We often hear clients wondering if there’s a secret formula to avoid taxes—spoiler alert: there isn’t.
Here’s a breakdown of some tried-and-true methods to lower your tax bill:
1. Maximize Retirement Contributions
One of the best ways to lower your taxable income is by contributing to tax-advantaged retirement accounts like a 401(k) or IRA.
- 401(k): The maximum allowed for 2024 is $23,000, or $30,000 if you’re over 50. Why you should be maxing our your 401(k)
- IRA: Contribution limits are $7,000 per year for those under 50, and $8,000 for those 50 and older.
2. Use a Health Savings Account (HSA)
If you’re enrolled in a High Deductible Health Plan (HDHP), consider using an HSA. Contributions to an HSA are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses.
- In 2024, you can contribute up to $4,150 if you are covered by a high-deductible health plan just for yourself, or $8,300 if you have coverage for your family.
- In 2025, you can contribute up to $4,300 if you are covered by a high-deductible health plan just for yourself, or $8,550 if you have coverage for your family.
3. Tax-Loss Harvesting
For clients who invest in taxable accounts, tax-loss harvesting is a savvy way to reduce capital gains taxes. By selling investments at a loss, you can offset gains and even deduct up to $3,000 in ordinary income per year.
💰 For those taking advantage of our professional portfolio management through Altruist, we’ve already evaluated your portfolio for tax-loss harvesting opportunities to help offset gains.
4. Take Advantage of Tax Credits
Tax credits directly reduce the amount of tax you owe. Some common ones include the Child Tax Credit, Earned Income Tax Credit, and credits for energy-efficient home improvements. Take advantage of our tax filing services to make sure you’re not leaving money on the table!
5. Charitable Contributions
Giving back feels good, and it can also help reduce your tax bill. If you itemize deductions, charitable donations can be deducted from your taxable income. Consider donating appreciated assets like stocks to get an extra tax benefit—you avoid capital gains taxes while still deducting the full value of the donation.
6. Utilize Deductions (If You Itemize)
If your itemized deductions exceed the standard deduction, make sure you’re taking full advantage of things like mortgage interest, property taxes, and medical expenses. Though with the higher standard deduction, itemizing is less common for most taxpayers these days. Our tax filing partners can help you navigate this!
7. Avoid Tax Myths and Unrealistic Expectations
It’s easy to get caught up in the idea that there are hidden tax loopholes or secret strategies that only the ultra-wealthy know about. But for the vast majority of taxpayers, the most effective tax strategies are straightforward and widely available
Let’s debunk a few common myths:
- Myth #1: Offshore accounts will help me avoid taxes.
While it’s true that some ultra-wealthy individuals may use offshore accounts, doing so legally requires strict reporting, and penalties for improper use are severe. The IRS keeps a close watch on these activities, and for the average person, trying to avoid taxes this way is simply not worth the risk. - Myth #2: I can write off anything if I have a business.
Many clients think that starting a business gives them unlimited deductions. While there are legitimate business expenses that are deductible, personal expenses dressed up as business costs won’t fly with the IRS. It’s important to understand what qualifies and to maintain clear records. - Myth #3: There’s a secret loophole to eliminate taxes.
Some people believe that the wealthy have access to hidden tax loopholes that make their taxes disappear. The truth is, while there are ways to strategically reduce taxes, no one is immune to paying their fair share. Even high-income earners use many of the same strategies available to everyone—retirement contributions, charitable donations, and tax-loss harvesting.
The Tax Reality
Lowering your tax bill means using the available tools within the tax code—contributing to retirement accounts, utilizing HSAs, and claiming tax credits and deductions where applicable. These methods are straightforward but effective. Trying to find “secret” tax loopholes can lead to risky behavior that triggers audits or penalties.