These Tax Strategies Could Save You Thousands This Year

Short-term capital gains, which apply to the sale of assets that have been held for less than a year, are taxed at ordinary income rates. If you plan to sell stocks, bonds, real estate, or other assets that generate capital gains, consider choosing assets that you have held for a year or more to lower your tax bill.

3. Start a Business

Starting a side business can come with a variety of tax advantages. The IRS allows business owners to deduct many expenses that are necessary and regular in the course of operating their business. Possible deductions include:

• Home office
• Portion of home utilities and internet
• Vehicle use for business
• Business cell phone
• Self-employed retirement plan contributions
• Business travel

If you are self-employed, you can even deduct health insurance premiums if you meet specific requirements. When combined, these deductions can significantly lower your taxable income.

4. Take Advantage of Retirement and Employee Benefits

If your employer offers a retirement account such as a 401(k) or 403(b) plan, having contributions taken from your paycheck can reduce your taxable income by up to $23,500 in 2025. If you are age 50 or older, you can contribute an additional $7,500 for a total of $31,000. A 55-year-old who makes $100,000 per year and maxes out their 401(k) contributions can reduce their taxable income to $69,000 and pay significantly less tax for the year.

If you don’t have a retirement plan through your work, you can still contribute up to $7,000 per year to a traditional individual retirement account (IRA), which also reduces your taxable income. If you have both an employer-sponsored plan (or your spouse does) and a traditional IRA, you may be able to deduct all or some of your IRA contributions, depending on your total income.

Many employers also offer other benefits, known as “fringe benefits,” that can reduce your total taxable income. These can include:

These benefits are either taken out of your paycheck or reimbursed to you by your employer after you pay them. Some of these benefits are excluded (or partially excluded) from being taxed and not reported on your W-2; others, like reimbursement for adoption expenses, are excluded from income tax but not other taxes and are still reported on your W-2.

5. Contribute to a Health Savings Account (HSA)

If you have a high-deductible health insurance plan, you can choose to open a health savings account (HSA) to go along with it. Like a 401(k), an HSA is funded with deductions from your paycheck. Contributions reduce your taxable income by an equal amount.

In 2025, the maximum deductible contribution to an HSA is $4,300 for individuals and $8,550 for families. A family with a $100,000 income who maxes out their HSA contributions for the year can reduce their taxable income to $91,450.

The funds in an HSA never expire. You can keep your HSA after you have a different health plan or leave your employer, including investing the money it in so it grows until you are in retirement. You don’t have to pay tax on the earnings, and any withdrawals from the account aren’t taxed if you use them to pay for qualified medical expenses.

6. Claim All Your Deductions and Credits

Claiming all the deductions and tax credits to which you’re entitled can significantly lower your tax bill.

A deduction lowers your taxable income. Many deductions are only available if you itemize rather than taking the standard deduction. However, some deductions can be claimed whether or not you itemize, including:

• Alimony payments
• Student loan interest
• Work-related education expenses for some government, military, self-employed, and disabled individuals
• Moving expenses for military service members
• Teacher expenses up to $300

Tax credits are an even better way to lower your taxes because they are a dollar-for-dollar reduction in the tax you owe. Common tax credits for low-to-average earners include:

• Child Tax Credit: $2,000 tax credit for each qualifying child, stepchild, sibling, or descendant claimed as a dependent on your tax return. To claim the full CTC, you cannot earn more than $200,000 if you’re a single filer or $400,000 if you’re married filing jointly.
• Child and Dependent Care Tax Credit: A portion of expenses spent on care for an eligible child or other dependent while the legal caregiver works or searches for work. Care can be for young children as well as children and adults who are mentally or physically incapable of caring for themselves.
• Earned Income Tax Credit (EITC): Tax credit aimed at working, low-income taxpayers based on income, marital status, and number of children. In 2025, the EITC is worth $8,046 with three or more qualifying children, $7,152 with two, $4,328 with one, and $649 with no children.
• American Opportunity Tax Credit: Up to $2,500 per year for the first four years of higher education expenses for eligible students.
• Lifetime Learning Credit: Worth $2,000 per return or a maximum of 20% of up to $10,000 of qualified educational expenses.
• Savers Credit: Credit for savings set aside by moderate- and low-income taxpayers, worth up to half your contributions to a retirement plan, IRA, or ABLE account.

The Bottom Line

You have to pay taxes, but you don’t have to pay more than you legally owe. By maximizing your deductions, credits, and employee benefits, and being strategic with your investments, you can save hundreds or even thousands of dollars on your taxes.

If you aren’t sure which strategies you qualify to use, talk to a tax professional. They can help you maximize your savings without getting into trouble with the IRS.