12 Totally Legal Tax Strategies That Feel Like Breaking the Law

Each year, some taxpayers miss out on valuable credits and deductions simply because they don't know these breaks exist. Some of these strategies may feel too good to be true, but they're perfectly legal and allowed by the IRS.

If you're ready to check up on your financial health, explore the following 12 legal ways to slash your tax bill.

A backdoor Roth IRA is a workaround for high earners who make too much money to contribute directly to a Roth.

This strategy begins with making a nondeductible contribution to a traditional IRA. Then, you convert that portion of the money to a Roth IRA. You'll owe taxes on any gains during the conversion, but future growth and withdrawals in retirement are tax-free.

This strategy is completely legal and can lead to huge long-term tax savings.

If you're self-employed, a solo 401(k) lets you contribute as both employee and employer. In 2025, the limit is $23,500 as an employee and another 25% of compensation as the employer.

The maximum contribution amounts for this year are $70,000 if you are under 50 and $77,500 if you are 50 to 59, or age 64 or older. Those who are between the ages of 60 and 63 can contribute a maximum of $81,250.

That can add up to a massive deduction and big retirement savings. It's one of the most powerful retirement savings tools for entrepreneurs and freelancers.

The saver's credit gives taxpayers with modest incomes a direct reduction in taxes for voluntarily contributing to retirement accounts.

Tax credits reduce your tax bill dollar-for-dollar. That makes them better than deductions, which reduce your taxable income

Depending on your income and filing status, the maximum saver's credit is $1,000 for individuals, or $2,000 for married couples filing jointly. That's on top of the tax benefits from the contribution itself.

The IRS has not yet announced the income limits for claiming this credit in 2025.

If you're between the ages of 50 to 59 or are 64 or older, you can contribute an extra $7,500 as a catch-up contribution to your 401(k) or IRA in 2025.

If you're between the ages of 60 and 63, you can contribute an extra $11,250 as a catch-up contribution.

These catch-up contributions lower your taxable income if they are made to a traditional account instead of a Roth account. They also help pad your retirement savings.

Once you turn 55, you can contribute an extra $1,000 catch-up contribution each year to your health savings account (HSA).

These contributions are tax-deductible and grow tax-free. They also can be withdrawn tax-free for qualified medical expenses. That triple tax benefit makes HSAs one of the best tax shelters available.

However, to be eligible to contribute to an HSA, you'll need to be enrolled in a high-deductible health plan.

When you inherit certain assets such as real estate or stocks, you may benefit from a "step up" in basis. That means the value of the asset resets to its fair market value on the date of the original owner's death.

This can reduce or even eliminate capital gains taxes if you sell the asset right away. And even if you hold the asset, you get a fresh start, potentially eliminating decades of the original owner's unrealized gains from your tax bill.

The earned income tax credit (EITC) provides a generous refund to working individuals and families with low-to-moderate incomes.

The credit is refundable, meaning you can get money back even if your tax bill is zero. That makes it one of the most impactful credits on the books.

The IRS has not yet announced the income limits for claiming this credit in 2025.

The American Opportunity Tax Credit and the Lifetime Learning Credit offer up to $2,500 and $2,000, respectively, for qualifying education expenses.

The American Opportunity Tax Credit is available for the first four years of higher education, while there is no limit to how many years you can take the Lifetime Learning Credit.

To be eligible for either credit, the school you attend and the expenses you incur must meet IRS guidelines.

The child tax credit offers eligible taxpayers a credit of up to $2,000 per qualifying child under age 17, with up to $1,700 of this credit being refundable.

This credit phases out at higher incomes but can significantly reduce your tax bill if you qualify. The IRS has not yet established the 2005 income limits.

Capital gains are usually taxed at a lower rate than regular income. That means if you invest well, you can grow your wealth while keeping your tax bill lower than if you earned the same amount of money from a paycheck.

For most people, the long-term capital gains rate is 0% or 15%, although it climbs to 20% for others with higher incomes. This rate applies to investments — such as stocks, rental real estate and cryptocurrency — held longer than a year.

Contributions to a 529 plan don't offer federal tax deductions, but you do get tax-free growth and withdrawals when the money is used for qualified education expenses.

In addition, your contributions each year could result in tax savings on your state tax return. It's a savvy way to grow college savings while easing your tax burden.

If you sell your primary home, you may be able to exclude up to $250,000 in capital gains ($500,000 if married filing jointly) from your taxes.

To qualify, you must have lived in the home for at least two of the last five years. This can lead to a massive tax break. And best of all, it's totally legal and built right into the tax code.

Taxes don't have to become a major financial drain, especially when the IRS offers so many ways to reduce what you owe.

From boosting your retirement savings to taking advantage of education and family credits, these strategies can help you save big while staying compliant with tax law.

Spend some time reviewing these tax tools and strategies to see which ones can help you lower your tax bill and eliminate some money stress.