While you can’t avoid paying taxes altogether, there are several strategies that can help you lower your taxable income, maximize deductions, and take advantage of tax-deferred growth. These simple but effective “tax hacks” can make a big difference when it comes time to file.
You can lower your tax bill with these smart moves.
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Key Takeaways
Use tax-loss harvesting if you had big gains in the stock market.
Max out contributions to a traditional or Roth IRA.
Invest in a health savings account.
Save for your child's education with a 529 plan, which offers tax benefits.
1. Try Tax-loss Harvesting
If you had a profitable year in the stock market, tax-loss harvesting could be an effective way to reduce your taxable income.1
“There are a few different things Americans can do to keep more of their money prior to tax day. If you’re an investor who has sold stocks for a nice gain, you can offset those investments by selling investments that are down. This is called tax-loss harvesting and can help you reduce your taxable income,” says Paul T. Joseph, an attorney, certified public accountant and founder of Joseph & Joseph Tax & Payroll in Williamston, Michigan.
2. Max Out Your Retirement Accounts
Now is the time to focus on boosting your retirement savings—especially with tax benefits in mind. Contributing the maximum allowable amount to a 401(k) or traditional IRA can lower your taxable income, helping you reduce your tax bill. The annual contribution limit for a 401(k) is $23,500 for 2025, up from $23,000 in 2024. The annual limit for an IRA is $7,000 for 2024 and 2025.2
“You can contribute to a traditional or Roth IRA until April 15 of this year for it to go toward your 2024 tax year. You will want to know how much in contributions you made in 2024, then deposit the remaining amount (up to the maximum) into the account. Making retirement plan contributions can also help reduce taxable income,” Joseph says.
3. Contribute to a Health Savings Account
Opening and contributing to a health savings account is another way to lower your tax bill. A health savings account is a personal savings account that can be used for qualifying medical expenses. Each contribution is made with pretax dollars, so you won’t pay income tax on the money you put into a health savings account. Earnings also grow tax-free. But there’s a catch. You must have a high-deductible health plan to open a health savings account.3
“The contributions can be deducted from your taxable income. This can help you keep more of your own money, and possibly save on health expenses in the future,” Joseph advises.
4. Save for Education With a 529 Plan
A 529 plan can help pay for educational expenses, including college and K-12 education. Its growth is tax-deferred, and withdrawals are tax-free when used for eligible education expenses.4
“One other way someone can keep more of their money prior to tax day is to fund a 529 plan or something similar. This can be for their children’s or grandchildren’s future education. Most states allow contributions to this type of plan to be deducted at tax time,” Joseph says.
The Bottom Line
These four tax hacks can help lower your tax bill in 2025. Use tax-loss harvesting to offset gains if you've had a good year in the stock market. Contribute to a Health Savings Account (HSA) if you have a high deductible health plan to reduce taxable income while saving for medical expenses. For education savings, open a 529 plan to benefit from tax-deferred growth and tax-free withdrawals. Finally, maximize contributions to retirement accounts before the deadline to reduce taxable income and secure your future. By utilizing these strategies, you can keep more of your money and lower your tax liability.
This article was prepared by Investopedia
By Lucy Lazarony
Jan. 28, 2025
Sources:
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Internal Revenue Service. "401(k) Limit Increases to $23,500 for 2025, Ira Limit Remains $7,000."
Health Insurance Marketplace. "Health Savings Account (HSA)."
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