It’s easy to ignore taxes before tax season rolls around, but if you’d like to pay less next season, you may need to be proactive throughout the year, not just in April.
Whether you’re wondering how to reduce your tax liability, looking for ways to reduce income tax on your paycheck, or trying to figure out how to reduce federal taxes before you file, small changes can add up to real savings. The key is knowing which tax planning strategies apply to your situation and acting on them before the tax year ends.
Here are nine practical ways to lower your tax bill, from retirement contributions to credits you might be missing.
1. Contribute to a retirement plan
If you have access to a retirement plan through your employer, like a traditional 401(k), 403(b), or similar plan, consider increasing the amount withheld from each paycheck. Even with a modest increase in contributions, you still have time to lower your taxes significantly before Dec. 31.
Contributing more to your tax-advantaged retirement accounts is one of the most effective ways to reduce taxable income.
Keep in mind that traditional and Roth IRAs work differently. Here’s how:
Traditional IRA contributions may be deductible, depending on your income and whether you’re covered by a workplace plan.
Roth IRA contributions aren’t deductible, but qualified withdrawals in retirement are tax-free.
2. Claim tax credits you might be overlooking
Another way to lower your taxes is through deductions and credits. While credits reduce your tax bill dollar-for-dollar, deductions lower the income you’re taxed on, which indirectly lowers your tax bill.
Common federal credits worth reviewing each year include:
If you’re choosing this route, keep in mind that credits have income limits and other requirements, so not everyone qualifies for every credit. That said, many taxpayers still miss credits simply because they’re unaware of them.
3. Make charitable donations (cash and non-cash)
If you plan to itemize your deductions, both cash and non-cash donations can help you lower your taxes. However, you should know that cash and non-cash donations work a bit differently.
Cash donations: Keep a bank record or written acknowledgment from the charity. For donations of $250 or more, you’ll need a written statement from the organization.
Non-cash donations: Clothing, household goods, and other items donated to a qualified charity may be deductible at fair market value. Get a receipt, and for items worth more than $250, obtain a written description from the charity.
Although you may feel more inclined to donate during the holiday season, it’s also a good idea to make charitable contributions now, as you might be more pressed for money once December comes. Some employers even let you set up automatic payroll deductions to charity. To make it easy, set up a regular charitable contribution plan. In some cases, you can select a set amount to be deducted from your paycheck and directly deposited to a charity. Or you can set up a recurring charitable gift online.
Note: If you take the standard deduction, you generally can’t deduct charitable contributions unless you qualify for a limited above-the-line deduction (check current-year rules when you file).
4. Use a Health Savings Account (HSA), Flexible Spending Account (FSA), or 529 plan
Despite being an effective way to pay less in taxes, healthcare-related accounts are often overlooked.
Health Savings Account (HSA): If you have a high-deductible health plan (HDHP), HSA contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses. Unused funds roll over from year to year.
Flexible Spending Account (FSA): FSAs let you set aside pre-tax dollars for medical or dependent care expenses. Contribution limits and rollover rules vary by plan type, so check your employer’s plan details.
Both accounts reduce your federal income tax by letting you pay for eligible expenses with pre-tax dollars, which is a straightforward way to reduce federal taxes on money you’re already spending.
529 Plan: While 529 plans don’t give you a federal tax deduction for contributions, the earnings grow tax-free, and withdrawals are tax-free when used for qualified education expenses. Many states also offer a state tax deduction or credit for 529 contributions.
Starting in 2026, you can use up to $20,000 per year from a 529 plan for qualified K-12 expenses (tuition and other eligible costs), up from the previous $10,000 limit that applied only to tuition. If you have kids or plan to go back to school yourself, a 529 plan is a smart long-term tax strategy.
Note: State tax rules may differ. Check your state’s 529 rules before withdrawing.
5. Energy efficiency tax credits
If you’re a homeowner, you may want to take advantage of federal energy credits that can help you lower your tax bill while reducing utility costs.
Depending on the year and type of improvement, you may qualify for credits related to:
Solar panels and solar water heating systems
Energy-efficient windows, doors, and insulation
Heat pumps, central air conditioners, and other qualifying equipment
Electric vehicle and clean vehicle credits (subject to eligibility rules)
Many states offer additional incentives, such as rebates or property tax exemptions. Energy credits often have annual caps and expiration dates, so verify the current limits on IRS.gov before making a purchase.
6. Adjust your tax withholding or estimated tax payments
Lowering your tax bill isn’t only about deductions and credits; it’s also about paying the right amount throughout the year.
Employees: Review your Form W-4 withholding with your employer. Too little withheld means a surprise bill at tax time, whereas too much means you’re basically giving the IRS an interest-free loan.
Self-employed workers and freelancers: Quarterly estimated tax payments help you avoid underpayment penalties. If your income fluctuates, recalculate your estimates mid-year rather than waiting until filing season. Use our Self-Employment Tax Calculator to estimate self-employment tax, and consider quarterly estimated payments or W-4 adjustments if you also have W-2 income.
Getting withholding right doesn’t reduce your total tax owed, but it helps you keep more of your paycheck during the year and avoid a large balance due in April.
7. Maximize deductible expenses if you itemize
For some taxpayers, itemizing deductions is the better path to reduce tax liability. Common itemized deductions include:
Mortgage interest on a qualified home loan
State and local taxes (SALT), which are subject to the federal cap for 2026: $40,400, or $20,200 if married filing separately, reduced at higher MAGI but not below $10,000/$5,000
Medical expenses exceeding 7.5% of your adjusted gross income (AGI)
The standard deduction is higher than it used to be, so fewer people itemize. But if your mortgage interest, charitable giving, and other deductible expenses exceed the standard deduction amount for your filing status, itemizing could save you more.
Deduct business expenses if you’re self-employed
Self-employed people can also use deductions to lower their tax bill. In this case, these would be Schedule C deductions, rather than itemized deductions, meaning you can take them even if you claim the standard deduction. Every legitimate business expense reduces your taxable income and lowers both income tax and self-employment tax.
Common deductible business expenses:
Common deductible business expenses for self-employed taxpayers include:
Home office (simplified method: $5 per square foot, up to 300 sq ft)
Business mileage (72.5 cents per mile)
Office supplies, software, and equipment
Professional development and certifications
Health insurance premiums (for self-employed individuals, this is above-the-line deduction)
Internet and phone costs (business-use percentage)
The key is keeping good records throughout the year.
8. Pre-tax workplace benefits
Beyond retirement plans, many employers offer benefits that lower your taxable income:
Commuter and transit benefits
Dependent care flexible spending accounts
Group-term life insurance (within limits)
Health insurance premiums paid through payroll on a pre-tax basis
9. Harvest Your Investment Losses
If your portfolio has investments that have lost value, selling them can help you reduce taxes through a strategy called tax-loss harvesting.
Here’s how it works: you sell investments at a loss and use those losses to offset capital gains. If your losses exceed your gains, you can deduct up to $3,000 of the excess against ordinary income each year. Anything beyond that carries forward to future tax years. Keep in mind that you should separate securities tax-loss harvesting from real estate capital gains planning.
Wash-sale rule
If you’re going this route, you should keep in mind that the IRS won’t allow the loss if you buy the same or a “substantially identical” investment within 30 days before or after the sale. So, if you sell a stock at a loss, you should wait at least 31 days before buying it back. This strategy is especially useful in years when you’ve realized large capital gains from selling a property or other investments.
FAQs
The bottom line
Not every strategy on this list will apply to your situation. A single filer with a W-2 job has different options than a married couple with kids, a homeowner, or a freelancer with business income.
The fastest way to see your real number is to estimate your taxes before you file. Our tax calculators can help you project your liability and identify areas where you might save.
When you’re ready, file with TaxAct® for step-by-step guidance. Asking the right questions to surface deductions and credits so you can lower your tax bill with confidence.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
Citations
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