With the right planning, you can reduce your tax burden legally and keep more of your hard-earned income. The key is knowing which strategies are available and how to use them effectively.
Whether you’re a salaried employee, a freelancer, or a small business owner, these strategies can help reduce the stress of tax time and improve your financial outlook.
Here are four tax-saving strategies to consider:
1. Maximize Retirement Contributions
One of the simplest and most effective ways to save on taxes is by contributing to retirement accounts. When you put money into a traditional IRA (Individual Retirement Account) or 401(k), those contributions are made with pre-tax money, which lowers the income the IRS can tax.
For example, in 2025, the contribution limit for a 401(k) is $23,500 with an additional $7,500 allowed if you’re over 50. That means if you contribute the maximum amount, you can reduce your taxable income by that much.
With this strategy and guidance from experts at wealth management companies, not only do you save on taxes now, but your investments also grow tax-deferred until retirement.
2. Consider Tax Loss Harvesting
Investments don’t always go up. And while losses sting, they can also work in your favor when it comes to taxes. With tax loss harvesting strategies, you can offset gains from other investments by selling those that have declined in value.
Suppose you sold Stock A for a $5,000 gain, but Stock B lost $3,000. Selling Stock B allows you to use that $3,000 loss to offset your gain, reducing your taxable capital gains to just $2,000.
If your losses exceed gains, you can use up to $3,000 per year to offset ordinary income as well.
3. Take Advantage of Tax Credits
Unlike deductions, which reduce your taxable income, tax credits directly reduce the amount you owe. Some of the most common ones include earned income tax credit, child tax credit, education credits, and energy efficiency credits.
Let’s say you owe $2,500 in taxes but qualify for a $1,000 tax credit. That immediately lowers your bill to $1,500. Make sure to check your eligibility for credits if you want to save hundreds or even thousands of dollars.
4. Use Health Saving Accounts (HSAs) and Flexible Spending Accounts (FSAs)
Healthcare costs are unavoidable, but they can also be leveraged to lower your tax bill. HSAs and FSAs allow you to contribute pre-tax income to accounts for medical expenses.
HSAs are available if you have a high-deductible health plan. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified expenses are also tax-free. That’s a triple tax advantage.
FSAs are similar, though they usually come with a “use it or lose it” rule within the plan year.
For example, if you put $3,000 into an HSA and are in the 22% tax bracket, you immediately save $660 in taxes. Plus, you have that money available for doctor visits, prescriptions, or even future medical expenses in retirement.
