13 great strategies to lower your tax bill

Contribute to a retirement account

Do you have a retirement account, like a 401(k) or a traditional IRA? If so, you can lower your tax bill by contributing to your retirement account. Every dollar you contribute not only helps you save for the future, but it can also help reduce the amount of income the IRS taxes.

The contributions you make to your traditional 401(k) or IRA through your employer are made before taxes are taken out, leaving less taxable income in your paycheck. Keep in mind that contributions to a Roth IRA are made with after-tax dollars. While they won’t lower your taxable income now, Roth IRAs provide tax-free withdrawals in retirement.

When planning your yearly retirement contributions, take note that there are limits to how much you can contribute. For 2024, the maximum you can contribute to a 401(k), 403(b), or most 457 plans is $23,000, and you can contribute up to $7,000 to an IRA.

Are you 50 or older? You can contribute even more in the form of catch-up contributions. If you participate in an IRA, the catch up is an additional $1,000. You can also make up to $7,500 in catch-up contributions to a Thrift Savings Plan, 401(k), 403(b), or most 457 plans. If you participate in SIMPLE plans, you can contribute a catch-up amount up to $3,500.

If you have a traditional IRA, whether or not you can deduct your contributions, as well as how much you can deduct, depends on your income. It also matters if you or your spouse is covered by a retirement plan at work.

Phase-out range for traditional IRA contribution deductions

By maxing out your contributions, you can really make a dent in your tax and boost your retirement savings at the same time.

Write off your gambling losses

Have a lucky streak at the casino? The bad news is that your winnings are taxable, and you should report them on your return. But there’s also good news. You can offset your winnings, and reduce your taxable income, by writing off your gambling losses.

Let’s say you won $1,000 on a slot machine, but you also lost $600 playing blackjack. You can deduct those losses, which means the IRS will only tax you on $400 of your winnings. Just keep in mind that you can only deduct losses up to the amount of your winnings, and you’ll have to itemize deductions to write off your losses. You’ll also need to keep detailed records of your bets, losses, and wins.

Claim tax credits

Tax credits are a powerful tool you can use to lower your tax bill, because they directly reduce what you owe. For example, if you qualify for a $1,000 tax credit, you’ll get $1,000 off your tax amount. If your total tax was $1,000, the tax credit would bring your total to $0. Not bad, right?

There are two main types of tax credits: refundable and nonrefundable. A refundable tax credit can not only reduce your tax to $0 but can also result in a refund if there’s any credit leftover. Even if you don’t owe any tax, you could still get money back if you qualify for a refundable credit.

Nonrefundable credits, on the other hand, can only reduce your tax bill to $0. Nonrefundable credits won’t result in a refund if they exceed your tax, but they can still significantly lower or even eliminate your total tax.

Some nonrefundable tax credits also offer a carryover option. This allows you to apply any unused portion of the credit to future tax years. With carryover credits, you won’t lose out on any benefits just because you can’t use the full amount this year. You can carry it forward and apply it to future returns, helping to reduce your tax bill down the road.

Claim the Child Tax Credit

The Child Tax Credit (CTC) is designed to help families with children under the age of 18 by putting more money back into their pockets at tax time. The CTC can provide families with up to $2,000 per qualifying child.

To qualify for the CTC, your child must be under the age of 18, have lived with you for more than half of the tax year, not have provided more than half of their own financial support, and be a U.S. citizen, U.S. national, or U.S. resident alien. There are also limits to how much you can claim, if any, based on your modified adjusted gross income (MAGI).

For single filers  

For married couples filing jointly 

The CTC is partially refundable. This means that even if you don’t have enough taxes to use the full credit, you might still get a portion of it back as a refund, called the Additional Child Tax Credit (ACTC).

Claim the Child and Dependent Care Credit

If you pay for daycare, after-school programs, or other forms of care for your children or dependents, the Child and Dependent Care Tax Credit, often called the Daycare Credit, can help lighten the financial load. This credit is designed to assist families who need to pay for care while they work or look for work.

The Daycare Credit isn’t just for parents. If you’re responsible for the care of a dependent adult, like an aging parent, you might qualify.

Here’s how it works: you can claim 20% to 35% of up to $3,000 of your care expenses for one dependent, and up to $6,000 for two or more dependents, as a tax credit. The exact percentage you can claim depends on your MAGI.

The Daycare Credit is nonrefundable. This means it can reduce your tax to $0, but it won’t result in a refund if your credit is larger than your tax. However, it can still be a valuable tool for working families, especially when childcare costs add up.

Claim the Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is designed to help individuals and families who work but earn less than a certain income level. The amount of the credit depends on your earned income, adjusted gross income (AGI), filing status, and the number of qualifying children, if any, in your household.

What makes the EITC stand out is that it’s refundable. That means if you already have $0 in tax, you could get the full amount as a refund.

Claim the American Opportunity Tax Credit

Are you or your child enrolled in college or another post-secondary program? If so, the American Opportunity Tax Credit (AOTC) can help to offset up to $2,500 of costs educational expenses per student for the first four years.

To qualify, you or your child must be enrolled full-time in a program that leads to a degree or another educational credential recognized by the IRS for any part of five months of the year. You must also meet the MAGI limits to qualify for a full or partial credit.

For single filers  

For married couples filing jointly 

You cannot claim the AOTC if the student (you or your child) has a drug conviction, or if you’ve claimed the AOTC for four years for the student.  

The AOTC is partially refundable. Even if you have little to no tax, you could still receive up to 40% of the credit as a refund, which can help you manage your college expenses

Claim the Lifetime Learning Tax Credit

Are you or your child taking courses to further your education? The Lifetime Learning Credit (LLC) can help to cover the cost of tuition and related expenses, offering up to $2,000 per tax return. Unlike the AOTC, the LLC isn’t limited to the first four years of college, so it can benefit both traditional students and adults looking to enhance their skills or pursue new educational opportunities.

To qualify, you or your child must be enrolled in a course at an eligible educational institution that is part of a degree program or taken to acquire or improve job skills. You don’t have to be enrolled full-time, so even part-time students can qualify. However, your income must meet certain limits to be eligible for full or partial credit.

For single filers 

For married couples filing jointly

The LLC is nonrefundable. This means it can reduce your tax to $0, but you won’t get any money back if the credit is more than your tax amount.

Open a health savings account

Contributing to a health savings account (HSA) is a smart way to save for medical expenses, but it’s also a great strategy to lower your tax. HSAs are available to people enrolled in employee-sponsored high-deductible health plans, and they offer multiple tax benefits. First, your HSA contributions are made with pretax dollars. Second, your earnings grow tax-free. Third, withdrawals you make for qualified medical expenses are also tax-free.

When you contribute to an HSA, it reduces your taxable income, just like contributing to a retirement account. The money you set aside can be used to pay for a wide range of healthcare costs, including doctor visits, prescriptions, and even some over-the-counter medications. Plus, your HSA funds roll over from year to year, so you don’t lose any money you don’t need to use right away.

One of the best parts of an HSA is that once you reach a certain age, you can even use your savings for some non-medical expenses without penalty; however, those withdrawals will be taxed like regular income. This flexibility, along with the tax savings, makes an HSA a powerful tool for both your health and your wallet.

Make charitable donations 

Love giving back and helping to make the world a better place? You’ll be glad to know that your charitable donations can also help to lower your tax. If you itemize your deductions, you can claim a deduction for the donations you make to qualifying charitable organizations. These aren’t limited to cash donations, either. You can also deduct the value of goods, like clothing, furniture, and even cars that you donate to charity.

To maximize this deduction, make sure to keep records of all your donations, including receipts or acknowledgments from the charities. If you're donating goods, you’ll need to estimate the fair market value of the items. In some cases, if you make a large donation, you may even need a written appraisal.

Use your side gig to claim deductions

Whether you drive for a rideshare service, like Lyft or Uber, you sell handmade goods online, or you’re freelancing to make extra income on the side, you can claim the same business deductions as any other business owner or self-employed individual.

For example, if you’re a rideshare driver, you can deduct gas, vehicle maintenance, auto insurance premiums, and even phone chargers or bottles of water for passengers. Or, if you sell handmade goods on Etsy, you can deduct the costs of the supplies you need to craft your goods, as well as costs associated with running your Etsy store, like advertising. These deductions can add up quickly and help lower your tax significantly.

To make the most of these deductions, keep detailed records of your income and expenses throughout the year. Good record-keeping can make tax time easier and ensure you don’t miss out on any deductions you’re entitled to. Your side gig could end up saving you more money than you think!

Claim a home office deduction

Do you run your business or work a side gig out of your home office? If so, you may be eligible for a home office deduction. This deduction allows you to write off a portion of your rent, mortgage interest, utilities, and other expenses that are related to the space you use exclusively for business in your home.

To qualify, your home office must be used regularly and exclusively for work. This means that if you’re using your guest bedroom as both an office and a spare room for visitors, or if you work from your couch in the living room, you may not qualify. But if you have a dedicated workspace, whether it’s a whole room or even just a specific part of a room, you could deduct a portion of your home-related expenses based on the size of your office compared to your entire home.

The home office deduction can be a great way to lower your tax bill if you’re self-employed or running a side business. Just be sure to follow the IRS guidelines and keep accurate records of your expenses to maximize your deduction.

Write off business travel expenses 

If your business or side gig involves travel, you can write off many of your travel expenses to lower your tax. Whether you're attending a conference, meeting with clients, or scouting new business opportunities, the IRS allows you to deduct costs, like airfare, hotel stays, rental cars, and even meals while you're on the road for work.

To qualify, the trip must be primarily for business purposes, though you can mix in some personal activities as long as they’re not the main reason for the trip. For example, if you fly to another city for a business conference and stay a few extra days to explore, you can still deduct the cost of your airfare, and the portion of your hotel stay related to business.

As with other business deductions, keep receipts and documentation that show the purpose of your trip, along with your travel expenses. These deductions can help to make your work-related travel more affordable and reduce your overall tax.

Lowering your tax bill doesn’t have to be complicated. By taking advantage of these strategies, you can pay less tax and keep more of your hard-earned money.

Missing out on a credit or deduction could cost you. That’s why working with a Jackson Hewitt Tax Pro can make all the difference. Our Tax Pros can help you find every credit, deduction, and dollar you deserve. Let us help you maximize your refund and make tax season a little less stressful.