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Hey {{ name | friend }},
Taxes will be the biggest expense in your lifetime.
And unfortunately, you can’t avoid them (legally, anyway).
Benjamin Franklin even once said, “nothing is certain but death and taxes.”
BUT… here are 3 ways you can legally pay less in taxes.
1. Use Pre-Tax Accounts
Pre-tax accounts let you set aside money before taxes are deducted from your paycheck.
Think of it like shrinking your tax bill before it even starts.
If You’re a Full-Time Employee:
401(k): Contribute pre-tax money to lower your taxable income and build retirement savings. If you work for a nonprofit, school, or hospital, you likely have a 403(b) instead.
Health Savings Account (HSA) or Flexible Spending Account (FSA): Use these accounts to set aside pre-tax money for medical expenses, reducing your taxable income.
Commuter Benefits: If your employer offers a commuter program, you can use pre-tax dollars to pay for transit passes, parking, or vanpooling.
If You’re Self-Employed (or Have a Side Hustle):
Solo 401(k): If you’re self-employed, you can have a 401(k) from your full-time job and a Solo 401(k). Since you’re both employer and employee, you can contribute more than in a regular 401(k), lowering your taxable income.
2. Be Smart About Investments
Investing is one of the best ways to build wealth, but you want to make sure you’re smart about it for tax purposes.
Hold Investments for More Than a Year:
If you hold your investments for over 1 year, they’re considered “long-term” and if you sell them, they’re taxed at the long-term capital gains rate (0%, 15%, or 20%).
On the other hand, if you sell an investment after holding it for less than 1 year, you’ll be taxed at the short-term capital gains rate, which is way more expensive.
Use Tax-Loss Harvesting:
If you lose money on your investments, you can use those investment losses to offset investment gains and lower your tax bill.
For example:
You can use your investment losses to cancel out your investment gains dollar for dollar
If your Investment losses is more than your investment gains, you can deduct up to $3,000 per year against your regular taxable income.
If you have more than $3,000 in investments, you can “roll over” those extra deductions to next year.
3. Extra Tax Deductions
There are a few more tax deductions you might be able to take.
Here are some of the big ones:
Home Office Deduction: If you use part of your home for a side hustle or business, you may deduct a portion of rent, utilities, and internet.
Student Loan Interest: Deduct up to $2,500 per year in interest paid on student loans.
Charitable Donations: Donations to qualified charities (cash, clothes, stocks) can be written off.
Child Tax Credit: If you have children under 17, you can claim a credit of up to $2,000 per child.
Gambling Losses: You can deduct gambling losses up to the amount of your gambling winnings.
Educator Expenses: Teachers can deduct up to $300 per year for classroom supplies.
Energy-Efficient Home Improvements: Installing solar panels, energy-efficient windows, or insulation may qualify you for a federal tax credit.
So there you have it! I hope these strategies make tax season a little less terrible this year.
To making smarter money moves,
— Vincent Chan
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