Tax Strategies
Combine pre-tax saving, smart investing, and timing to lower the tax you owe each year.
TL;DR
- Shrink
taxableIncomefirst with pre-tax retirement and HSA savings. - Harvest losses and hold winners past a year to cut
investmentTax. - Time income and deductions to control which
bracketthey land in.
Lower Your Taxable Income
Max Pre-Tax AccountsTraditional 401(k) and IRA money comes off the top.
$24,500 401(k) + $7,500 IRAFund an HSAThe one account with a deduction and tax-free withdrawals.
$4,400 self / $8,750 familyAbove-the-LineStudent loan interest and more lower AGI without itemizing.
Cuts AGI for everyoneCatch the RippleA lower AGI can requalify you for credits and deductions.
Lower AGI unlocks more breaksManage Your Investments
Hold Past a YearLong-term gains are taxed far below ordinary income.
0/15/20% vs up to 37%Harvest LossesSell losers to cancel gains and $3,000 of income.
Losses offset gains, then incomeDonate Appreciated StockGive shares to skip the gain and deduct full value.
No gain + full-value deductionShelter With AccountsTrade inside IRAs so gains are not taxed each year.
Sell inside an IRA = no gains taxTime Your Income
Fill, Don't SpillKeep income inside your current bracket where you can.
Stop at the next bracket lineConvert in Low YearsMove traditional savings to Roth when income dips.
Low-income year = cheap conversionBunch DeductionsGroup gifts or costs to clear the standard deduction.
Two years of gifts in oneDefer or AccelerateShift a bonus or invoice into the better tax year.
Push income to a lower-tax yearAvoid These Pitfalls
Income SpikesA big sale or conversion can jump you a bracket.
Model the tax before you actWash SalesRebuying within 30 days cancels a harvested loss.
Wait 31 days to rebuyForgetting State TaxState rates stack on top of every federal move.
Add 0%-13.3% stateNo Real PurposeSchemes with no economic substance draw audits.
Substance over formTips
- Do a year-end review each October or November, while there is still time to
harvestLosses, adjust withholding, or add to retirement accounts. - Donate appreciated stock instead of cash to skip the
capitalGainand still deduct the full market value.
Warnings
- A big one-year
incomeSpike, like a Roth conversion or asset sale, can push income into a higher bracket, so model it first. - A strategy that exists only to dodge tax, with no real economic purpose, invites
IRSscrutiny and can be thrown out.
In Practice
See how combining pre-tax accounts trims a single filer's taxable income and tax.
You are single, earn $95,000, and are in the 22% bracket. You add $10,000 to a 401(k) and $4,400 to an HSA.
- Pre-tax savings: $10,000 + $4,400 = $14,400 off your income.
- AGI drops from $95,000 to $80,600.
- The sheltered $14,400 would have been taxed at 22%.
- Tax saved: $14,400 x 22% = $3,168.
Two account moves cut this year's federal tax by about $3,168.
Stacking pre-tax contributions is the simplest, biggest lever you have.
FAQ
For most people it is contributing to pre-tax accounts. A traditional 401(k), traditional IRA, or HSA lowers your taxable income dollar for dollar, so each contribution is money taxed at 0% instead of your marginal rate. It is simple, automatic, and available whether or not you itemize.
You sell an investment that has dropped to lock in the loss, which offsets your capital gains dollar for dollar. Up to $3,000 of leftover loss can offset ordinary income each year, and the rest carries forward. Just avoid the wash-sale rule by not rebuying the same holding within 30 days.
It means steering income and deductions so they land in the lowest possible bracket. You might defer a bonus to next year, convert to Roth in a low-income year, or bunch two years of charitable gifts into one so they clear the standard deduction. The goal is a smooth, low tax rate over time, not a spike.
In a high-income year when you want a big charitable deduction now but time to give later. You contribute a lump sum to the fund, deduct it this year, and then recommend grants to charities over the following years. It pairs well with a windfall or with donating appreciated stock.