10 Legal Ways to Lower Your Tax Bill

Every one of these is in the tax code. No gray area, no funny business. They just take a little planning.

1. Contribute to a traditional 401(k) at work

Money you put in comes off your taxable income before you even see it on your paycheck. Put $6,000 into your 401(k) and, if you're in the 22% bracket, that's about $1,320 less in federal tax.

2. Contribute to a traditional IRA

You have until the April tax deadline to add money to an IRA for the previous year. That means you can still lower last year's tax bill in March or April.

3. Open a Health Savings Account (HSA)

If you have a high-deductible health plan, HSA contributions are the closest thing to a triple play in the tax code: tax-free in, tax-free growth, tax-free out for medical expenses.

4. Claim the Saver's Credit

Lower-income workers who put money in a retirement account get an extra credit — up to $1,000 for singles, $2,000 for couples — on top of the deduction. Almost nobody knows it exists.

5. Use above-the-line deductions

These come off your income even if you take the standard deduction:

• Student loan interest (up to $2,500 a year)
• Educator expenses for K–12 teachers (up to $300)
• Self-employed health insurance premiums
• One-half of self-employment tax

6. Time your income and expenses

If you can push a year-end bonus into January, or pay January's business expenses in December, you can shift income into the year that helps you most. This matters most when your income jumps up or down between years.

7. Bunch your charitable giving

The standard deduction is high enough that many people no longer itemize. But if you 'bunch' two years of donations into one calendar year — say, giving in December and again in January — you may clear the itemizing bar in that one year.

8. Harvest investment losses

If some stocks or funds in a taxable account are down, selling them can offset gains from other investments — plus up to $3,000 of ordinary income each year. Extra losses carry forward to future years.

9. Contribute to a 529 for a child or grandchild

Federal tax-free growth for education. Many states also give a state income tax deduction for contributions, even small ones.

10. Actually claim the credits you qualify for

Credits are worth far more than deductions — dollar for dollar off your tax. The Earned Income Tax Credit, Child Tax Credit, education credits, and Child and Dependent Care Credit are the big four to check every single year.

None of these are secret. They're just easy to miss when you're rushing through a return in one sitting.