 for singles and $29,200 for married couples filing jointly.
If mortgage interest, medical expenses, state taxes, or charitable contributions exceed those amounts, itemizing could lead to lower taxable income.
The key is knowing which option benefits you more, and tax software or a professional can help sort that out. It’s not about playing the system, it’s about making sure the system doesn’t play you.
23 Simple Tax Deductions That Can Save You Big Without Itemizing
Donate to Charity (and Use a Donor-Advised Fund if Needed)
Giving to charity isn’t just good for the soul, it’s good for your taxes too. Donations to qualified organizations reduce taxable income, but only for those who itemize.
If total deductions don’t exceed the standard amount, a donor-advised fund (DAF) can be a smart workaround. This account allows lumping multiple years of donations into one, pushing deductions high enough to itemize, while still spreading out donations over time.
This strategy works well for those who give regularly but wouldn’t otherwise hit the itemizing threshold. Just make sure to keep records, because the IRS won’t take your word for it.
Related Video: 13 Common Habits Of Millionaires: You Can Do These Too
Take Advantage of the Child Tax Credit
Parents get a tax break just for raising the next generation of taxpayers. The Child Tax Credit is worth up to $2,000 per child under 17, with up to $1,600 refundable for those who qualify.
This means even if no taxes are owed, a portion of the credit still comes back as a refund. Income limits apply, phasing out for individuals earning over $200,000 and married couples over $400,000.
Unlike some deductions that only benefit high earners, this credit helps middle-class families keep more money in their pockets. For those with dependents in college, the Credit for Other Dependents offers up to $500 per qualifying individual.
Raising Kids Does Not Need To Be Expensive: 19 Money Mistakes Parents Should Avoid
Claim the Earned Income Tax Credit (EITC)
Hardworking individuals earning below a certain level qualify for the Earned Income Tax Credit (EITC), a benefit designed to reduce taxes and boost refunds. Depending on income and number of children, the credit can be worth up to $7,430.
Many eligible taxpayers don’t claim it, leaving thousands of dollars on the table. The IRS adjusts income limits annually, so even those who didn’t qualify before should check again.
The credit is refundable, meaning if it exceeds tax liability, the remaining amount is issued as a refund. Even those without kids might qualify, though the credit is lower.
Avoid Tax Trouble: 18 Common Audit Triggers That Could Land You on the IRS Watchlist
Deduct Business Expenses if Self-Employed
Running a business? That means plenty of tax-saving opportunities. Business owners can deduct expenses like home office costs, internet and phone bills, business mileage, and equipment purchases.
Even travel and meals count, as long as they’re work-related. The key is keeping solid records. The IRS isn’t handing out deductions to those who can’t prove them.
The home office deduction allows writing off a percentage of rent or mortgage based on office space used exclusively for work. Maximizing deductions isn’t a loophole, it’s using the rules as intended.
🙋♂️If you like what you are reading, subscribe to the DadisFIRE newsletter and follow DadisFIRE on YouTube.💪
Contribute to a SEP-IRA or Solo 401(k) if Self-Employed
Traditional employees get tax breaks for contributing to a 401(k), and self-employed individuals can do the same through a SEP-IRA or Solo 401(k). These accounts allow much higher contributions than standard IRAs.
A SEP-IRA permits saving up to 25% of net self-employment income, capped at $69,000 in 2024. A Solo 401(k) works similarly but allows both employee and employer contributions, increasing the tax benefit.
Tax-deferred growth means money compounds faster, and contributions reduce taxable income immediately. Those working for themselves should take full advantage of these options.
Related Video: The Top Mistakes People Make with Their 401ks and How to Avoid Them
Write Off Mortgage Interest
Homeowners get a tax break just for having a mortgage. Interest on loans up to $750,000 is deductible for those who itemize, which can lead to significant tax savings. Home equity loan interest can also qualify, but only if funds were used for home improvements.
This deduction phases out at higher income levels, but for many, it remains one of the largest tax breaks available. Refinancing or paying off a mortgage early might change eligibility, so checking updated guidelines each year is essential.
Owning a home comes with plenty of expenses, at least this one puts money back in the pocket.
Is An Adjustable Rate Mortgage a Good Idea?
Take Advantage of the Home Office Deduction
Working from home? That could mean tax savings. The home office deduction allows writing off a portion of rent, mortgage, utilities, and other costs, based on square footage used exclusively for business.
The simplified option offers a flat $5 per square foot, up to 300 square feet ($1,500 max). The detailed option requires more paperwork but can lead to a bigger deduction.
This is only for self-employed individuals, W-2 employees working remotely don’t qualify. It’s one of the most misunderstood deductions, but for those who qualify, it’s a valuable tax break.
Deduct Student Loan Interest
Student loans can be a financial burden, but the interest paid may lead to tax savings. Borrowers can deduct up to $2,500 of student loan interest paid annually, even if they choose to take the standard deduction.
Income limits apply. For single filers, the deduction is phased out with a modified adjusted gross income (MAGI) between $80,000 and $95,000 and is completely eliminated if the MAGI is $95,000 or more.
For married couples filing jointly, the deduction is reduced if the MAGI is more than $165,000 and is completely eliminated if the MAGI is $195,000 or more.
Since payments typically include both principal and interest, reviewing loan statements ensures the right amount is deducted. This deduction doesn’t require itemizing, making it one of the easiest ways to lower taxable income.
15 Money Lessons from Joel Osteen (Even If You Aren’t Religious)
Use the Lifetime Learning Credit for Education
The Lifetime Learning Credit helps cover the cost of higher education and job-related courses. It covers 20% of tuition expenses, up to $2,000 per year.
Unlike other credits limited to degree programs, this one applies to a wide range of courses, including certifications and continuing education. There’s no cap on how many years it can be claimed, making it ideal for lifelong learners.
The credit starts phasing out at $80,000 in income for singles and $160,000 for married filers. Those looking to boost career prospects while saving on taxes should check if their coursework qualifies.
Take the Saver’s Credit for Retirement Contributions
Low-to-moderate-income earners saving for retirement get an extra bonus with the Saver’s Credit. This credit offers up to 50% of contributions to a 401(k), IRA, or other qualifying plan, with a maximum value of $2,000 per person.
Income limits apply, with eligibility ending at $43,500 for single filers and $73,000 for married couples. Since it’s a credit, not a deduction, it directly reduces tax owed, making it even more valuable.
Many people miss this one, assuming only high earners benefit from retirement savings. The government essentially rewards responsible financial planning, take advantage of it.
An Early Retiree’s Take on Dave Ramsey’s Blueprint To Early Retirement
Review Your Tax Withholding & Adjust if Needed
Too much withholding means an interest-free loan to the IRS. Too little means a surprise tax bill. Neither is ideal. Checking tax withholdings annually prevents overpaying or underpaying throughout the year.
Adjustments can be made through a W-4 form, increasing take-home pay without affecting the final tax bill. This is especially important after major life changes like marriage, divorce, or a new job.
The IRS provides an online withholding calculator, but those unsure should talk to a professional. Fine-tuning this one detail can mean thousands of dollars staying where it belongs.
Maximize Your Tax Savings
Nobody wants to overpay the IRS, yet so many do just that without realizing it. Knowing the right tax moves means keeping more of every dollar instead of handing it over unnecessarily.
Small adjustments like maxing out retirement accounts, claiming overlooked credits, and timing income wisely add up fast. The tax code favors those who take the time to understand it, not those who ignore it and hope for the best.
Tax laws change, but staying proactive ensures money stays where it belongs. Smart taxpayers don’t wait until April, they plan ahead and make every dollar work harder.
🙋♂️If you like what you just read, subscribe to the DadisFIRE newsletter and follow DadisFIRE on YouTube. 💪 Also be sure to follow DadisFIRE on MSN💰
