5 Ways to Lower Your Taxable Income
If you’re tired of seeing more of your paycheck go to Uncle Sam, it’s time to make tax planning a priority. Here are 5 smart ways to lower your taxable income:
Max Out Your 401(k) & IRA
401(k)s: For 2025, the maximum contribution is $23,500 if you’re under age 50. Those 50-59 (or those 64 and up) can contribute an additional $7,500 in catch-up contributions, and those between ages 60 and 63 can drop in an additional $11,250.
IRAs: In 2025, those under age 50 can contribute up to $7,000 in an IRA, and those over 50 can contribute up to $8,000.
Use a (Health Savings Account) HSA or Flexible Spending Account(FSA)
In 2025, an individual can contribute up to $4,300 for self-only coverage and $8,550 for family coverage.(Plus,a catch-up contribution of $1,000 for those age 55 or older can give your HSA a little additional padding.) These maximums include any employer contributions, so make sure that you don’t go over allowable amounts.
Contributing to a flexible spending account lets you put aside pre-tax dollars for healthcare spending — up to $3,300 in 2025.
Deduct Business Expenses
If you drive for Uber or rent out a spare room on Airbnb, you’re a small business owner. Congrats! The IRS treats independent contractors just the same as businesses. If you’re a freelancer or gig worker, track your expenses and save. You can save on taxes by covering expenses like health benefits, insurance, and even new equipment. Did you upgrade your cell phone to handle customer orders more efficiently? Buy a new laptop? Need new tires for your car? These expenses are all deductible — and tracking them diligently throughout the year can save you hundreds or even thousands of dollars.
Donate to Charity
People of any age and income level can write off what they give. Just make sure that it makes sense for you to itemize your deductions in the year that you want to claim them — 90% of us will end up taking the standard deduction ($14,600 for single filers and $29,200 for married couples filing jointly for the 2024 tax year) because they don’t have itemized deductions that top that amount.
Buy an Electric Car
You may qualify for a tax credit of up to $7,500, depending on where the vehicle’s components came from and where it was assembled. Here’s a list of cars that qualify in 2025. To claim this deduction in 2025, the car must be delivered on or after Jan. 1, 2025.
There’s still time to advantage of some of these things if you haven’t already filed your 2024 taxes. If you have, now is the perfect time to make these changes and keep track of certain expenses regularly so you are ready to reduce your taxable income for next year’s tax season.
