Consumer Blog

Question: I always hear about tax deductions and ways to reduce your taxable income, but every year when I look at my taxes, it just doesn’t seem like there are ways for me to save. I’m wondering if I’m missing something. What are the best ways to reduce your taxable income?

Answer: Ahh, filing taxes — the annual ritual where we cross our fingers and hope for a refund instead of an unexpected bill! You’re not alone in feeling like the tax code is a bit of a maze. The truth is, the best ways to reduce your taxable income require a bit of strategy and some planning ahead. Here are the top ways to make sure you’re not leaving money on the table when tax season rolls around.

Start Early (as in, NOW!)

As much as we might all LOVE to wait until April 14th to think about our taxes, the longer we wait, the more opportunities we could be missing to save money. Savvy tax planning begins well before you see those first tax prep commercials. Many people discover all too late just how high their tax burden is, leaving them very little time to explore tax-saving opportunities and reduce the amount they owe Uncle Sam.

Maximize Your Business Deductions

Guess what? If you drive for Uber or rent out a spare room on Airbnb, you’re a small business owner. Congrats! The IRS treats independent contractors just the same as businesses. This is great news, especially since the Tax Cuts and Jobs Act eliminated many employee deductions but left business expenses for independent contractors fully deductible.

If you’re a gig worker or small business owner, you can save on taxes by covering expenses like health benefits, insurance, and even new equipment. Did you upgrade your cell phone to handle customer orders more efficiently? Buy a new laptop? Need new tires for your car? These expenses are all deductible — and tracking them diligently throughout the year can save you hundreds or even thousands of dollars.

Give to Charity

Another way to reduce your tax burden is by donating to charity. People of any age and income level can write off what they give. Just make sure that it makes sense for you to itemize your deductions in the year that you want to claim them — 90% of us will end up taking the standard deduction ($14,600 for single filers and $29,200 for married couples filing jointly for the 2024 tax year) because they don’t have itemized deductions that top that amount. But you may want to explore batching your donations (and other deductible expenses, like pricey medical procedures) into a single tax year rather than spreading them out over multiple tax years.

Boost Your Retirement Savings

There’s no easier way to lower your tax liability than contributing more to your retirement savings. The money you contribute to a tax-deferred account, such as your 401(k) or 403(b) can lower your taxable income. Let’s say you earn $80,000 and you contribute 15% of your income, or $12,000. That brings your taxable income down to $68,000. And the more you contribute, the closer you get to potentially dropping into a lower tax bracket, paying less overall… while also saving money. A win-win, indeed!

Just make sure that you’re mindful of contribution limits:

• 401(k)s: For 2025, the maximum contribution is $23,500 if you’re under age 50. Those 50-59 (or those 64 and up) can contribute an additional $7,500 in catch-up contributions, and those between ages 60 and 63 can drop in an additional $11,250.
• IRAs: In 2025, those under age 50 can contribute up to $7,000 in an IRA, and those over 50 can contribute up to $8,000.

Contribute to a 529 College Savings Plan (state-dependent)

Contributing to a 529 can not only help you save for educational expenses — depending on where you live, it could also help you reduce your state tax bill. No, 529 contributions aren’t deductible on your federal taxes, but many states offer tax deductions or credits for contributions made to their own state’s 529 plan — or, in some cases, to any state’s plan. Here’s a look at the states that offer tax perks, and their limits. Make sure you check your state’s specific rules before you contribute, as deduction limits and eligibility requirements vary.

Use Flexible Spending Accounts (FSA)s or Health Savings Accounts (HSA)s

Contributing to a flexible spending account lets you put aside pre-tax dollars for healthcare spending — up to $3,300 in 2025. There’s also a dependent care FSA, allowing up to $5,000 to cover childcare costs, including daycare, preschool, or summer day camp. These accounts help reduce your taxable income while covering necessary expenses.

A health savings account (HSA) is another account where you can make a year-end contribution. In 2025, an individual can contribute up to $4,300 for self-only coverage and $8,550 for family coverage.(Plus,a catch-up contribution of $1,000 for those age 55 or older can give your HSA a little additional padding.) Just a heads up: These maximums include any employer contributions, so make sure that you don’t go over allowable amounts.

Drive an Electric Car

Purchasing an electric vehicle could also reduce your taxes. You may qualify for a tax credit of up to $7,500, depending on where the vehicle’s components came from and where it was assembled. Here’s a list of cars that qualify in 2025 — note that to claim this deduction in 2025, the car must be delivered on or after Jan. 1, 2025. Be mindful of the income restrictions and vehicle price limits, but this could be a great opportunity if you meet the criteria. (Also, be mindful that there’s a chance this deduction may be eliminated by the Trump administration in 2025, so if you’re considering an electric car, the time to move is ASAP.)

Keep Up With Your Filing Obligations

Finally, it may sound obvious, but always meet your tax deadlines. The IRS charges penalties for late or missed payments, so set those calendar reminders and automate as much as you can to avoid surprises.

Bottom Line:

You don’t need to tackle everything all at once. Put these ideas on your radar and check in on your progress throughout the year. By making a few smart moves now, you can save yourself a lot of headaches — and potentially a lot of money — when tax season arrives.

from our partnership with Filene/HerMoney