Tax season can often feel like an uphill battle, but with the right strategies in place, you can significantly reduce your federal tax bill and keep more of your hard-earned money.

Whether you're a seasoned taxpayer or a first-time filer, implementing these money-saving tips can make a noticeable difference. Here are some practical ways to save on your federal taxes:

1. Maximize Retirement Contributions

One of the most effective ways to reduce your taxable income is by contributing to tax-advantaged retirement accounts such as a 401(k) or an IRA. Contributions to these accounts can be tax-deductible, meaning they reduce your taxable income for the year.* For 2025, the contribution limit for a 401(k) is $23,500, with an additional catch-up contribution of $7,500 for those aged 50 and older. For IRAs, the limit is $7,000, with a $1,000 catch-up contribution for individuals aged 50 and older.¹

2. Take Advantage of Health Savings Accounts (HSAs)

If you have a high-deductible health plan (HDHP), you may be eligible to contribute to a Health Savings Account (HSA). Contributions to an HSA are tax-deductible, and the funds can be used tax-free for qualified medical expenses. For 2025, the contribution limit for an HSA is $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution for those aged 55 and older.² HSAs offer triple tax benefits: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.

3. Claim All Available Tax Credits

Tax credits directly reduce your tax liability, so it's crucial to claim all the credits for which you are eligible. Some common tax credits include:

• Earned Income Tax Credit (EITC): A refundable credit for low-to-moderate-income working individuals and families.
• Child Tax Credit: A credit of up to $2,000 per qualifying child under the age of 17.³
• American Opportunity Credit: A credit of up to $2,500 per eligible student for qualified education expenses during the first four years of higher education. ⁴
• Lifetime Learning Credit: A credit of up to $2,000 per tax return for qualified education expenses. ⁵

4. Deduct Charitable Contributions

Charitable donations can provide significant tax savings, but it's important to keep accurate records of your contributions. You can deduct cash donations as well as the fair market value of donated goods. For cash donations, ensure you have receipts or bank records as proof. Additionally, consider "bunching" charitable contributions into one year to surpass the standard deduction threshold and maximize your itemized deductions.

5. Use Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSAs) allow you to set aside pre-tax dollars for eligible medical and dependent care expenses. Contributions to FSAs reduce your taxable income, providing immediate tax savings. For 2025, the contribution limit for healthcare FSAs is $3,300, and for dependent care FSAs, the limit is $5,000. Be mindful of the "use-it-or-lose-it" rule, which requires you to spend the funds within the plan year or forfeit any remaining balance.⁶

6. Review Your Filing Status

Choosing the correct filing status can have a significant impact on your tax liability. Review your options, which include single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child. Each status has different tax rates and eligibility criteria, so selecting the one that best fits your situation can lead to substantial tax savings.

Conclusion

By implementing these strategies, you can reduce your federal tax bill and improve your financial well-being. Remember, tax laws and limits can change annually, so it's essential to stay informed and consult with a tax professional or financial advisor to ensure you're maximizing your savings and complying with current regulations. With a proactive approach to tax planning, you'll be well on your way to achieving greater financial security and peace of mind.

*The tax deductibility may be reduced, or phased out, until it is eliminated, depending on your filing status and income.

These materials are provided for informational and educational purposes only and do not constitute a recommendation nor do they constitute legal, accounting, investment, or tax advice. Consult with a tax or financial professional to discuss your specific situation.

¹ 401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000 https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000

² The New 2025 HSA Contribution Limits Explained https://www.forbes.com/sites/davidrae/2024/12/02/the-new-2025-health-savings-accounts-hsa-limits-explained/

³ The Future of the Child Tax Credit https://tax.thomsonreuters.com/news/the-future-of-the-child-tax-credit/

⁴ American Opportunity Tax Credit https://www.irs.gov/credits-deductions/individuals/aotc

⁵ Lifetime Learning Credit https://www.irs.gov/credits-deductions/individuals/llc

⁶ IRS: Healthcare FSA reminder: Employees can contribute up to $3,300 in 2025; must elect every year https://www.irs.gov/newsroom/irs-healthcare-fsa-reminder-employees-can-contribute-up-to-3300-in-2025-must-elect-every-year

 
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