How to Save Money in Taxes

Time for you to do tax planning and get more tax-efficient...

Jan 30, 2025

If there’s one thing this divided f***** country can agree on, it’s that we all hate paying taxes. While we can’t avoid them altogether (unless you want to see what prison is like), we can find opportunities to lower our tax bill.

I don’t envy those that file tax returns. Usually it’s some poor individual trying to crank out 500+ tax returns. Not the most glamourous thing to be doing, especially when most people show up without fully understanding what documents they should bring or how it all works.

They just want to get it over with and, if they don’t get a refund, they make that CPA their public enemy #1…

This is where a tax-planner can help. Most financial advisors will punt on this and say they don’t offer tax advice. While I understand the reason to avoid this, to me it’s pure laziness as almost every financial decision comes with a tax impact.

Tax-planning isn’t just about scrambling at the last minute looking up ‘tax write-offs’ or just repeating what you did in the prior year.

It’s all about structuring your finances in a way that keeps more money in your pocket over the long haul.

How do you do that? Here are a few ways I look for opportunities to lower someone’s tax bill while strengthening their overall financial position:

High-Yield Savings, Money Markets, CDs: Not So Fast…

While the interest rates on these accounts are finally attractive, all of the interest income you received is taxed as ordinary income (look at box 2b on your 1040). Not necessarily a bad thing, I always recommend having a healthy cash balance.

But from a tax perspective, you are just increasing your tax bill.

For high-income earners, tax-exempt bonds, Treasury bills (which are exempt from state taxes), or municipal bond funds (exempt from federal taxes) might be a better way to earn income while keeping more of it in your pocket.

Prioritize ETFs Especially inside Your Investment Accounts

One simple shift you can make inside your investment (brokerage) account is invest in ETFs over mutual funds. Why? A lot of mutual funds will surprise you with capital gains distributions at the end of the year—kind of like an unwanted holiday gift from your fund manager. You could be stuck with a tax bill even if you didn’t sell a single share.

ETFs, on the other hand, play by a different set of rules. They trade on exchanges, meaning transactions happen between shareholders rather than with the fund itself. This setup keeps fund managers from having to sell investments and trigger capital gains. Translation: fewer surprises, fewer capital gains, and a happier tax return.

Save for Retirement While Also Saving on Taxes

Want to build wealth while also reducing your tax bill? Here are a few strategies that do both:

Traditional IRA or 401k: Depending on your income and if you have a retirement plan offered to you through your employer, you may be eligible to do a deductible IRA and lower your taxable income by $7,000 ($8,000 for those 50 and older). Any contributions made to a traditional 401k also are deducted from your taxable income, lowering your tax bill.
HSA Contributions: If you have a high-deductible health plan, contributing to a Health Savings Account (HSA) is a triple tax win—you get a tax deduction upfront, tax-free growth, and tax-free withdrawals for qualified medical expenses. It’s one of the best ways to shield your money from taxes while preparing for healthcare costs.
Qualified Dividends: Not all dividends are taxed equally. Qualified dividends enjoy lower long-term capital gains tax rates, making them more tax-efficient than ordinary dividends. Holding dividend-producing stocks in taxable accounts can be a smart move if they pay out qualified dividends.
SEP IRA & Solo 401(k) Contributions: If you're self-employed, a 1099-contractor, or a small business owner, contributing to a SEP IRA or Solo 401(k) is a great way to lower your taxable income while supercharging your retirement savings. These plans allow for higher contribution limits compared to traditional IRAs, helping lower your tax bill while also putting money away towards retirement.

Tax-Loss Harvesting

Maybe you didn’t read last weeks blog and you love buying individual stocks. Even the best investors have losing investments from time to time—why not make them work for you?

Tax-loss harvesting allows you to sell investments at a loss to offset gains elsewhere in your portfolio (or even up to $3,000 of ordinary income). It’s the silver lining of losing money on an investment. Now if only they adjusted this number for inflation it would help people a lot more!!

I hope this goes without saying, but don’t go selling investments just for a tax break—make sure it fits within your long-term strategy. But if a losing position isn’t serving you, might as well get some tax benefits out of it.

The key takeaway? You need to be proactive on this. It’s not just about what you invest in, but where you hold those investments. Tax-efficient asset placement, choosing the right investment vehicles, and being strategic about gains and losses can all add up to significant tax savings over time.

After all, it’s not about how much you make—it’s about how much you keep.

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