Smart Strategies to Legally Minimize Your Tax Burden in 2026
Tax season does not have to mean handing over more than necessary to the IRS. With thoughtful planning and knowledge of current tax provisions, you can significantly reduce your tax liability while staying fully compliant with federal and state regulations. Here are ten proven strategies that work for the 2025 and 2026 tax years.
1. Maximize Retirement Account Contributions
Contributing to tax-advantaged retirement accounts remains one of the most powerful tax reduction strategies available. For 2025, the contribution limit for 401(k) plans is $23,500, with an additional $7,500 catch-up contribution for those 50 and older. Traditional IRA contributions can reduce your taxable income by up to $7,000 ($8,000 if 50+). Every dollar contributed to a traditional 401(k) or IRA directly reduces your taxable income for the year.
If your employer offers a Roth 401(k) option, consider splitting contributions between traditional and Roth based on your current versus expected future tax bracket. This creates tax diversification that provides flexibility in retirement.
2. Harvest Tax Losses in Your Investment Portfolio
Tax-loss harvesting involves selling investments that have declined in value to offset capital gains from winning investments. You can offset unlimited capital gains with capital losses, and if your losses exceed your gains, you can deduct up to $3,000 against ordinary income per year, carrying forward any remaining losses to future years.
Be mindful of the wash-sale rule: if you repurchase a substantially identical security within 30 days before or after the sale, the loss will be disallowed. Consider reinvesting in a similar but not identical fund to maintain your desired asset allocation.
3. Claim Energy Efficiency Tax Credits
The Inflation Reduction Act continues to provide generous tax credits for energy-efficient home improvements. The Energy Efficient Home Improvement Credit (25C) offers up to $3,200 per year for qualifying upgrades including heat pumps ($2,000 max), insulation, windows, and doors ($1,200 max). These are credits, not deductions, meaning they directly reduce your tax bill dollar for dollar.
For larger projects, the Residential Clean Energy Credit (25D) covers 30% of the cost of solar panels, solar water heaters, geothermal heat pumps, and battery storage systems with no annual cap.
Pro Tip
Keep all receipts and manufacturer certification statements for energy improvements. You will need these to claim the credits on Form 5695.
4. Use Health Savings Accounts (HSAs) as a Triple Tax Advantage
If you have a high-deductible health plan (HDHP), an HSA offers three tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. For 2025, the contribution limit is $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up for those 55 and older.
Consider the strategy of contributing the maximum, investing the funds for long-term growth, and paying current medical expenses out of pocket. This allows your HSA to grow as a supplemental retirement account.
5. Bunch Charitable Contributions
With the standard deduction at $15,000 for single filers and $30,000 for married filing jointly in 2025, many taxpayers no longer benefit from itemizing. The bunching strategy involves concentrating two or more years of charitable donations into a single year to exceed the standard deduction threshold, then taking the standard deduction in alternate years.
Donor-advised funds (DAFs) make this strategy seamless. Contribute a large lump sum to a DAF in your bunching year, claim the full deduction, then distribute grants to your favorite charities over the following years at your discretion.
6. Take Advantage of the Home Office Deduction
If you are self-employed and use a dedicated space in your home regularly and exclusively for business, the home office deduction can provide significant savings. The simplified method allows $5 per square foot up to 300 square feet ($1,500 maximum). The regular method calculates actual expenses based on the percentage of your home used for business.
7. Optimize Your Filing Status
Your filing status dramatically affects your tax brackets, standard deduction, and eligibility for various credits. If you are recently divorced or separated, check whether Head of Household status applies — it offers wider tax brackets and a higher standard deduction ($22,500 vs. $15,000) than filing as Single.
8. Fund Education with 529 Plans
While 529 plan contributions are not deductible on your federal return, many states offer state income tax deductions or credits. The funds grow tax-free, and withdrawals for qualified education expenses are completely tax-free. Since 2024, unused 529 funds can be rolled into a Roth IRA for the beneficiary (up to $35,000 lifetime).
9. Claim All Eligible Business Deductions
Self-employed individuals often miss deductions including: business vehicle mileage (67 cents per mile), professional development, business insurance, software subscriptions, cell phone and internet expenses (business percentage), and the qualified business income (QBI) deduction of up to 20% of net business income.
10. Time Your Income and Expenses Strategically
If you have flexibility in when you receive income or pay expenses, timing can be powerful. If you expect to be in a lower bracket next year, defer income and accelerate deductions. For self-employed individuals, purchasing business equipment before year-end allows Section 179 deductions in the current year.
Calculate Your Savings
Use our free tax calculators to estimate how these strategies could impact your tax bill.
Next Steps
Implementing even a few of these strategies can result in significant tax savings. The key is planning ahead — most strategies require action before December 31. Consider scheduling a tax planning consultation to develop a personalized strategy.