Even after years of filing taxes, most investors find it disheartening to send a large portion of their income to the IRS. Fortunately, there are strategies to reduce your tax burden and keep more of your money.
Most methods for reducing taxable income must be implemented by the end of the tax year. However, there are still a few last-minute strategies that you can use to reduce your 2025 taxable income before the April 15th filing deadline.
1. Reduce Your Taxable Income by Contributing to a Traditional IRA
A contribution to a Traditional IRA can help you reduce prior year taxes and retain control over your funds. You can make Traditional IRA contributions for the 2025 tax year until the filing deadline – April 15, 2026.
When you contribute to a Traditional IRA, you may be eligible to deduct your contribution from your taxable income. However, you will eventually have to pay tax on the contribution amount and investment growth. Most investors pay these taxes during retirement when they begin distributions from retirement accounts to supplement their income.
The maximum contribution to all IRAs for tax year 2025 is $7,000, and if you’re age 50 or older you may be able to contribute an additional $1,000 as a catch-up contribution. However, the deductibility of your contributions is based on your filing status, employer retirement benefits, and Modified Adjusted Gross Income [MAGI].
If your employer does not offer a retirement plan, you are likely eligible to deduct your contributions to a Traditional IRA. On the other hand, if you or your spouse is covered by an employer retirement plan, the amount you can deduct becomes more complicated. To determine if you can deduct your contributions, click here to review the details in our article: IRA Contribution Limits in 2025, and speak to an experienced financial advisor.
2. Reduce Your Taxable Income by Contributing to a Health Savings Account
Health Savings Accounts [HSAs] are available to individuals and families with compatible high-deductible health insurance plans. A high-deductible insurance plan is defined as any plan with a deductible of at least $1,650 for an individual or $3,300 for a family. These plans allow for tax-deductible contributions to an HSA that can be used to pay for qualified medical expenses.
If you had a high-deductible health insurance plan in 2025, you can contribute to an HSA until April 15, 2026. The maximum contribution amount is $4,300 for an individual and $8,550 for a family, plus an additional $1,000 if you are over age 55.
HSAs are an attractive option for high earners because the funds are never taxed if they are used for qualified medical expenses. Additionally, funds in an HSA do not expire and can be rolled over from year to year. Finally, you can withdraw the funds in an HSA after age 65 for any reason without a penalty – though you will owe income tax if you don’t use the money for medical needs.
To qualify for an HSA, your high-deductible health care plan must be your only health insurance. In other words, you cannot be covered by another insurance plan, like Medicare. In addition, you must have been covered by the high-deductible plan every month of the year to contribute the maximum amount to your HSA.
For example, if you switched to a high-deductible insurance plan halfway through 2025, you would only be eligible to contribute half of the maximum amount. An experienced financial advisor can help you determine if you are eligible to contribute.
3. Include New OBBBA Deductions
The One Big, Beautiful Bill Act [OBBBA] introduced several new deductions that could help minimize your tax burden this year. Many of the changes were retroactive, so they apply to income earned since the start of 2025. That means you’ll be able to take advantage of the following deductions if you match the qualification criteria.
Higher Standard Deduction for Seniors
Both itemizers and those who use the standard deduction can benefit from the new $6,000 deduction for seniors. This new deduction applies to individuals who are age 65 or older, so married couples can deduct a total of $12,000. However, the deduction is phased out when MAGI exceeds $75,000 or $150,000 for joint filers.
Tax Reduction for Tipped Employees
Dubbed “no tax on tips,” the new deduction for tipped employees will also apply for tax year 2025. Both employees and self-employed individuals can deduct qualified tips up to $25,000, and the deduction applies to itemizers as well as those who use the standard deduction. The income phase out range for this deduction is $150,000 for single filers and $300,000 for joint filers.
Tax Reduction for Employees with Overtime
If you worked overtime in 2025, you may qualify for the “no tax on overtime” deduction, even if you don’t itemize. This new deduction is a bit of a misnomer because it only provides a deduction for overtime pay that exceeds your normal rate of pay.
Consider this example to illustrate. Your standard rate of pay is $40 per hour for 40 hours per week of work, and you earn 1.5x your normal rate for additional hours. You work 50 hours in a given week, and your paycheck is $40 per hour for the first 40 hours, and $60 per hour for the additional 10 hours. You can deduct a total of $200, which represents 10 overtime hours multiplied by the $20 per hour additional pay. However, you cannot deduct your $40 per hour rate for the regular or overtime hours.
The maximum amount you can deduct is $12,500 if you file as single or $25,000 if you file jointly with your spouse. There is also an income phase out when MAGI exceeds $150,000 or $300,000 for joint filers.
Deduction for Some Types of Car Loan Interest
The OBBBA also introduced a new deduction for auto loan interest, though there are many caveats to be considered. The new deduction applies to loans originated after December 31, 2024, for new vehicles that were assembled in the U.S., and purchased for personal use. If you bought a new car in 2025 that meets these criteria, you can deduct up to $10,000 in interest from your auto loan, provided that your MAGI is under $100,000 or $200,000 for joint filers.
4. Account for Uncommon Tax Deductions
When filing your taxes, there are many deductions and credits that can lower your tax burden. Some of these are more well-known than others. If any of the following less-common deductions apply in your situation, be sure to account for them when filing your taxes.
Medical Expenses
If you itemize deductions, you may be able to reduce your taxable income if you had significant medical expenses last year. For 2025, you can deduct medical expenses that exceed 7.5% of your Adjusted Gross Income [AGI].
529 Contributions
If you contributed to a 529 educational account last year, include these additions in your 2025 state tax return. There is no federal tax break for 529 contributions, but many states, including Alabama, offer deductions.
Energy Efficiency Credits
If you made home improvements last year, you may be able to claim these costs under the Residential Energy Efficiency Property Credit or the Energy Efficient Home Improvement Credit. The Inflation Reduction Act of 2022 greatly increased these credits through the end of 2025, so you may see a higher deduction than in previous years. Be sure to discuss these credits with your tax advisor if you made home improvements last year.
Charitable Contributions
If you itemize, you may also be eligible to deduct donations to qualifying charities. The amount you can deduct will depend on the type of charity and the type of donation you made, among other factors.
You may qualify for other tax deductions and credits that can help to reduce your tax burden, so speak with a tax professional to review your specific situation. In addition, an experienced financial advisor can help you plan for the impact of taxes going forward and work with you to put a plan in place to minimize your tax burden.
Speak With the Tax, Legal, and Financial Professionals at Meld Financial
If you are looking for ways to reduce your taxable income, Meld Financial can help. Our team of tax, legal, and financial professionals can help you minimize your tax liability each year and plan for future taxes as a part of your financial plan.
Our comprehensive wealth management program, Financial Fingerprint® brings together the most important aspects of your financial life into one easy-to-understand plan. Best of all, Financial Fingerprint®, accounts for your tax situation now and during retirement.
To get started, contact us today.
