It’s easy to ignore taxes before tax season rolls around, but if you’d like to pay less next season, you may need to be proactive throughout the year, not just in April.
Whether you’re wondering how to reduce your tax liability, looking for ways to reduce income tax on your paycheck, or trying to figure out how to reduce federal taxes before you file, small changes can add up to real savings. The key is knowing which tax planning strategies apply to your situation and acting on them before the tax year ends.
Here are nine practical ways to lower your tax bill, from retirement contributions to credits you might be missing.
1. Contribute to a retirement plan
If you have access to a retirement plan through your employer, like a traditional 401(k), 403(b), or similar plan, consider increasing your pre-tax contributions from each paycheck. Contributions generally must be made by year-end to reduce your taxable income for that year.
For 2026, the employee contribution limit for most 401(k) and 403(b) plans is $24,500. Plans that permit catch-up contributions generally allow an additional $8,000 for participants age 50 or older. Participants turning 60-63 during 2026 may qualify for a higher $11,250 catch-up limit instead.
Beginning in 2026, affected employees whose prior-year wages from the sponsoring employer exceeded $150,000 must make catch-up contributions on a Roth basis. These contributions do not reduce current taxable income.
You may also be able to contribute to an individual retirement arrangement (IRA). For 2026, the combined contribution limit for traditional and Roth IRAs is $7,500, plus an additional $1,100 for eligible taxpayers age 50 or older.
Traditional and Roth IRAs offer different tax benefits:
- Traditional IRA: Contributions may be deductible, depending on your income and whether you or your spouse are covered by a workplace retirement plan.
- Roth IRA: Contributions aren’t deductible, but qualified withdrawals in retirement are tax-free.
Making pre-tax workplace retirement contributions or deductible traditional IRA contributions can reduce your current taxable income. Roth contributions offer potential tax benefits in retirement instead.
2. Claim tax credits you might be overlooking
Another way to lower your taxes is through deductions and credits. While credits reduce your tax bill dollar-for-dollar, deductions lower the income you’re taxed on, which indirectly lowers your tax bill.
| Tax deduction | Tax credit | |
|---|---|---|
| What it reduces | Taxable income | Tax you owe |
| Dollar-for-dollar? | No | Yes. Nonrefundable credits are limited by your tax liability; refundable credits may produce a refund beyond that amount |
| Effect | Lowers the income you’re taxed on | Directly cuts your tax bill |
| Common examples | IRA, HSA, mortgage interest (if you itemize) | EITC, Child Tax Credit, education credits |
Common federal credits worth reviewing each year include:
- Earned Income Tax Credit (EITC). This credit is for qualifying workers with low-to-moderate incomes. See if you qualify.
- Child Tax Credit. The Child Tax Credit is meant for families with qualifying children.
- Child and Dependent Care Credit (CDCC). For this credit, qualifying care expenses that allow you, and generally your spouse, if married, to work or look for work, may qualify. For 2026, the credit ranges from 20% to 50% of eligible expenses, depending on income. Expenses are limited to $3,000 for one qualifying person or $6,000 for two or more. The credit is nonrefundable. Employer-provided dependent-care benefits generally reduce the expenses available for the credit.
- American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC). The AOTC and LLC are for qualifying education expenses.
- Saver’s Credit. This credit is for eligible contributions to retirement accounts.
If you’re choosing this route, keep in mind that credits have income limits and other requirements, so not everyone qualifies for every credit. That said, many taxpayers still miss credits simply because they’re unaware of them.
3. Make charitable donations (cash and non-cash)
If you plan to itemize your deductions, both cash and non-cash donations can help you lower your taxes. However, you should know that cash and non-cash donations work a bit differently. If you itemize in 2026, your charitable contributions are generally deductible only to the extent they exceed 0.5% of your adjusted gross income, subject to other applicable limits.
Cash donations: Keep a bank record or written communication from the charity showing its name, the contribution date, and the amount. For any individual contribution of $250 or more, obtain a concurrent written acknowledgment stating the contribution amount and whether you received goods or services in return. If you received something in return, the acknowledgment generally must describe it and provide a good-faith estimate of its value.
Non-cash donations: For any individual contribution of $250 or more, including non-cash gifts, obtain a concurrent written acknowledgment from the charity. It must describe donated property and state whether you received goods or services in return, with additional details when applicable.
Although you may feel more inclined to donate during the holiday season, it’s also a good idea to make charitable contributions now, as you might be more pressed for money once December comes around. Some employers even let you set up automatic payroll deductions to charity. To make it easy, set up a regular charitable contribution plan. In some cases, you can select a set amount to be deducted from your paycheck and directly deposited to a charity. Or you can set up a recurring charitable gift online.
Note: Beginning in 2026, eligible taxpayers who don’t itemize may deduct up to $1,000 in qualifying cash contributions to eligible charitable organizations, or $2,000 if married filing jointly. Noncash donations do not qualify for this deduction.
4. Use a Health Savings Account (HSA), Flexible Spending Account (FSA), or 529 plan
Despite being an effective way to pay less in taxes, healthcare-related accounts are often overlooked.
- Health Savings Account (HSA): If you meet HSA eligibility requirements, contributions can reduce your federal taxable income. For 2026, contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, including employer contributions. Eligible individuals age 55 or older may contribute an additional $1,000, subject to eligibility and coverage rules. Having a high deductible alone does not establish eligibility; other coverage restrictions apply. Beginning in 2026, certain bronze and catastrophic individual-market plans qualify as HSA-compatible coverage. Certain direct-primary-care arrangements also no longer disqualify otherwise eligible individuals from contributing to an HSA.
- Flexible Spending Account (FSA): For 2026, employee salary-reduction contributions to a health FSA are limited to $3,400. Employer-dependent care assistance, including dependent care FSA benefits, may generally be excluded from income up to $7,500, or $3,750 if married filing separately. Check your employer’s plan limits and rules.
Both accounts reduce your federal income tax by letting you pay for eligible expenses with pre-tax dollars, which is a straightforward way to reduce federal taxes on money you’re already spending.
- 529 Plan: While 529 plans don’t give you a federal tax deduction for contributions, the earnings grow tax-free, and withdrawals are tax-free when used for qualified education expenses. Many states also offer a state tax deduction or credit for 529 contributions.
Beginning in 2026, qualifying K–12 distributions are limited to $20,000 annually per beneficiary across all of the beneficiary’s 529 plans. The expansion of eligible K–12 expenses beyond tuition began in 2025. A 529 plan can help families save for qualifying education expenses.
Note: State tax rules may differ. Check your state’s 529 rules before withdrawing.
5. Energy efficiency tax credits
Federal energy-credit availability has changed. The Energy Efficient Home Improvement Credit and Residential Clean Energy Credit no longer apply to new qualifying improvements or expenditures after Dec. 31, 2025. These credits generally do not apply to new home-energy projects completed in 2026.
New and used clean-vehicle credits generally require that the vehicle be acquired by Sept. 30, 2025. For a 2026 return, review any applicable transition rules or eligible prior-year credit carryforwards.
State, local, and utility incentives may still be available. Check current program requirements before making a purchase.
6. Adjust your tax withholding or estimated tax payments
Reviewing your withholding and estimated payments can help you manage cash flow and avoid underpayment penalties. These adjustments do not reduce your underlying tax liability.
- Employees: Review your Form W-4 withholding with your employer. Too little withholding can leave you with a balance due and possible penalties. Too much withholding reduces your take-home pay during the year.
- Self-employed workers and freelancers: Quarterly estimated tax payments help you avoid underpayment penalties. If your income fluctuates, recalculate your estimates during the year rather than waiting until filing season. Use our Self-Employment Tax Calculator to estimate self-employment tax. Be sure to remember that estimated payments may also need to cover income tax. If you also have W-2 income, adjusting your withholding may help cover the amount you owe.
Matching your payments to your expected tax liability can help you avoid overpaying during the year or facing an unexpectedly large balance due when you file.
7. Maximize deductible expenses if you itemize
For some taxpayers, itemizing deductions is the better path to reduce tax liability. Common itemized deductions include:
- Mortgage interest on a qualified home loan
- State and local taxes (SALT), subject to a 2026 deduction cap of $40,400, or $20,200 if married filing separately. The cap is reduced when modified adjusted gross income exceeds $505,000, or $252,500 if married filing separately, but can’t fall below $10,000 or $5,000, respectively
- Medical expenses exceeding 7.5% of your adjusted gross income (AGI)
For 2026, the base standard deduction is $16,100 for single filers and married taxpayers filing separately, $32,200 for married couples filing jointly, and $24,150 for heads of household. Compare your allowable itemized deductions with the standard deduction available to you to determine which provides the greater benefit.
Beginning in 2026, an additional limitation may reduce the value of itemized deductions for taxpayers with income in the highest federal tax bracket.
Deduct business expenses if you’re self-employed
Self-employed taxpayers can generally deduct ordinary and necessary business expenses on Schedule C, even if they claim the standard deduction. These deductions reduce business profit and may lower both income tax and self-employment tax.
Common deductible business expenses for self-employed taxpayers include:
- Home office expenses, if you qualify. The simplified method allows $5 per square foot, up to 300 square feet.
- Business mileage using the standard-mileage method: 72.5 cents per mile for Jan.-June 2026 and 76 cents per mile for July-Dec. 2026.
- Office supplies, software, and equipment, subject to applicable deduction and depreciation rules.
- Qualifying work-related education and professional development.
- The business-use portion of internet and phone costs.
Eligible self-employed taxpayers may also deduct qualifying health-insurance premiums on Schedule 1. This deduction generally reduces income tax rather than self-employment tax.
Keep records throughout the year to support your deductions and distinguish business expenses from personal spending.
8. Pre-tax workplace benefits
Beyond retirement plans, many employers offer benefits that lower your taxable income:
- Commuter and transit benefits
- Dependent-care assistance, including dependent-care FSAs: For 2026, eligible employees generally may exclude up to $7,500, or $3,750 if married filing separately, subject to plan and eligibility requirements. Excluded benefits usually reduce the expenses available for the Child and Dependent Care Credit
- Group-term life insurance (within limits)
- Health insurance premiums paid through payroll on a pre-tax basis
9. Harvest Your Investment Losses
If your portfolio has investments that have lost value, selling them can help you reduce taxes through a strategy called tax-loss harvesting.
Selling investments at a loss can help offset capital gains. If capital losses exceed capital gains, you typically may deduct up to $3,000 of the excess against other income each year, or $1,500 if married filing separately. Unused losses carry forward to future tax years.
Wash-sale rule
For stocks and securities, the wash-sale rule disallows a loss if you acquire substantially identical investments within 30 days before or after the sale.
Review purchases across your accounts, including automatic dividend reinvestments and IRA purchases. Purchases by your spouse can also trigger the rule. Waiting 31 days after selling does not resolve a wash sale resulting from a purchase in the preceding 30 days.
Other deductions to review
Additional deductions available in 2026 may help eligible taxpayers reduce federal taxable income. These include deductions for qualifying seniors, qualified tips, qualified overtime compensation, and qualifying vehicle-loan interest. Each has eligibility requirements and income limits. The tips and overtime deductions do not eliminate applicable payroll taxes.cially useful in years when you’ve realized large capital gains from selling a property or other investments.
FAQs
The bottom line
Not every strategy on this list will apply to your situation. A single filer with a W-2 job has different options than a married couple with kids, a homeowner, or a freelancer with business income.
The fastest way to see your actual tax bill is to estimate your taxes before you file. Our tax calculators can help you project your liability and identify areas where you might save.
When you’re ready, file with TaxAct® for step-by-step guidance that helps you identify deductions and credits so you can file with confidence.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
Citations
Internal Revenue Service. “About Form W-4, Employee’s Withholding Certificate.” IRS, 21 Apr. 2026, www.irs.gov/forms-pubs/about-form-w-4.
Internal Revenue Service. “About Schedule A (Form 1040), Itemized Deductions.” IRS, www.irs.gov/forms-pubs/about-schedule-a-form-1040. Accessed 13 July 2026.
Internal Revenue Service. “Child Tax Credit.” IRS, 28 June 2026, www.irs.gov/credits-deductions/individuals/child-tax-credit.
Internal Revenue Service. “Credits and Deductions for Individuals.” IRS, www.irs.gov/credits-and-deductions-for-individuals. Accessed 13 July 2026.
Internal Revenue Service. “Earned Income Tax Credit (EITC).” IRS, www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc. Accessed 13 July 2026.
Internal Revenue Service. “Education Credits: American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC).” IRS, 4 June 2026, www.irs.gov/credits-deductions/individuals/education-credits-aotc-and-llc.
Internal Revenue Service. “FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D under Public Law 119-21 … Commonly Known as the One, Big, Beautiful Bill (OBBB).” IRS, www.irs.gov/newsroom/faqs-for-modification-of-sections-25c-25d-25e-30c-30d-45l-45w-and-179d-under-public-law-119-21-139-stat-72-july-4-2025-commonly-known-as-the-one-big-beautiful-bill-obbb. Accessed 13 July 2026.
Internal Revenue Service. “Home Energy Tax Credits.” IRS, 8 July 2026, www.irs.gov/credits-deductions/home-energy-tax-credits.
Internal Revenue Service. “IRA Deduction Limits.” IRS, 26 Aug. 2025, www.irs.gov/retirement-plans/ira-deduction-limits.
Internal Revenue Service. “Pay as You Go, So You Won’t Owe: A Guide to Withholding, Estimated Taxes, and Ways to Avoid the Estimated Tax Penalty.” IRS, www.irs.gov/payments/pay-as-you-go-so-you-wont-owe-a-guide-to-withholding-estimated-taxes-and-ways-to-avoid-the-estimated-tax-penalty. Accessed 13 July 2026.
Internal Revenue Service. “Publication 334, Tax Guide for Small Business.” IRS, www.irs.gov/publications/p334. Accessed 13 July 2026.
Internal Revenue Service. “Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.” IRS, www.irs.gov/publications/p969. Accessed 13 July 2026.
Internal Revenue Service. “Retirement Savings Contributions Credit (Saver’s Credit).” IRS, 26 Aug. 2025, www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-credit-savers-credit.
Internal Revenue Service. “Topic No. 409, Capital Gains and Losses.” IRS, 25 Feb. 2026, www.irs.gov/taxtopics/tc409.
Internal Revenue Service. “Topic No. 506, Charitable Contributions.” IRS, 11 June 2026, www.irs.gov/taxtopics/tc506.
Internal Revenue Service. “Topic No. 602, Child and Dependent Care Credit.” IRS, 2 Mar. 2026, www.irs.gov/taxtopics/tc602.
