Smart Tax Strategies to Keep More of Your Money

Taxes are an unavoidable part of life, but the amount you owe each year isn’t written in stone. With thoughtful planning and the right strategies, you can reduce your tax exposure, keep more of your income working for you, and build long-term wealth. While tax rules are complex and constantly evolving, a financial advisor can help you implement strategies that fit your overall plan. Here are four smart approaches to consider and revisit each year.

Maximizing Tax-Advantaged Accounts

One of the most powerful ways to reduce your tax burden is to use tax-advantaged retirement accounts. Contributions to accounts like 401(k)s and IRAs often come with an immediate benefit: lowering your taxable income for the year. For example, if you contribute $20,000 to your 401(k), your taxable income decreases by the same amount, potentially lowering the taxes you owe that year. On top of that, the investments inside these accounts grow tax-deferred, compounding without the drag of annual taxation.

If your employer offers a 401  (k) match, taking advantage of it is essentially like receiving free money. At a minimum, contributing enough to receive the full match should be a priority. Beyond that, you and your advisor can determine whether additional contributions should go into a Traditional IRA, which provides a deduction today, or a Roth IRA, which forgoes the upfront deduction in exchange for tax-free withdrawals in retirement.

The Roth option is especially valuable for individuals who expect their tax bracket to rise over time. For younger savers or those with many years before retirement, locking in tax-free growth can be a long-term win. Meanwhile, higher-income earners may consider “backdoor” Roth contributions, a strategy that involves funding a Traditional IRA and then converting it to Roth. The rules here can be tricky, but a professional can help you execute it properly.

Strategic Gifting and Charitable Contributions

Thoughtful giving can benefit both your loved ones and your tax situation. The IRS allows for annual tax-free gifts, known as the annual gift tax exclusion. In 2025, for instance, you can give up to $18,000 per recipient without triggering gift tax reporting requirements. Over time, these gifts can reduce the size of a taxable estate while helping family members with education costs, home purchases, or other financial needs.

Charitable giving also provides an opportunity for tax savings. If you itemize deductions, donations to qualified charities can reduce your taxable income. Beyond writing a check, there are more advanced ways to maximize your impact and your deduction:

• Qualified Charitable Distributions (QCDs): If you’re over age 70½ and have an IRA, you can transfer money directly to a charity. This satisfies your required minimum distribution (RMD) without increasing your taxable income.
• Donor-Advised Funds (DAFs): These allow you to make a large charitable contribution in one year, take the deduction immediately, and then distribute the funds to charities over time.
• Appreciated Securities: Donating stock that has increased in value allows you to avoid capital gains tax while still receiving a deduction for the fair market value.

With proper planning, you can align your giving with your financial goals and values while lowering your overall tax bill.

Leveraging Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) are one of the most underappreciated tools in tax planning. If you are enrolled in a high-deductible health plan (HDHP), you are eligible to contribute to an HSA. What makes HSAs so powerful is their triple tax advantage:

• Contributions are tax-deductible.
• Growth inside the account is tax-free.
• Withdrawals for qualified medical expenses are tax-free.

Unlike Flexible Spending Accounts (FSAs), HSAs are not “use it or lose it.” Unused funds roll over from year to year, and many custodians allow you to invest your HSA balance in mutual funds or ETFs for long-term growth. In retirement, HSAs can even act as a supplemental savings vehicle. After age 65, withdrawals for non-medical expenses are treated just like Traditional IRA withdrawals—taxable as ordinary income, but with no penalty. This makes HSAs a versatile planning tool that can support both health care costs and retirement income.

Using Tax-Loss Harvesting to Offset Gains

Investors inevitably face years when certain holdings underperform. Tax-loss harvesting turns those losses into an advantage. By selling investments that have declined in value, you can realize a capital loss and use it to offset capital gains elsewhere in your portfolio. If your losses exceed your gains, you can apply up to $3,000 against ordinary income each year and carry forward any remaining losses indefinitely.

It’s important to understand the rules that govern this strategy:

• Short-term vs. long-term: Investments held for less than a year and then sold are subject to higher short-term rates, while long-term capital gains often enjoy preferential rates.
• The wash-sale rule: You cannot repurchase the same security, or one that is “substantially identical,” within 30 days before or after the sale, or else the loss will be disallowed.

Tax-loss harvesting requires careful coordination with your overall investment plan. Done properly, it can reduce your tax liability while keeping your portfolio aligned with your goals.

Bringing It All Together

Each of these strategies—maximizing retirement accounts, giving strategically, using HSAs, and harvesting losses—has its own benefits. But the real power comes from integrating them into a coordinated plan. Tax planning is not a one-time event that happens each April; it’s an ongoing process that should be revisited throughout the year. Life events, career changes, investment performance, and shifts in tax law all create opportunities to adjust your strategy.

Working with a financial advisor ensures that these pieces fit together in a way that reflects your unique circumstances. By taking a proactive approach, you can reduce unnecessary tax burdens, free up more resources for your goals, and create a smoother path to financial security.