Every year, thousands of people miss out on golden tax reduction opportunities simply because they don’t know enough. You don’t have to make such mistakes.
Here’s a brief overview of six strategies that can help reduce your taxable income:
- Make Retirement Contributions
Making contributions to your retirement accounts is one of the easiest and most beneficial ways to reduce your taxable income. Here’s how it works:
If you have a traditional, employer-sponsored 401(k), your contributions will be deducted directly from your paycheck before you’ve paid taxes. This will lower your taxable income. As of 2025, the contribution limit for a 401(k) is $23,500. Remember that individuals aged 50 or older can contribute an additional $7,000.
Contributions to an individual retirement account (IRA) can also be tax-deductible, depending on your income. You can contribute up to $7,000 to an IRA every year.
- Donate to Charity
Donating money to charity offers an opportunity for a tax deduction. According to the IRS, the contribution must be:
- Made in cash
- Made to a qualifying organization
- Made during the current tax calendar year
Make sure the organization is on the IRS-approved list of tax-exempt charity organizations.
Charity donations as tax deductions are especially applicable to ultra-high-net-wealth individuals (UHNWIs). You can also get guidance from a wealth management organization like Creative Planning to save as much as you can on taxes.
- Start a Business
Starting a side business in addition to your job can also reduce your taxable income. The IRS allows business owners to deduct numerous business expenses, including:
- Home office
- Utilities and Internet
- Vehicle for business
- Business travel
- Contribute to a Health Savings Account (HSA)
A health savings account (HSA) allows individuals to save for upcoming medical expenses. What most people don’t know is that an HSA can help save on taxes.
All funds go in tax-free and grow tax-free through investment. You can withdraw them in case of a qualifying medical expense. Moreover, any remaining balance will roll over from year to year.
In 2025, the pre-tax contribution limit for an HSA is $4,300. However, a family can contribute up to $8,550. Individuals aged 55 or older can contribute an additional $1,000.
- Deduct Student Loan Interest You’ve Paid
With private student loans, you accrue interest throughout the year. The interest you’ve paid or are paying can be a deduction from your taxable income.
As of 2025, you can deduct up to $2,500. For married couples filing jointly, the maximum amount can vary. Check the IRS website to get accurate information.
- Consider Tax-Loss Harvesting
So, you’ve got some stocks or bonds in your portfolio that aren’t performing well. Investment losses can be turned into a potential tax-saving opportunity if you know the right strategy.
Tax-loss harvesting allows you to sell your assets at a loss to offset the taxes owed on capital gains. Reach out to your financial or investment advisor to make sure this strategy applies to your situation.
