When preparing your taxes, several strategies can help reduce the amount of taxes you owe:
Key Ways to Reduce Your Tax Liability
- Claim the Standard Deduction or Itemize Deductions
For 2025, the standard deduction increased to $15,000 for single filers and $30,000 for married couples filing jointly. If your itemized deductions (such as state and local taxes, mortgage interest, medical expenses, and charitable donations) exceed the standard deduction, itemizing can lower your taxable income
- Contribute to Retirement Accounts
Contributions to traditional 401(k)s and IRAs reduce your taxable income since they are deductible. The 401(k) contribution limit is $23,500 for 2025. These accounts grow tax-deferred until withdrawal, helping lower your current tax bill
- Use Health Savings Accounts (HSAs)
If you have a high-deductible health plan, contributing to an HSA allows you to put in pre-tax dollars, reducing taxable income while saving for medical expenses. For 2025, deductible limits and out-of-pocket maximums have increased
- Tax-Loss Harvesting
If you have investment gains, selling investments at a loss can offset those gains and reduce taxable income. This strategy is particularly useful after a profitable year in the stock market
- Charitable Donations
Donating appreciated assets held for more than one year to qualified charities allows you to deduct the fair market value without paying capital gains tax. Bunching donations into one year can help surpass the standard deduction threshold and maximize itemized deductions
- Take Advantage of Tax Credits
Various tax credits, such as adoption credits and education-related credits, directly reduce your tax bill. For example, the adoption credit for 2025 is up to $17,280 for special needs adoptions
- Plan Year-Round
Tax planning throughout the year, including timing income and expenses, can optimize tax outcomes. Consulting with a financial advisor or tax professional can help identify personalized opportunities
Summary
To reduce the taxes you owe, focus on maximizing deductions and credits, contributing to retirement and health savings accounts, using investment strategies like tax-loss harvesting, and planning charitable giving strategically. These approaches, combined with awareness of updated tax limits and brackets for 2025, can help minimize your tax liability effectively
