Tax Saving Tips to Help You Maximize Savings and Investments

Reducing tax liability is one of the most effective ways to keep more of your income and grow your wealth. Many people overlook key strategies that could lower taxable income, increase deductions, or take advantage of credits designed to encourage saving and investing. Understanding these opportunities allows for smarter financial decisions throughout the year rather than scrambling at tax time.

There are several ways to legally minimize taxes while boosting long-term financial security. From contributing to retirement accounts to leveraging tax-efficient investment strategies, small adjustments can lead to significant savings.

Maximizing Retirement Contributions

Tax-advantaged retirement accounts reduce taxable income while helping build long-term savings. Employer-sponsored plans like 401(k)s and 403(b)s allow pre-tax contributions, lowering current-year tax liability. For 2024, the contribution limit is $23,000, with an additional $7,500 catch-up for those 50 and older. Contributing the maximum amount not only defers taxes but also takes advantage of employer matching, which is essentially free money.

For those without an employer plan or seeking additional savings, Individual Retirement Accounts (IRAs) offer another tax-efficient option. Traditional IRAs provide tax-deductible contributions depending on income and filing status, while Roth IRAs allow tax-free withdrawals in retirement. In 2024, the contribution limit for both types is $7,000, with a $1,000 catch-up for individuals 50 and older. Roth IRA eligibility begins to phase out at $146,000 for single filers and $230,000 for married couples filing jointly.

Self-employed individuals and small business owners can benefit from SEP IRAs and Solo 401(k)s, which have significantly higher contribution limits. A SEP IRA allows contributions of up to 25% of compensation or $69,000, whichever is lower. A Solo 401(k) permits both employee and employer contributions, potentially reaching $69,000, or $76,500 with catch-up contributions. These plans provide flexibility in contribution amounts, making them useful for those with fluctuating income.

Health Savings Options

A Health Savings Account (HSA) offers tax-free growth and withdrawals for qualified medical expenses. Available to individuals with a high-deductible health plan (HDHP), HSAs have a 2024 contribution limit of $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up for those 55 and older. Unlike Flexible Spending Accounts (FSAs), HSAs do not have a “use-it-or-lose-it” rule, allowing funds to accumulate indefinitely.

HSAs can also serve as a supplemental retirement vehicle. After age 65, withdrawals for non-medical expenses are taxed as ordinary income, similar to a traditional IRA. Many HSA providers offer investment options, allowing account holders to grow balances through stocks, bonds, or mutual funds.

Employer contributions to HSAs are not subject to federal income or payroll taxes, and some companies offer matching contributions. Self-employed individuals can deduct HSA contributions, reducing taxable income while maintaining access to tax-free medical withdrawals.

Education-Related Tax Advantages

A 529 plan allows tax-free growth on contributions if used for qualified education expenses. While contributions are not federally tax-deductible, many states offer deductions or credits for residents who contribute to their state-sponsored plan. In addition to college tuition, 529 plans can be used for K-12 tuition (up to $10,000 per year) and student loan repayments (up to a $10,000 lifetime limit per beneficiary).

For those paying for higher education, the American Opportunity Tax Credit (AOTC) provides up to $2,500 per eligible student for tuition, fees, and course materials. Unlike deductions, which reduce taxable income, the AOTC directly reduces tax liability, and 40% of the credit (up to $1,000) is refundable. Income limits apply, with phase-outs beginning at $80,000 for single filers and $160,000 for married couples filing jointly.

The Lifetime Learning Credit (LLC) offers 20% of up to $10,000 in qualified expenses per tax return, with a maximum benefit of $2,000. It is non-refundable but has no limit on the number of years it can be claimed, making it useful for graduate students or individuals pursuing continuing education. Income restrictions apply, with phase-outs starting at $80,000 for single filers and $160,000 for joint filers.

Charitable Gifting

Donating to qualified charitable organizations can reduce taxable income. The IRS allows taxpayers who itemize deductions to deduct contributions made to 501(c)(3) organizations. For 2024, cash donations can generally be deducted up to 60% of adjusted gross income (AGI), while non-cash contributions, such as appreciated securities, are typically capped at 30% of AGI. Donating stocks or mutual funds held for more than a year avoids capital gains taxes while allowing a deduction for the full fair market value of the asset.

A donor-advised fund (DAF) allows individuals to contribute assets, receive an immediate tax deduction, and distribute funds to charities over time. This strategy is useful for those experiencing a high-income year, as front-loading donations maximizes deductions while maintaining flexibility in grant distributions. Charitable remainder trusts (CRTs) provide a way to donate assets while retaining an income stream for a set period, offering both tax advantages and financial security.

Tax-Loss Harvesting

Investors can offset capital gains and reduce taxable income through tax-loss harvesting. This involves selling underperforming investments at a loss to counterbalance realized gains from other assets. The IRS allows taxpayers to use capital losses to offset capital gains dollar for dollar, and if losses exceed gains, up to $3,000 of the excess can be deducted against ordinary income ($1,500 for married individuals filing separately). Any remaining losses can be carried forward indefinitely.

The wash-sale rule prohibits repurchasing the same or a “substantially identical” security within 30 days before or after the sale. Violating this rule disqualifies the loss for tax purposes. To maintain market exposure while complying with this rule, investors can reinvest in a similar but not identical asset, such as an exchange-traded fund (ETF) tracking the same sector or index.

Real Estate Deductions

Owning real estate provides multiple opportunities to reduce taxable income. Rental property owners can deduct expenses such as mortgage interest, property taxes, insurance, maintenance, and management fees. Depreciation allows investors to recover the cost of the property over time, with residential rental properties typically depreciated over 27.5 years and commercial properties over 39 years.

A 1031 exchange allows investors to reinvest proceeds from a sold property into a similar investment without triggering immediate capital gains taxes. To qualify, the replacement property must be identified within 45 days and acquired within 180 days of the sale.

Homeowners can benefit from the primary residence exclusion, which allows single filers to exclude up to $250,000 in capital gains ($500,000 for married couples) when selling a home, provided they have lived in it for at least two of the last five years.

Income Distribution Choices

Managing how and when income is received can impact tax liability. Shifting income to years with lower tax rates or spreading it across multiple years can help minimize the overall tax burden. Individuals nearing retirement may benefit from Roth conversions in lower-income years, gradually shifting funds from traditional retirement accounts to tax-free Roth accounts while staying within favorable tax brackets.

Business owners and self-employed individuals have additional flexibility in structuring income. Electing S corporation status allows business owners to take a portion of earnings as distributions rather than salary, reducing self-employment taxes. Deferring income by delaying invoicing or accelerating deductible expenses before year-end can help manage taxable income effectively.

For high earners, contributing to deferred compensation plans or utilizing municipal bonds, which offer tax-free interest at the federal level, can further optimize tax efficiency.