20 Smart Strategies to Lower Your Tax Bill This Year

Paying taxes is inevitable, but you can legally keep more of your hard-earned money with the right strategies.

Sophia Zapanta
March 25, 2025
7 min read

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Nobody likes giving away extra money to the government, especially when there are smart ways to reduce your tax bill. By using deductions, credits, and clever financial planning, you can cut down on what you owe without breaking any laws. These 20 strategies will help you save big and keep more cash in your pocket.

1. Max Out Retirement Contributions

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Putting money into a 401(k) or IRA lowers your taxable income, which means a smaller tax bill. Traditional retirement accounts let you defer taxes until you withdraw the money later. If your employer offers matching contributions, that’s free money you don’t want to leave on the table. The more you contribute now, the more you save today and in the future.

2. Claim Every Possible Tax Credit

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Tax credits directly reduce your tax bill dollar for dollar, making them even better than deductions. The Earned Income Tax Credit, Child Tax Credit, and credits for education or energy-efficient home upgrades can save you thousands. Many people miss out on credits simply because they don’t check their eligibility. Always double-check before filing—free money shouldn’t be ignored.

3. Use Tax-Advantaged Accounts for Healthcare

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A Health Savings Account (HSA) or Flexible Spending Account (FSA) lets you set aside pre-tax money for medical expenses. HSAs offer a triple tax benefit—your contributions, earnings, and withdrawals (for medical costs) are all tax-free. FSAs don’t roll over year to year but can still reduce your taxable income significantly. If you have medical expenses anyway, why not use tax-free dollars to cover them?

4. Deduct Business Expenses

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Freelancers, side hustlers, and small business owners can deduct a surprising number of expenses. Office supplies, home office space, internet costs, and even part of your phone bill can be written off. Keeping organized records ensures you claim every deduction possible without raising IRS red flags. The more legitimate deductions you claim, the less taxable income you report.

5. Adjust Your Withholding

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If you always get a big refund, you’re letting the government hold onto your money interest-free all year. Adjusting your W-4 form at work ensures you take home more money in each paycheck instead of waiting for a refund. On the flip side, increasing withholding can prevent a painful tax bill if you owe a lot every April. Finding the right balance means keeping more money in your hands when needed.

6. Take Advantage of the Standard or Itemized Deduction

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The IRS lets you choose between a standard deduction or itemizing expenses—pick the one that saves you more. The standard deduction is a set amount that lowers taxable income, while itemizing allows you to deduct things like mortgage interest, medical expenses, and charitable donations. If your itemized deductions add up to more than the standard deduction, go that route.

7. Write Off Student Loan Interest

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If you’re paying off student loans, you might qualify to deduct up to $2,500 in interest. This deduction applies even if you don’t itemize, making it one of the easiest ways to cut your tax bill. Income limits apply, so check if you qualify before counting on the savings. A little relief from student loans is better than nothing.

8. Make Charitable Donations

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Giving to charity doesn’t just feel good—it can also lower your taxes. Cash donations, clothes, household items, and even mileage driven for volunteer work can be deducted. Keep receipts or proof of donations to make sure they count. The IRS may be generous, but only if you keep proper records.

9. Save for College with a 529 Plan

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Contributions to a 529 college savings plan grow tax-free and can be used for tuition and other qualified expenses. Some states even offer tax deductions or credits for contributing to these accounts. If you’re saving for your kid’s education, a 529 is a smart way to do it while lowering your tax burden. Future-you and future-them will thank you.

10. Use Tax-Loss Harvesting

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Selling losing investments can offset capital gains, reducing the tax you owe on profitable investments. You can deduct up to $3,000 in yearly losses against other income and carry over excess losses to future years. Don’t rebuy the same investment immediately, or you’ll violate the IRS wash-sale rule. Turning losses into tax savings is a rare win-win.

11. Defer Income to Next Year

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If you’re expecting a big bonus or extra income at the end of the year, see if you can push it into the next tax year. This strategy can keep you in a lower tax bracket for the current year. It works best if you think you’ll be in the same or a lower tax bracket next year. Timing really is everything.

12. Take the Home Office Deduction

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If you work from home, a portion of your rent, utilities, and internet can be deducted. The IRS offers a simplified home office deduction of $5 per square foot (up to 300 square feet), or you can calculate actual expenses. The key is that your home office must be used exclusively for work—no gaming, no Netflix marathons. Claim it correctly, and it’s an easy way to lower your taxable income.

13. Deduct State and Local Taxes (SALT Cap Applies)

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You can deduct up to $10,000 in state and local taxes (SALT) on your federal return. This includes state income taxes, property taxes, and sales tax. While the cap limits high-tax state residents, it’s still a useful deduction if you qualify. If you’re paying these taxes anyway, you might as well get a break on them.

14. Pay Your January Mortgage Payment Early

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Mortgage interest is deductible, and paying your January bill in December lets you claim the interest for this year’s taxes. This can be especially useful if you’re close to the standard deduction threshold and need an extra push to itemize. A small change in timing can lead to extra savings. Just be sure to check with your lender about how early payments are applied.

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Employees can’t deduct most work expenses anymore, but freelancers and business owners still can. Uniforms, travel costs, education related to your job, and even some meals might be deductible. If you have out-of-pocket work expenses, track them closely. Every dollar you deduct means one less dollar you owe.

16. Claim the Saver’s Credit

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If you’re a low to moderate-income earner, the Saver’s Credit rewards you for contributing to a retirement account. This credit can be worth up to $1,000 ($2,000 for married couples), making it a great incentive to save. Many people miss this credit because they don’t know it exists. Free tax savings for planning for your future? Yes, please.

17. Use an FSA for Dependent Care

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A Dependent Care Flexible Spending Account (FSA) lets you pay for daycare, babysitters, and after-school programs with pre-tax money. You can contribute up to $5,000 annually, lowering your taxable income. This is an easy way to save if you’re already paying for childcare. Parents need all the financial breaks they can get.

18. Deduct Moving Expenses (For Military Members Only)

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Most people can’t deduct moving expenses anymore, but active-duty military members relocating for orders still can. The costs of packing, travel, and storage are all deductible. If this applies to you, keep every receipt and claim what’s yours. Moving is stressful enough without overpaying on taxes.

19. Consider Hiring a Tax Professional

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A tax expert can find deductions and credits you didn’t even know existed. If you have a complicated tax situation, like multiple income sources, a business, or investments, this can save you thousands. Their fee might even be deductible as a business expense. Sometimes, paying for expertise pays for itself.

20. File Your Taxes Early

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Filing early helps avoid last-minute mistakes, reduces stress, and speeds up your refund. It also protects you from tax-related identity theft, where scammers try to file a fake return in your name. Plus, if you owe money, you’ll have more time to plan for the payment. The IRS might not be your favorite organization, but beating them to the punch is always a win.