How to Lower Your Tax Bill in 2026: 10 Legal Strategies

The U.S. tax code is complex, but the strategies for reducing your tax bill are surprisingly straightforward. Most taxpayers leave money on the table because they don't understand how deductions, credits, and tax-advantaged accounts work together.

These 10 strategies are 100% legal and used by financial advisors every day. Depending on your income and situation, they can save you anywhere from a few hundred to tens of thousands of dollars per year.

1. Max Out Tax-Advantaged Retirement Accounts

This is the single most impactful tax reduction strategy for most workers. Every dollar contributed to a Traditional 401(k) or Traditional IRA reduces your taxable income dollar-for-dollar.

• 401(k): $23,500 limit in 2026 ($31,000 if 50+). A $23,500 contribution in the 24% bracket saves $5,640 in federal tax.
• Traditional IRA: $7,000 limit ($8,000 if 50+). Deductible if you have no employer plan, or if your income is under certain limits.
• HSA (if eligible): $4,300 individual / $8,550 family. Triple tax advantage — deductible going in, grows tax-free, and withdrawals for medical expenses are tax-free.

2. Use the Right Deduction Strategy

In 2026, the standard deduction is $16,100 (single) / $32,200 (married filing jointly). About 87% of taxpayers take the standard deduction. But if your itemized deductions exceed these amounts, itemizing saves more.

Common itemized deductions: state and local taxes (SALT, capped at $10,000), mortgage interest, charitable contributions, and medical expenses exceeding 7.5% of AGI. Use our Tax Bracket Calculator to compare standard vs. itemized scenarios.

3. Harvest Tax Losses

If you have investments in a taxable brokerage account that have lost value, selling them generates a tax loss. You can use up to $3,000/year in net capital losses to offset ordinary income, and unlimited losses to offset capital gains. Buy a similar (but not identical) fund to maintain market exposure — this is called tax-loss harvesting.

4. Contribute to a Health Savings Account (HSA)

If you have a high-deductible health plan (HDHP), an HSA is the most tax-efficient account available. Contributions reduce taxable income, growth is tax-free, and withdrawals for medical expenses are tax-free. After age 65, you can withdraw for any purpose (just paying regular income tax, like a Traditional IRA). Many experts call it the ultimate retirement account.

5. Time Your Income and Deductions

If you have flexibility over when you receive income (freelancers, business owners, bonus timing), you can shift income between tax years to stay in a lower bracket. Similarly, bunching charitable donations into one year (using a donor-advised fund) can push you above the standard deduction threshold in alternating years.

6–10: Additional Strategies

Five more proven tax-reduction strategies:

• 6. Claim all eligible credits: The Earned Income Tax Credit (EITC), Child Tax Credit ($2,000/child), education credits (American Opportunity: up to $2,500), and Saver's Credit are all refundable or partially refundable.
• 7. Use 529 plans for education: Contributions grow tax-free, and withdrawals for qualified education expenses are tax-free. Many states also offer a state income tax deduction for contributions.
• 8. Consider Roth conversions strategically: In low-income years (job transition, sabbatical), convert Traditional IRA funds to Roth. You pay tax at your current low rate and never pay tax on that money again.
• 9. Maximize business deductions if self-employed: Home office deduction, qualified business income (QBI) deduction (up to 20% of business income), self-employed health insurance deduction, and business expenses.
• 10. Contribute to charity via appreciated stock: Donating stock held over 1 year lets you deduct the full market value without paying capital gains tax on the appreciation. Double benefit.