19 Smart (And Legal) Tax Moves that Keep More of Your Money
Nobody likes taxes, but most people just accept them without question. The government takes a chunk, and you move on. But if you’re paying more than necessary, that’s on you.
A recent Pew Research poll found that 56% of taxpayers believe they pay more than their fair share. The system rewards those who plan ahead, and the difference between knowing the rules and ignoring them can add up to thousands every year.
This guide breaks down ways to save on taxes using completely legal strategies that work. Some require planning, others can be used immediately, and all keep more money in your pocket. No more giving the IRS more than necessary.
Before making big financial moves, talk to a qualified tax professional about your scenario. I am a credentialed finance Expert, but I don’t know your specific situation.
Let me know which ones of these you like.
Table of Contents
Max Out Retirement Contributions
One of the easiest ways to cut your tax bill is maxing out contributions to tax-advantaged retirement accounts. Contributions to a 401(k), 403(b), or Traditional IRA lower your taxable income while growing tax-deferred.
For Tax Year 2024, you could contribute $23,000 to a 401(k) ($30,500 if you’re 50 or older) and $7,000 to an IRA ($8,000 if 50+). If your employer offers a match, that’s free money on top of the tax savings.
Self-employed? A Solo 401(k) or SEP IRA allows for even higher contributions. The more you put away, the less the IRS takes. It’s a win-win.
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Optimize Charitable Donations (Appreciated Equities)
If you’re donating to charity and using cash, you may be doing it wrong. Instead of writing a check, donate stocks or ETFs that have gone up in value. You skip the capital gains tax on the appreciation while still claiming the full charitable deduction.
Say you donate $10,000 in stock that you originally bought for $5,000. You avoid paying capital gains tax on the $5,000 gain, and you still get to deduct the full $10,000.
That’s a double benefit, and it works if you’re giving to a large nonprofit or your local charity of choice.
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Use a Donor Advised Fund (DAF) for Charitable Giving
A Donor Advised Fund (DAF) lets you front-load multiple years of donations into one tax year while distributing the money over time. This is perfect if your itemized deductions don’t exceed the standard deduction every year.
Contribute a large amount in a high-income year, claim the full deduction, and then give to charities on your own schedule. The money inside the DAF grows tax-free, and you stay in control of where and when it’s distributed.
If you’re serious about tax-efficient giving, this is the way to do it.
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Tax Loss Harvesting
Losing money on an investment isn’t ideal, but turning losses into tax savings is smart. Selling assets at a loss allows you to offset capital gains and, if your losses exceed gains, you can deduct up to $3,000 against ordinary income.
This lowers your tax bill now while keeping more of your investments working for the future. Just watch out for the wash sale rule, which prevents you from rebuying the same or a “substantially identical” security within 30 days before or after the sale.
Used correctly, this strategy helps clean up bad investments while lowering what you owe.
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Tax Gain Harvesting
Most people focus on minimizing taxes, but sometimes it makes sense to realize gains at a 0% tax rate. If your taxable income is below $47,025 (single) or $94,050 (married), long-term capital gains are taxed at 0%.
This means you can sell assets, pay no capital gains tax, and immediately repurchase them to reset the cost basis. It’s especially useful for early retirees or anyone with a low-income year.
Instead of waiting and paying higher taxes later, take advantage of the 0% bracket while you can.
Use Treasury Bills (T-Bills) Instead of High-Yield Savings Accounts
High-yield savings accounts offer decent interest, but T-Bills are state-tax-free. If you live in a high-tax state, this can make a big difference. A 5% T-Bill is equivalent to a 5.5%+ taxable yield for someone in a 10% state tax bracket.
T-Bills are also backed by the U.S. government, making them as safe as it gets. While they require a bit of extra effort compared to a savings account, the tax savings make them worth considering.
In a high-tax state, they’re almost always the better choice.
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Max Out a Health Savings Account (HSA)
An HSA isn’t just a medical savings account, it’s a tax powerhouse. Contributions are pre-tax, the money grows tax-free, and withdrawals for medical expenses are 100% tax-free. That’s a triple tax advantage that no other account offers.
In 2024, contribution limits are $4,150 for individuals and $8,300 for families (plus $1,000 catch-up if 55+). Even if you don’t need the money now, it rolls over indefinitely.
After age 65, you can withdraw funds for anything, they’ll just be taxed like a Traditional IRA if not used for medical expenses. This is one of the most powerful tax-saving tools available, yet too many people ignore it.
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Use a 529 Plan for Education Savings
College costs keep climbing, and if you’re paying out of pocket, you’re doing it the hard way. A 529 plan allows tax-free growth and withdrawals for qualified education expenses. Many states offer tax deductions or credits on contributions, which means extra savings upfront.
If your kid gets a scholarship, funds can be withdrawn penalty-free up to the amount of the award. Thanks to new rules, up to $35,000 of leftover 529 funds can roll into a Roth IRA after 15 years, giving another reason to contribute aggressively.
Education savings shouldn’t cost you more in taxes than necessary, and a 529 makes sure of that.
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Buy Real Estate for Tax Benefits
Owning real estate isn’t just about cash flow, it’s a tax advantage machine. Rental property income can be offset with depreciation, often reducing taxable income to zero while the property keeps appreciating.
1031 exchanges let investors defer capital gains when swapping properties, allowing wealth to grow tax-free. Selling a primary residence after living there two out of the last five years can exclude up to $250,000 ($500,000 for married couples) in capital gains.
Real estate also allows access to tax-deductible expenses like mortgage interest, property taxes, and repairs, keeping taxable income lower while building long-term wealth.
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Use a Mega Backdoor Roth Strategy
Traditional Roth IRA contributions are limited, but a Mega Backdoor Roth changes the game. This strategy allows up to $43,500 in after-tax 401(k) contributions, which can then be converted to a Roth account.
The key is having a plan that allows after-tax contributions and either in-plan Roth conversions or in-service rollovers. The result? Tens of thousands of dollars growing tax-free for retirement, bypassing the usual contribution limits.
Those with high incomes who max out traditional Roth contributions need to take advantage of this.
Maximize Roth IRA & Backdoor Roth Contributions
Roth IRAs provide tax-free growth and withdrawals in retirement, making them a powerful tool for long-term planning. Income limits prevent direct contributions for high earners, but a Backdoor Roth IRA gets around that.
The process is simple: contribute to a Traditional IRA, then convert it to a Roth. Unlike Traditional IRAs, Roth IRAs have no required minimum distributions (RMDs), making them a great way to grow wealth tax-free while keeping future tax bills low.
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Strategic Roth Conversions in Low-Income Years
Taxes are all about timing, and Roth conversions work best when rates are low. Converting funds from a Traditional IRA to a Roth triggers taxes now but avoids them later.
This strategy works best during years when taxable income is low, such as early retirement or a gap between jobs. Converting strategically can prevent getting pushed into higher tax brackets later when RMDs kick in.
Paying taxes at a lower rate today beats paying them at a higher rate in the future.
Borrow Against Your Assets Instead of Selling
Selling investments triggers capital gains taxes, but borrowing against them keeps wealth intact. A securities-backed line of credit (SBLOC) lets investors use their portfolios as collateral, offering liquidity without selling.
Real estate investors do the same with HELOCs or cash-out refinances. Borrowing at low interest rates can be far cheaper than paying capital gains taxes and losing future appreciation.
The rich use this strategy all the time to avoid unnecessary tax bills while keeping investments working for them.
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Take Advantage of the Qualified Business Income (QBI) Deduction
Business owners with pass-through entities like LLCs, S-Corps, and sole proprietorships may qualify for a 20% deduction on net business income. This deduction applies to taxable income below specific limits and can drastically reduce how much gets taxed.
Structuring income properly and keeping earnings under key thresholds ensures maximum savings. Those running their own businesses need to take full advantage of this, as it can be one of the most powerful deductions available.
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Use a Flexible Spending Account (FSA)
An FSA allows pre-tax contributions for healthcare and dependent care expenses, lowering taxable income. The limit for 2024 is $3,200 for healthcare and $5,000 for dependent care.
Money in an FSA must be spent within the plan year or within a short grace period, so planning is key. Those with predictable medical or childcare costs can use this strategy to pay for necessary expenses with tax-free dollars.
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Defer Capital Gains with an Opportunity Zone Investment
Investing in an Opportunity Zone Fund can defer capital gains taxes and even eliminate taxes on appreciation if held for 10 years. This program was designed to encourage investment in designated low-income areas while giving investors massive tax breaks.
Those selling highly appreciated assets should consider reinvesting gains into one of these funds. The longer the investment is held, the bigger the tax advantage.
Pay Estimated Taxes to Avoid Penalties
The IRS expects tax payments throughout the year, not just in April. Those who owe more than $1,000 at tax time risk penalties if payments weren’t made quarterly.
Self-employed individuals, business owners, and investors with large capital gains should send in estimated payments every quarter to avoid penalties and interest. The IRS charges for underpayment, making it smarter to stay ahead of what’s owed.
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Use the 0% Capital Gains Bracket When Income is Low
Those in the 0% capital gains tax bracket can sell investments tax-free, a benefit too many people ignore. For 2024, single filers with taxable income under $47,025 and married filers under $94,050 pay 0% in long-term capital gains taxes.
This is a huge opportunity for early retirees, those between jobs, or anyone with a temporarily low-income year. Selling appreciated assets during these windows eliminates taxes and resets cost basis for future gains.
Move to a Lower-Tax State
State income taxes can take a big bite out of earnings, and not all states play fair. Living in California, New York, or New Jersey means paying top rates, while states like Texas, Florida, Nevada, and Washington charge zero state income tax.
Moving to a tax-friendly state can keep thousands of dollars per year in your pocket. Those with remote jobs or flexible living situations should seriously consider where they call home. Over decades, the difference is massive.
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Keep More of Your Money
Paying taxes is part of life, but overpaying is optional. Smart planning keeps more money working for you instead of disappearing into government programs you’ll never benefit from.
Most people don’t realize how much they could be saving. If even one of these strategies applies, that’s money back in your pocket. The more you use, the more your tax bill shrinks.
The choice is yours, keep paying more than necessary, or take control of what you owe.
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