7 Best Tips to Lower Your Tax Bill from TurboTax Tax Experts
Learn how to lower taxable income with seven tips from TurboTax Live tax experts. Find out various strategies to reduce your tax bill, including deductions and credits.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- Tax credits like the Earned Income Credit, Child Tax Credit, Child and Dependent Care Credit, and American Opportunity Tax Credit reduce the taxes you owe, not just your taxable income.
- Contributions to traditional Individual Retirement Accounts and to Health Savings Accounts lower your taxable income for the current tax year when they are made with pre-tax income.
- The earnings from 529 plans aren't subject to federal taxes, and the distributions aren't taxed as long as they are used to pay for qualified educational expenses.
- Charitable contributions of cash, property, and your volunteer expenses for qualifying charitable organizations can reduce your taxable income and lower your tax bill.
What are the 7 best tips to lower your tax bill?
Lowering your tax bill doesn’t have to be complicated. With the right strategies, you can reduce what you owe by taking advantage of credits, deductions, and smart financial planning moves. Below are seven of the most effective tips to help you keep more of your money at tax time.
1. Take advantage of tax credits
There are many tax credits available, and it is essential to claim all the benefits you are entitled to. Credits are usually better than deductions because they can reduce the tax you owe, not just your taxable income.
How do tax credits and deductions work?
For example, suppose you have $50,000 taxable income and $10,000 in tax deductions. These deductions reduce your taxable income to $40,000.
- $50,000 taxable income - $10,000 tax deductions = $40,000 taxable income
In your tax bracket, that $10,000 of taxable income would have been taxed at a rate of 12%. As a result of your deductions, you would save $1,200 on your tax bill.
- $10,000 taxable income x 0.12 tax rate = $1,200
Because tax credits reduce the amount of tax you owe dollar for dollar, $10,000 in tax credits would result in $10,000 in tax savings, rather than $1,200.
What are popular examples of tax credits?
Some of the most popular tax credits are:
- Earned Income Credit
- Child Tax Credit
- Child and Dependent Care Credit
- American Opportunity Tax Credit
2. Save for retirement
Contributions to an Individual Retirement Account (IRA) and 401(k) plans can be a great way to lower your tax bill. The primary difference between them is that 401(k)s are typically a benefit provided by an employer and IRAs are retirement savings that you do on your own.
What is the difference between 401(k) plans and IRAs?
Company-sponsored 401(k) plans are the most popular option, since many employers often match employee contributions to their 401(k) plans. Experts recommend contributing either the full amount allowed annually ($23,500 for 2025, or $31,000 for taxpayers ages 50-59 and those over 60, or $34,750 for those ages 60 through 63), or at least the maximum amount that will be matched by your employer.
Traditional IRAs are usually pre-tax contributions, meaning your contributions are placed in your IRA before being taxed, lowering your taxable income for the current tax year. You won't pay taxes on your contributions until you withdraw the money.
Contributions to Roth IRAs are made with after-tax money. So, although these contributions don’t lower your tax bill in the present, the distributions you take when you retire, including earnings, are tax-free.
3. Contribute to your HSA
Pre-tax contributions to Health Savings Accounts (HSAs) also reduce your taxable income. The IRS allows you to make HSA contributions until the tax deadline and apply the deductions to the current tax year. This means you can continue lowering your tax bill, even after December 31.
4. Set up a college savings fund for your kids
A 529 plan helps you save for education with tax-free growth and tax-free withdrawals for qualified expenses. Created to help families save for college tuition, 529 plans were expanded by the Tax Cuts and Jobs Act of 2017 to cover savings for K-12 public, private, and religious school tuition. For 2025, you can use up to $10,000 of 529 plan funds per year, per student, to pay qualified educational expenses. Starting in 2026, this amount doubles to $20,000 per year, per student.
- The contributions you make to a 529 plan are not tax-deductible at the federal level, but part or all of them may be tax-deductible at the state level (the rules vary by state).
- The earnings from a 529 account are not subject to federal tax, and the distributions are not taxed as long as they are used to pay for qualified educational expenses for the student named as the beneficiary of the plan.
- Another option under the 529 program is to use a prepaid college tuition plan for a qualified in-state public institution. This allows you to lock in current tuition rates, regardless of your child’s age.
TurboTax Tip:
You can sell losing investments before the end of the tax year to “realize” a loss—a practice known as “loss harvesting”—to offset capital gains taxes and reduce your overall tax liability.
5. Make charitable contributions
Donating cash, toys, household items, appreciated stocks, and your volunteer efforts to qualifying charitable organizations can provide substantial tax savings.
- Time spent volunteering isn't tax-deductible, but expenses incurred while doing volunteer work may be deductible, such as the cost of ingredients for a donated dish and 14 cents per mile for driving expenses.
- Your donations are only tax-deductible if the organization you’re donating to is a qualified nonprofit organization.
- You must itemize your tax deductions for charitable contributions to lower your tax bill.
6. Harvest investment losses
Reporting losses on capital investments can also reduce your tax bill. “Loss harvesting” is considered to be a key year-end strategy. This is when you sell your investments to “realize” a loss (the act of selling at a loss). These losses can be used to offset capital gains taxes, dollar for dollar, reducing your overall tax liability.
- When you have more losses than gains, you can use up to $3,000 of excess losses to offset ordinary income.
- The remainder of the losses (in excess of the $3,000 allowed each year) can be carried forward year after year.
- Keep in mind that the IRS doesn't allow use of losses from a “wash sale"; when you purchase the same or “substantially similar” investment within 30 days before or after the loss.
7. Maximize your business expenses
Usually, business owners and self-employed taxpayers can use a much wider range of tax reduction strategies than individual taxpayers because of tax-deductible business expenses. Some common business tax deductions include:
- office rent
- home office expenses
- the cost of acquiring and maintaining a vehicle for the business
- inventory
The lower your net profit, the lower your self-employment tax will be. So writing off as many expenses as possible can help reduce your tax bill. Claiming business tax deductions can also lower both your income taxes and self-employment taxes, and you can deduct a portion of your self-employment tax payments on your personal tax return.
Can you deduct your self-employed health insurance?
If you’re self-employed, you can usually claim a tax deduction for the health insurance paid for yourself, your spouse, and your dependents. This means that the premium paid for medical, dental, or long-term care insurance can reduce your taxable income, dollar for dollar. If you are a partner or a 2% (or more) S Corporation shareholder, you might benefit from this deduction as well, although special rules apply.
How can TurboTax help with determining my tax deductions?
Whether you want an expert to do your taxes from start to finish, or expert help while you file on your own, TurboTax has expert-backed offerings to meet your needs.
With TurboTax Expert Assist, our tax experts help you complete your taxes, fix any mistakes, and explain what's next. Or, with TurboTax Expert Full Service, get expert help as you go from completing your taxes, helping you fix any mistakes or explaining what's next.
Whichever plan you choose, you'll get your taxes done with 100% accuracy and your maximum refund, guaranteed.
Get started now by logging into TurboTax and file with confidence.
