As someone who’s always been keen on saving money, I’ve learned that taxes don’t have to be a burden if you know the right strategies. Whether you’re an individual taxpayer, a small business owner, or a freelancer, there are plenty of legal ways to reduce your taxable income, lower your tax bill, and make sure you’re not paying more than you need to. In this article, I’ll walk you through 101 ways to save money on taxes legally. I’ll break them down into categories, explain how each strategy works, and provide examples with calculations where necessary. Let’s dive in.
Table of Contents
1. Maximize Your Standard Deduction
If you don’t itemize your deductions, you can still reduce your taxable income by taking advantage of the standard deduction. This is a flat-dollar, no-questions-asked deduction that reduces your taxable income.
For example, if you’re a single filer and your taxable income is $50,000, the 2025 standard deduction is $13,850. That means you only pay taxes on $36,150 instead of $50,000.
2. Itemize Your Deductions
If your total deductions exceed the standard deduction, you can itemize your deductions instead. This might include things like mortgage interest, medical expenses, state taxes, and charitable contributions. Itemizing deductions can be more time-consuming, but it often leads to bigger savings.
3. Contribute to Retirement Accounts
Retirement accounts like 401(k)s and IRAs allow you to contribute pre-tax dollars, lowering your taxable income. If you contribute to a 401(k), for example, your taxable income for the year is reduced by the amount you contribute (up to the contribution limit).
Let’s say you earn $60,000 and contribute $6,000 to your 401(k). Your taxable income for the year becomes $54,000, reducing your overall tax bill.
4. Use Health Savings Accounts (HSAs)
HSAs are tax-advantaged accounts that allow you to save for medical expenses. The contributions you make to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
For example, if you contribute $3,000 to an HSA, you can deduct that amount from your taxable income, which means you’ll pay less in taxes.
5. Take Advantage of Tax Credits
Unlike deductions, which reduce your taxable income, tax credits directly reduce your tax liability. Some common credits include the Child Tax Credit, the Earned Income Tax Credit, and education-related credits. Credits can be particularly valuable because they provide dollar-for-dollar reductions in the amount you owe.
6. Tax Loss Harvesting
If you have investments in taxable accounts, you can use tax loss harvesting to offset capital gains. This means selling investments that have lost value and using those losses to offset gains from other investments.
For example, if you sold an investment for a $5,000 gain but another one for a $3,000 loss, you would only be taxed on the $2,000 net gain.
7. Claim the Child and Dependent Care Credit
If you pay for child care or care for a dependent, you may qualify for the Child and Dependent Care Credit. This credit can offset up to 35% of qualifying expenses, depending on your income.
For example, if you spent $3,000 on child care and qualify for the full 35% credit, you would receive $1,050 in tax savings.
8. Contribute to a 529 Plan
A 529 plan is a tax-advantaged savings plan for education expenses. While contributions to a 529 plan are not federally tax-deductible, many states offer state tax deductions or credits for contributions to these plans.
For example, if you live in a state that offers a 5% tax credit for 529 contributions and you contribute $5,000, you could receive $250 in state tax savings.
9. Take Advantage of the Mortgage Interest Deduction
If you own a home and pay mortgage interest, you can deduct the interest you paid from your taxable income. This can be a significant deduction, especially in the early years of a mortgage when interest payments are high.
10. Claim the American Opportunity Tax Credit
If you’re paying for your child’s or your own higher education, you may be able to claim the American Opportunity Tax Credit (AOTC). This credit can be worth up to $2,500 per student and is partially refundable.
If you spent $4,000 on tuition and fees, you could receive $2,500 in tax savings with the AOTC.
11. Deduct Job-Related Education Expenses
If you’re taking courses or attending workshops related to your current job, you may be able to deduct these expenses. While the tax reform of 2017 eliminated this deduction for employees, self-employed individuals can still deduct education-related expenses.
12. Deduct Business Expenses as a Freelancer
Freelancers and self-employed individuals can deduct a variety of business expenses, including supplies, travel, software, and even home office expenses. These deductions reduce your taxable income, which can lead to lower taxes.
13. Claim the Lifetime Learning Credit
The Lifetime Learning Credit offers up to $2,000 in tax credits for tuition and related expenses. Unlike the AOTC, this credit isn’t limited to undergraduate students and can be used for graduate-level courses as well.
14. Save for Retirement with a SEP IRA
Self-employed individuals can contribute to a SEP IRA, which allows for larger contributions than traditional or Roth IRAs. Contributions to a SEP IRA are tax-deductible, reducing your taxable income.
15. Deduct Vehicle Expenses for Business Use
If you use your vehicle for business purposes, you can deduct mileage or vehicle-related expenses. The IRS allows you to deduct either the standard mileage rate or actual expenses like gas, maintenance, and insurance.
16. Invest in Municipal Bonds
Municipal bonds are issued by state and local governments, and the interest income is often exempt from federal income taxes. In some cases, municipal bond interest is also exempt from state and local taxes.
For example, if you earn $1,000 in interest from municipal bonds and are in the 25% tax bracket, you can save $250 in federal taxes compared to earning interest from taxable bonds.
17. Claim the Saver’s Credit
If you contribute to a retirement account and have a low to moderate income, you might qualify for the Saver’s Credit. This credit can provide up to $1,000 in tax savings if you’re an individual, or up to $2,000 if you’re married.
18. Make Charitable Contributions
Charitable donations can be deducted from your taxable income, reducing your overall tax bill. Contributions to qualified organizations are deductible, but make sure you keep records of your donations.
19. Use Flexible Spending Accounts (FSAs)
FSAs allow you to set aside pre-tax dollars for things like medical expenses and dependent care. The money you contribute to an FSA is deducted from your taxable income, which can lower your overall tax liability.
20. Deduct Moving Expenses for a Job Change
If you relocate for a new job, you may be able to deduct your moving expenses. This deduction applies to both individuals and families and covers expenses like transportation, lodging, and the cost of moving your belongings.
This is just a fraction of the strategies that I’ve used and researched to save money on taxes legally. The key takeaway here is that understanding the tax rules and leveraging available tools can lead to significant savings. Keep exploring these methods, track your expenses, and consult with tax professionals to make sure you’re making the most of the tax-saving opportunities available to you.