Tax planning isn't just for the wealthy—it's a crucial financial skill that can save anyone significant money. Understanding basic tax strategies helps you keep more of what you earn while staying compliant with IRS requirements.
Understanding Your Tax Bracket
The U.S. uses a progressive tax system, meaning different portions of your income are taxed at different rates. For 2024, single filers see rates ranging from 10% on the first $11,600 to 37% on income over $609,350.
Key concept: Only income above each threshold is taxed at the higher rate. If you're in the 22% bracket, not all your income is taxed at 22%—only the portion exceeding the 12% bracket threshold.
Key Tax-Reduction Strategies
Maximize Retirement Contributions
Traditional 401(k) and IRA contributions reduce your taxable income dollar-for-dollar. Contributing $10,000 to a 401(k) while in the 22% bracket saves $2,200 in federal taxes while building your retirement savings.
Use Health Savings Accounts (HSAs)
If you have a high-deductible health plan, HSAs offer triple tax benefits:
- Contributions are tax-deductible
- Growth is tax-free
- Qualified medical withdrawals are tax-free
Standard vs. Itemized Deductions
For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. Itemize only if your eligible expenses exceed these amounts. Common itemized deductions include:
- State and local taxes (SALT), capped at $10,000
- Mortgage interest
- Charitable contributions
- Medical expenses exceeding 7.5% of AGI
Tax Credits vs. Deductions
Credits reduce your tax bill directly, making them more valuable than deductions. A $1,000 credit saves $1,000; a $1,000 deduction saves only $1,000 times your tax rate. Valuable credits include:
- Child Tax Credit (up to $2,000 per child)
- American Opportunity Credit (education)
- Lifetime Learning Credit
- Earned Income Tax Credit (for lower incomes)
- Saver's Credit (for retirement contributions)
Year-Round Tax Planning
January-March
- Gather tax documents (W-2s, 1099s)
- Review last year's return for forgotten deductions
- Make prior-year IRA contributions (until tax deadline)
April-June
- File returns or extensions
- Adjust withholding if you owed or received large refund
- Begin tracking deductible expenses
July-September
- Review investment portfolio for tax-loss harvesting opportunities
- Consider mid-year retirement contribution adjustments
- Evaluate estimated tax payments if self-employed
October-December
- Maximize retirement contributions
- Harvest tax losses to offset gains
- Make charitable contributions
- Consider bunching deductions if near itemization threshold
- Review flexible spending account balances
Common Tax Mistakes to Avoid
- Missing deductions: Student loan interest, educator expenses, moving expenses (military only)
- Ignoring state taxes: State rules differ significantly from federal
- Overlooking side hustle taxes: Self-employment income requires estimated payments
- Not adjusting withholding: Large refunds mean you've given the government an interest-free loan
When to Seek Professional Help
Consider a CPA or enrolled agent if you:
- Have significant self-employment income
- Own rental properties or a business
- Experienced major life changes (marriage, home purchase, children)
- Have complex investment situations
- Need to file returns in multiple states
Good tax planning connects to your overall financial strategy, including budgeting and investing. The goal isn't to pay the least tax possible, but to pay the correct amount while optimizing your financial situation within legal bounds.
