In this article, you'll learn 10 proven tactics for how to reduce your yearly tax burden. Mitigating this frustrating expense can help you keep more of your money.

In this article, I’m sharing ten actionable ways to reduce your tax bill this year

and build better financial efficiency moving forward.

In fact, these strategies can help you lower taxable income, take advantage of new deductions under OBBB, and align your plan with the most recent TCJA 2.0 extensions.

If you’re ready to keep more of what you earn, this guide will walk you through what matters most.

Key Takeaways

• Your fastest wins come from lowering taxable income and stacking credits in the same year.

• The current rules keep many TCJA provisions intact and add new opportunities under recent law changes. See OBBB updates for specifics you can use now.

• Lowering Adjusted Gross Income (AGI) often unlocks multiple downstream benefits at once.

• Timing matters. Most moves must happen by December 31, not at filing.

Understanding This Year’s Tax Landscape

The tax code continues to evolve, but the principles of good planning remain steady. You create savings by choosing how and when to realize income, by contributing to tax-advantaged accounts, and by determining whether to use the standard deduction or itemize.

This year’s updates expand several opportunities that had previously been limited. The SALT cap has been lifted for many filers, meaning higher-income households may benefit again from itemizing deductions. Meanwhile, the new OBBB deductions allow eligible earners to lower AGI directly through credits for tip income, qualifying overtime pay, and certain car loan interest.

These shifts make it important to review your filing strategy. Whether you’re an employee, business owner, or a commission-based professional, it’s worth testing both standard and itemized options to see where you come out ahead.

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10 Strategies to Reduce Your Tax Bill

Each of these strategies is straightforward to apply and grounded in current law.

1) Maximize Pre-Tax Retirement Contributions

Funding pre-tax accounts like a 401(k), 403(b), or Traditional IRA remains one of the simplest ways to reduce taxable income. Each contribution reduces your AGI, which can help you qualify for other deductions and avoid higher brackets.

For sales professionals or business owners, deferring a portion of bonuses or commissions can compound these benefits. A Solo 401(k) or SEP IRA can offer similar advantages if you’re self-employed.

The key is consistency. Automating contributions ensures that savings continue even during slower income months, and the habit compounds into a long-term advantage for both your retirement balance and your annual tax bill.

2) Use HSAs and FSAs Effectively

A Health Savings Account (HSA) is the most tax-efficient account available to most earners. Contributions are deductible, growth is tax-deferred, and qualified withdrawals are tax-free. That's triple tax advantaged for those counting at home. If you have access to one, treat it as part of your investment plan rather than a short-term spending account.

For those who aren’t HSA-eligible, a Flexible Spending Account (FSA) can still help offset out-of-pocket costs for healthcare or dependent care while reducing taxable income. Saving pre-tax for medical or childcare expenses offers immediate savings and keeps your AGI lower throughout the year.

3) Reevaluate Itemizing vs. Standard Deduction (SALT Update)

The temporary increase in the SALT deduction cap changes the math for many taxpayers. If you live in a high-tax state or carry significant mortgage interest, itemizing may finally make sense again after years of taking the standard deduction.

Combining charitable donations, mortgage interest, and state and local taxes often crosses the threshold where itemizing pays off. For some, using a Donor-Advised Fund to bundle multiple years of charitable giving can push you over that line and unlock additional tax savings.

This year, run both scenarios. Compare your total itemized deductions to the standard deduction to confirm which saves you more. Even small adjustments, such as timing a property tax payment or consolidating gifts, can tilt the balance in your favor. If you don't already do so, working with a tax professional is essential when evaluating your deductions for the year.

4) Apply New OBBB Deductions for Tips, Overtime, and Car Interest

The One Big Beautiful Bill Act introduced a few lesser-known deductions that directly lower your AGI. These include reported tip income, certain overtime pay, and auto loan interest on U.S.-assembled vehicles.

Unlike itemized deductions, these apply “below the line,” meaning they benefit nearly everyone who qualifies, not just those who itemize. Keeping detailed records of tips, overtime hours, and interest payments ensures you can claim these correctly when filing.

These changes are designed to make the tax system more flexible for working professionals with variable income, so understanding which apply to your situation can deliver meaningful savings right at the source.

5) Harvest Capital Losses Strategically

Selling investments at a loss can offset capital gains and reduce taxable income, but smart execution matters. Strategic tax-loss harvesting involves realizing losses while maintaining your market exposure through similar (but not identical) securities.

It’s also important to watch for the wash-sale rule, which disallows losses if you repurchase the same investment within 30 days. A thoughtful approach can lower your bill in the current year while preserving long-term portfolio health.

This approach works especially well for investors who also realize capital gains through equity compensation or mutual fund distributions, turning volatility into opportunity.

6) Optimize Withholding and Quarterly Estimates

Tax underpayment penalties often happen not because you owe too much, but because your payments were mistimed. Adjusting your withholding or estimated quarterly payments ensures your payments align with your income throughout the year.

High earners, business owners, and commission-based professionals benefit from reviewing their safe harbor thresholds midyear. If your income varies widely, aim to withhold a percentage of each large paycheck or quarterly distribution rather than making one lump payment at year-end.

This not only prevents penalties but improves cash flow predictability, helping you plan better for savings, investments, and business reinvestment.

7) Leverage the QBI Deduction for Business and 1099 Income

The Qualified Business Income (QBI) deduction allows eligible business owners and independent contractors to deduct up to 20% of qualified income. It’s now a permanent part of the tax code under OBBB, making it a consistent advantage for pass-through entities.

If you operate as an LLC or S-corp, review how your reasonable compensation and entity structure affect this deduction. Coordinating QBI with retirement contributions and SALT planning can create a combined effect that meaningfully reduces total taxable income.

Even for solo contractors, staying mindful of income thresholds and expense classification can be the difference between qualifying or phasing out.

8) Improve Asset Location for Tax Efficiency

Where you hold investments can matter as much as what you own. Placing tax-inefficient holdings (like bonds or REITs) in retirement accounts while keeping index ETFs and growth stocks in taxable accounts can significantly reduce ongoing tax drag.

This concept, known as asset location, is often overlooked but adds up over decades. By minimizing taxable distributions and capital gains in your brokerage account, you improve long-term compounding without increasing risk.

For investors managing both taxable and tax-deferred portfolios, this is one of the cleanest ways to create permanent tax efficiency without changing your investment mix.

9) Use Energy and Home Credits Before They Phase Out

Several energy tax credits for home improvements remain active this year, but some are scheduled to phase out. Projects such as solar installation, heat pumps, and EV chargers may qualify for meaningful dollar-for-dollar credits.

Because these are credits rather than deductions, they directly reduce your tax owed. Coordinating project timing and saving documentation from manufacturers ensures eligibility and protects you during filing.

These incentives often pair with local rebates, reducing upfront costs even further and creating a faster return on investment for sustainable upgrades.

10) Maximize Family and Dependent Credits

The Child Tax Credit increased again, and a new senior deduction offers additional relief for taxpayers aged 65 and older. Together, these credits can offset thousands in taxes depending on your household makeup.

Review eligibility carefully. Factors like income level, filing status, and the age of dependents can change how much you qualify for. If your income fluctuates throughout the year, timing bonuses, contributions, or other income moves to stay under phaseout thresholds can preserve access to these benefits.

These credits are often overlooked but create some of the most direct, immediate savings available to families.

Frequently Asked Questions

What lowers taxes fastest before year-end?

If you’re looking for quick, legal moves to reduce your tax bill before December 31st, consider these:

• Max out pre-tax retirement contributions. Contributing to a 401(k), 403(b), or similar plan lowers your adjusted gross income (AGI) right away. For 2025, the employee deferral limit is $23,000 (plus an extra $7,500 if you’re 50+). These contributions reduce taxable income dollar-for-dollar.

• Fully fund your Health Savings Account (HSA). If you’re enrolled in a high-deductible health plan, HSA contributions are pre-tax (or tax-deductible if made directly), grow tax-free, and can be withdrawn tax-free for qualified medical expenses. The 2025 HSA limit is $4,300 for individuals and $8,650 for families (+$1,000 catch-up if 55+).

• Harvest capital losses. Selling investments that are down in value lets you offset gains elsewhere and up to $3,000 of ordinary income each year. Any additional unused losses can carry forward indefinitely.

Should I choose Traditional or Roth contributions?

It depends on your current vs. future tax bracket and cash flow needs:

• Traditional contributions (pre-tax): Lower your taxable income right now, potentially reducing your current tax bill and increasing your take-home pay. But you’ll pay ordinary income tax when you withdraw the funds in retirement.

• Roth contributions (after-tax): Don’t give you an immediate tax break, but your contributions and growth can be withdrawn tax-free later, especially helpful if you expect to be in a higher tax bracket in retirement or want tax flexibility.

When does the SALT cap revert to its original limit?

Currently, there’s a $10,000 cap on deducting state and local taxes (SALT), put in place by the Tax Cuts and Jobs Act (TCJA). That cap was scheduled to sunset after 2025, but legislation extended it:

• Under current law: The expanded SALT deduction limitation (the $10,000 cap) remains in place through 2029.

• Scheduled change: Unless Congress acts again, the SALT deduction limit reverts to its pre-TCJA level, effectively uncapped, in 2030.

What if I own a business or have 1099 income?

You have some of the most powerful tax planning tools available:

• Qualified Business Income (QBI) deduction: Eligible owners of pass-through businesses (sole proprietors, partnerships, S corps) can deduct up to 20% of their qualified business income, subject to income thresholds and industry limitations.

• Solo 401(k) or SEP IRA: These retirement plans let you contribute as both employee and employer.

  • Solo 401(k): Up to $23,000 employee deferral + ~20% of net earnings as employer (total limit $69,000 for 2025 if under 50).

  • SEP IRA: Up to 25% of compensation or $69,000 (2025 cap).

• Other deductions: Home office, equipment, professional development, health insurance premiums, and more can offset taxable income.

Are energy credits refundable?

Energy credits can be great, but they’re not all created equal:

• Most clean energy credits (e.g., solar panels, efficient windows/doors): These are nonrefundable, meaning they can reduce your tax bill to $0 but won’t create a refund beyond what you owe. However, many can carry forward to future tax years until fully used.

• Certain electric vehicle credits: Starting in 2024, many EV tax credits are now transferable to dealers, which can make them feel “instant,” but most remain nonrefundable on your return.

• Commercial & business credits: Some energy incentives for businesses may be structured differently (e.g., direct pay in some cases for tax-exempt entities).

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