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Filing, deductions and credits, withholding, estimated payments, tax software, and IRS notices. Pay what you owe and not a dollar more.
Money you put in a traditional 401(k) or deductible IRA comes off your taxable income, so saving costs less than it looks. In the 22% federal bracket, a $100 contribution costs you about $78. Figure that cost at your own tax rate before you decide you can’t afford to save more.
If you’ll owe the IRS $1,000 or more after withholding this year, your third estimated payment is due September 15. Don’t guess the amount. Pay a quarter of last year’s total tax each installment, 110% of that if last year’s adjusted gross income topped $150,000, and the underpayment penalty can’t touch you whatever this year earns.
If your mortgage interest, property taxes, and charitable gifts land just under the standard deduction, most of that spending doesn’t cut your tax. Bunch two years of gifts and other flexible deductions into one year and itemize, then take the standard deduction the next. Run the numbers both ways first. The bigger your gifts, the more bunching adds.
If your income falls under the IRS Free File limit, which covers about 70% of taxpayers, you can prepare and e-file your federal return with guided tax software at no cost. Start at IRS.gov/FreeFile, because going straight to a company’s own site gets you its commercial product instead.
When you sell your main home, you can shield up to $250,000 of profit from tax, or $500,000 on a joint return, if you owned and lived in it for two of the past five years. Time your sale to pass that test, and keep every improvement receipt in case your gain tops the cap.
Your marginal tax rate applies only to the top slice of your income, and lower rates cover everything beneath it. Use that marginal rate to judge a raise, a deduction, or a 401(k) contribution, and never turn down extra income to stay out of a higher bracket.
Selling an investment that’s down in a taxable account turns a paper loss into a tax break. The loss cancels gains you’ve taken, and up to $3,000 a year beyond that comes off your ordinary income. Reinvest in something similar but not substantially identical, and wait 31 days before buying back what you sold.
Required minimum distributions (RMDs) stack on top of Social Security and any pension. The share you must withdraw rises every year, so a big traditional IRA or 401(k) can move you up a tax bracket in your 70s. Use the lower-income years before your first RMD to draw it down at lower rates.
A health savings account lets your money go in untaxed, grow untaxed, and come out untaxed when you spend it on medical care. If your health plan qualifies, fund it every year, invest the balance, and pay small medical bills out of pocket so the account keeps compounding.
A traditional IRA can cut your taxes now and taxes withdrawals later. A Roth taxes the money going in, and qualified withdrawals come out tax-free. Choose the Roth if you expect a higher tax rate in retirement than today, and the traditional IRA if you expect a lower one.
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