You’re our first priority.
Every time.

We believe everyone should be able to make financial decisions with confidence. While we don’t cover every company or financial product on the market, we work hard to share a wide range of offers and objective editorial perspectives.

So how do we make money? Our partners compensate us for advertisements that appear on our site. This compensation helps us provide tools and services - like free credit score access and monitoring. With the exception of mortgage, home equity and other home-lending products or services, partner compensation is one of several factors that may affect which products we highlight and where they appear on our site. Other factors include your credit profile, product availability and proprietary website methodologies.

However, these factors do not influence our editors’ opinions or ratings, which are based on independent research and analysis. Our partners cannot pay us to guarantee favorable reviews. Here is a list of our partners.

Tax Planning: 7 Tax Strategies and Concepts to Know

Know your bracket, how key tax ideas work, what records to keep and basic steps to shrink your tax bill.

Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

How is this page expert verified?

NerdWallet's content is fact-checked for accuracy, timeliness and relevance. It undergoes a thorough review process involving writers and editors to ensure the information is as clear and complete as possible.

Sabrina Parys

Editor & Content Strategist

---

Expertise

• Taxes
• Investing

Sabrina Parys is an editor and content strategist on the taxes and investing team at NerdWallet, where she manages and writes content on personal income taxes. Her previous experience includes five years as a copy editor and associate editor in academic and educational publishing. She is based in Brooklyn, New York.

Published in

Editor & Content Strategist

Sabrina Parys is an editor and content strategist on the taxes and investing team at NerdWallet, where she manages and writes content on personal income taxes. Her previous experience includes five years as a copy editor and associate editor in academic and educational publishing. She is based in Brooklyn, New York.

Chris Hutchison

Head of Content, New Verticals

---

11 years of experience

Chris Hutchison helped build NerdWallet's editorial operation and has directed coverage across banking, investing, taxes and insurance. He now leads a team exploring new verticals. Before joining NerdWallet, he was an editor and programmer at ESPN and an editor at the San Jose Mercury News.

Head of Content, New Verticals

Chris Hutchison helped build NerdWallet's editorial operation and has directed coverage across banking, investing, taxes and insurance. He now leads a team exploring new verticals. Before joining NerdWallet, he was an editor and programmer at ESPN and an editor at the San Jose Mercury News.

Tina Orem

Editor & Content Strategist

---

23 years of experience

Expertise

• Taxes
• Small business
• Social Security and estate planning
• Home services
• RIA

Tina Orem is an editor and content strategist at NerdWallet. Prior to becoming an editor and content strategist, she covered small business and taxes at NerdWallet. She has a degree in finance, as well as a master's degree in journalism and an MBA. Previously, she was a financial analyst and director of finance at public and private companies. Tina's work has appeared in a variety of local and national media outlets.

Published in

Editor & Content Strategist

Tina Orem is an editor and content strategist at NerdWallet. Prior to becoming an editor and content strategist, she covered small business and taxes at NerdWallet. She has a degree in finance, as well as a master's degree in journalism and an MBA. Previously, she was a financial analyst and director of finance at public and private companies. Tina's work has appeared in a variety of local and national media outlets.

Tax planning is the analysis and arrangement of a person's financial situation to maximize tax breaks and minimize tax liabilities legally and efficiently.

Tax rules can be complicated, but taking some time to know and use them for your benefit can change how much you end up paying (or getting back) when you file. Here are some key tax planning and tax strategy concepts to understand.

1. Understand your tax bracket

You can’t really plan for the future if you don’t know where you are today. So the first tax planning tip is to figure out what federal tax bracket you’re in.

The United States has a progressive tax system. That means people with higher taxable incomes are subject to higher tax rates, while people with lower taxable incomes are subject to lower tax rates. There are seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

No matter which bracket you're in, you probably won’t pay that rate on your entire income. There are two reasons:

The highest tax rate you'll pay is determined by your taxable income, which takes into account tax deductions. That’s why your taxable income usually isn’t the same as your salary or total income.

You don’t just multiply your taxable income by a tax rate. Instead, the government divides your taxable income into chunks and then taxes each chunk at the corresponding rate.

For example, let’s say you’re a single filer with $50,000 in taxable income. That puts you in the 22% tax bracket for the 2025 tax year (taxes filed in 2026). But do you pay 22% on all $50,000? No. Actually, you pay only 10% on the first $11,925, 12% on the amount between $11,926 and $48,475, and 22% on the remaining amount. (See which rates apply to you.)

2. The difference between tax deductions and tax credits

Tax deductions and tax credits may be the best part of preparing your tax return. Both reduce your tax bill but in different ways. Knowing the difference can create effective tax strategies that reduce your tax bill.

Tax deductions are specific expenses you’ve incurred that you can subtract from your taxable income. They reduce the amount of your income subject to taxes.

Tax credits are even better — they give you a dollar-for-dollar reduction in your tax bill. For instance, a tax credit valued at $1,000 lowers your tax bill by $1,000.

$10,000 tax deduction

$10,000 tax credit

Your AGI

$100,000

$100,000

Tax deduction

–$10,000

Taxable income

$90,000

$100,000

Tax rate*

25%

25%

Calculated tax

$22,500

$25,000

Tax credit

–$10,000

Your tax bill

$22,500

$15,000

*Example rate. The U.S. has a progressive tax system.

3. Taking the standard deduction vs. itemizing

Deciding whether to itemize or take the standard deduction is a big part of tax planning because the choice can make a huge difference in your tax bill.

What is the standard deduction?

Basically, it's a flat-dollar, no-questions-asked tax deduction. Taking the standard deduction makes tax prep go a lot faster, which is probably a big reason why many taxpayers do it instead of itemizing.

Congress sets the amount of the standard deduction, and it’s typically adjusted every year for inflation. The standard deduction you qualify for depends on your filing status.

Filing status

Deduction amount

Single

$15,750.

Married filing separately

$15,750.

Head of household

$23,625.

Married filing jointly

$31,500.

Surviving spouses

$31,500.

What does 'itemize' mean?

Instead of taking the standard deduction, you can itemize your tax return, which means taking all the individual tax deductions that you qualify for, one by one.

Generally, people itemize if their itemized deductions add up to more than the standard deduction. A key part of their tax planning is to track their deductions throughout the year.

The drawback to itemizing is that it takes longer to do your taxes, and you have to be able to prove you qualify for your deductions.

You use IRS Schedule A to claim your itemized deductions.

Some tax strategies may make itemizing especially attractive. For example, if you own a home, your itemized deductions for mortgage interest and property taxes may easily add up to more than the standard deduction. That could save you money.

You might be able to itemize on your state tax return even if you take the standard deduction on your federal return.

The good news: Tax software or a good tax preparer can help you figure out which deductions you’re eligible for and whether they add up to more than the standard deduction.

» MORE: Find the right tax software for your situation

on Priority Tax Relief's website

on Alleviate Tax's website

4. Keep an eye on popular tax deductions and credits

Hundreds of possible deductions and credits are available, and there are rules about who’s allowed to take them. Here are some big ones.

Tax break

What it’s generally for

Adoption credit

Costs of adopting a child.

American opportunity credit

College education costs.

Capital loss deduction

Losses on stock sales (to offset capital gains).

Charitable contributions

Giving money, cars, art, investments, household items or other things to charity.

Child and dependent care credit

Day care and similar costs.

Child tax credit

Being a parent or caretaker with an eligible dependent.

Credit for people who are elderly or disabled

For people or their spouses who retired on permanent and total disability.

Earned income tax credit

Money for people below certain adjusted gross incomes.

Electric vehicle tax credit

Tax credit for people who purchase qualifying hybrid and electric vehicles.

Home office expenses

A portion of your mortgage or rent; property taxes; utilities, repairs and maintenance; and similar expenses if you work from home.

Lifetime learning credit

Undergraduate, graduate or even non-degree courses at accredited institutions.

Medical expenses

Unreimbursed medical costs over a certain threshold.

Mortgage interest

The interest portion of mortgage payments on a primary home.

Property taxes

Property taxes on real estate

Residential energy tax credits

Installing things that make a home energy-efficient.

Saver’s credit

Contributions to an IRA for people with incomes below certain thresholds.

Note: The residential energy tax credits and EV tax credit have expired, but you can still claim them on your 2025 tax return if your qualifying purchase was before a specific date. Visit our related articles for more detailed information.

» MORE: See our full list of popular tax breaks

on Priority Tax Relief's website

on Alleviate Tax's website

5. Know what tax records to keep

Keeping tax returns and the documents you used to complete them is critical if you’re ever audited. Typically, the IRS has three years to decide whether to audit your return, so keep your records for at least that long. You also should hang on to tax records for three years if you file a claim for a credit or refund after you've filed your original return.

Keep records longer in certain cases — if any of these circumstances apply, the IRS has a longer limit on auditing you:

Six years if you underreported your income by more than 25%.

Seven years if you wrote off the loss from a “worthless security.”

Indefinitely if you committed tax fraud or didn’t file a tax return.

Category

Items

Income

W-2 form(s).

Bank statements.

1099-MISC.

1099-NEC.

1099-INT.

1099-DIV.

1099-K.

Brokerage statements.

Alimony received.

K-1 form(s).

Expenses & deductions

Receipts.

Invoices.

Alimony paid.

Statements from charities.

Gambling losses.

Home

Closing statements.

Purchase and sales invoices.

Insurance records.

Property tax assessments.

Retirement accounts

Form 5498 (IRA contributions).

Form 8606 (nondeductible IRA contributions).

401(k) statements.

Distribution records.

Annual statements.

Other investments

Transaction data (including individual purchase or sale receipts).

Annual statements.

6. Tweak your W-4

A W-4 tells your employer how much tax to withhold from your paycheck. Your employer remits that tax to the IRS on your behalf.

Here's how to use the W-4 for tax planning.

If you got a huge tax bill when you filed and don’t want to relive that pain, you may want to increase your withholding. That could help you owe less (or nothing) next time you file.

If you got a huge refund and would rather have that money in your paycheck throughout the year, do the opposite and reduce your withholding.

You probably filled out a W-4 when you started your job, but you can change your W-4 at any time. Just download it from the IRS website, fill it out and give it to your human resources or payroll team at work. You may also be able to adjust your W-4 directly through your employment portal if you have one.

7. Tax strategies to shelter income or cut your tax bill

Deductions and credits are a great way to cut your tax bill, but there are other tax planning strategies to know. Here are some popular ones.

Put money in a 401(k)

Your employer might offer a 401(k) plan that gives you a tax break on money you set aside for retirement.

The IRS doesn’t tax what you divert directly from your paycheck into a traditional 401(k).

In 2026, you can funnel up to $24,500 per year into an account. If you’re 50 or older, you can contribute up to $32,500. People ages 60 to 63 can contribute up to $35,750 because of the Secure 2.0 Act.

While these retirement accounts are usually sponsored by employers, self-employed people can open their own 401(k)s.

If your employer matches some or all of your contribution, you’ll get free money to boot.

» MORE: Calculate how much you should put in your 401(k)

Put money in an IRA

Outside of an employer-sponsored plan, there are two major types of individual retirement accounts: Roth IRAs and traditional IRAs.

You have until the tax deadline to fund your IRA for the previous tax year, which gives you extra time to do some tax planning and take advantage of this strategy.

The tax advantage of a traditional IRA is that your contributions may be tax-deductible. How much you can deduct depends on whether you or your spouse is covered by a retirement plan at work and how much you make. You pay taxes when you take distributions in retirement (or if you make withdrawals prior to retirement).

The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed. You pay the taxes upfront, so your contributions are not tax-deductible.

Earnings on your investments grow tax-free in a Roth and tax-deferred in a traditional IRA.

This table illustrates these accounts in action.

Roth IRA

Traditional IRA

Annual contribution limit

$7,000 for 2025 ($8,000 if aged 50 and older). For 2026, the limit is $7,500 ($8,600 if aged 50 and older). The contribution limit for IRAs is a combined limit.

Income

Ability to contribute is phased out at higher incomes.

Ability to deduct contributions can be phased out depending on income and access to an employer retirement plan.

Tax benefits

No immediate tax benefit for contributing; distributions in retirement are tax-free.

If deductible, contributions reduce taxable income in the year they are made. Distributions in retirement are taxed as ordinary income.

Early withdrawal options

Roth IRAs allow contributions to be withdrawn at any time, but earnings distributed before age 59 ½ may be subject to a 10% penalty and income taxes, unless you meet an exception. There is also a five-year holding rule for Roth IRA investment earnings.

Unless you meet an exception, distributions from a traditional IRA before age 59 ½ are subject to taxes and a 10% penalty. This applies to both contributions and investment earnings.

Distributions in retirement

No required minimum distributions.

There are required minimum distributions once you reach a certain age. That age was previously 72; in 2023, it increased to 73 and in 2033, it will increase again to 75.

» MORE: How to find the right kind of IRA for you

Open a 529 account

These savings accounts, operated by most states and some educational institutions, help people save for college.

You can’t deduct contributions on your federal income taxes, but you might be able to on your state return if you’re putting money into your state’s 529 plan.

There may be gift tax consequences if your contributions plus any other gifts to a particular beneficiary exceed $19,000 in 2026.

» MORE: Learn more about how 529s work

Fund your flexible spending account (FSA)

If your employer offers a flexible spending account, you can take advantage of it to lower your tax bill. The IRS lets you funnel tax-free dollars directly from your paycheck into your FSA every year. In 2026, the limit is $3,400.

You’ll have to use the money during the calendar year for medical and dental expenses, but you can also use it for related everyday items such as bandages, sunscreen and glasses for yourself and your qualified dependents. You may lose what you don’t use, so take time to calculate your expected medical and dental expenses for the coming year.

Some employers might let you carry over up to $680 to the next year.

Use dependent care flexible spending accounts (DCFSAs)

This FSA, with a twist, is another handy way to reduce your tax bill — if your employer offers it.

The IRS will exclude up to $7,500 of your pay that you have your employer divert to a dependent care FSA account, which means you’ll avoid paying taxes on that money. That can be huge for parents, because before- and after-school care, day care, preschool and day camps are usually allowed uses. Elder care may also be included.

What’s covered can vary among employers, so check out your plan’s documents.

Maximize health savings accounts (HSAs)

Health savings accounts are tax-exempt accounts you can use to pay medical expenses.

Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, so long as you use them for qualified medical expenses.

If you have self-only high-deductible health coverage, you can contribute up to $4,400 in 2026. If you have family high-deductible coverage, you can contribute up to $8,750 in 2026. If you're 55 or older, you can put an extra $1,000 in your HSA.

Your employer may offer an HSA, but you can also start your own account at a bank or other financial institution.

» MORE: See the tax benefits of FSAs and HSAs

ON THIS PAGE

ON THIS PAGE

888-708-2872

on Priority Tax Relief's website

Aggressive IRS Negotiation & Expert Representation;

Trusted & Top-Rated by Clients Nationwide with 4.9 star rating on Google;

Tailored Pricing & Money-Back Guarantee;

Elite Team of Tax Professionals: Tax Attorneys, CPA, Enrolled Agents.

888-708-2872

on Priority Tax Relief's website