Tax time can come with a discouragingly high bill for many. If you want to cut your tax bill and keep more cash in your wallet, lowering taxable income can help.
The good news is that taxpayers have many opportunities to reduce their taxable income. Here are some
strategies that can help you pay less in taxes.
If you’re over 50, take advantage of massive discounts and financial resources
Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.
How to become a member today:
- Go here, select your free gift, and click “Join Today”
- Create your account (important!) by answering a few simple questions
- Start enjoying your discounts and perks!
Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.
Contribute to retirement accounts
When you contribute to select retirement accounts, such as a 401(k) or IRA, your contribution may be tax-deductible.
For example, a contribution of $10,000 to a traditional 401(k) can bring down taxable income nicely.
In addition, contributing to these types of accounts has the added benefit of helping you prepare for retirement by setting you up for a comfortable financial future.
Contribute to a health savings account
Health savings accounts (HSAs) offer many tax advantages, including the fact that your contributions are deducted from your taxable income.
Once you tuck funds into an HSA, they grow year after year without being taxed. When you need to, you can use the funds to cover qualified medical expenses tax-free.
Purchase municipal bonds
Government entities issue municipal bonds to finance spending needs. When you purchase a municipal bond, you are essentially lending money to the issuer.
In exchange, you will receive regular interest payments. Generally, the interest earned from municipal bonds is exempt from federal income tax, and it is often also free of local and state taxes.
Resolve $10,000 or more of your debt
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.1
How to get National Debt Relief to help you resolve your debt: Sign up for a free debt assessment here. (Do not skip this step!) By signing up for a free assessment, National Debt Relief can assist you in settling your debt, but only if you schedule the assessment.
Take tax credits for which you are eligible
Tax credits reduce the amount of income tax you owe on a dollar-for-dollar basis. For example, if you owe $5,000 in taxes and take a $1,000 tax credit, your tax bill would be reduced to $4,000.
If you qualify for tax credits, tapping into those opportunities can help you pay significantly less in taxes.
Hold your investments for at least a year
When you purchase a capital asset — such as stocks or a rental property — selling that asset within one year from your original purchase date subjects you to a short-term capital gains tax. Essentially, any gain is taxed at your ordinary income tax rate.
You can avoid short-term capital gains tax by holding assets for more than one year before selling. After the one-year mark, the profits from the sale qualify for long-term capital gains taxes, which are generally much lower than ordinary income tax rates.
In fact, for some households that earn relatively low levels of income, the capital gains tax rate is 0%.
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Deduct medical expenses
If you faced costly medical or dental expenses during the year, you might be able to deduct those costs from your taxable income. As of 2024, you can deduct medical and dental expenses that represent more than 7.5% of your adjusted gross income.
For example, let’s say you made an adjusted gross income of $100,000 and had $10,500 in medical bills for the year. Since the medical bills exceed 7.5% of your adjusted gross income, you can deduct the amount above that threshold. In this case, you could deduct $3,000 from your taxable income.
Save for college in a 529 plan
If you want to save for college, investing through a 529 college savings plan might offer tax benefits.
Depending on where you live, your state may allow you to reduce taxable income by the amount you contribute to a 529 within a year. Although the rules vary from state to state, this could offer a way to save on your state tax bill.
Give money to charity
If you want to lower your tax bill and support a good cause at the same time, you can do so through charitable contributions.
The contributions don’t necessarily have to be made in cash to qualify for a tax deduction. For example, your donations of food, household items, and clothing could qualify for a tax deduction.
In order to claim this tax deduction, you need to itemize deductions instead of taking the standard deduction. You will also need to keep a receipt from the charity in case you are asked to prove you actually made the contribution.
Use tax-loss harvesting
Tax-loss harvesting allows you to sell off money-losing assets to claim a capital loss. The loss can be used to offset capital gains that you might have earned.
Consult with your tax professional to see whether tax-loss harvesting can help you significantly lower taxable income.
Earn cash back on everyday purchases with this rare account
Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!2
With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!
This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.
Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.
Write off expenses for your side hustle
If you have a qualifying side hustle to supplement your income, you can deduct expenses necessary to run your business.
Some examples of legitimate business expenses include the cost of your goods, the mileage you log in your vehicle to complete business activities, mobile card readers you purchase to accept payments, and more.
Bottom line
As you work to build wealth, seeing your tax bill rise can lead to frustration. Luckily, you can take action to reduce your taxable income.
Consider working with a tax professional to optimize your tax situation and lower tax bills.
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