9 ways to pay less taxes, now and throughout the year

If you’re someone who doesn’t give much thought to how to pay less in taxes until April rolls around, you could be missing out on savings throughout the year.

Emily Irwin, Head of Wells Fargo’s Advice Center, offers these planning tips to help avoid overpaying your taxes so you can keep more money in your pocket each paycheck. “These strategies may help you reduce your tax bill while potentially maximizing your ability to give to others,” Irwin said. “It’s important to know what’s available to you and what fits your profile, so you’re not paying more than you should.”

As always, consult your tax advisor for tax planning and charitable giving considerations before you make any major financial transaction. For more information, visit the Wells Fargo Advisors Investing Tax Center and the Wells Fargo Tax Center.

Here are some strategies for paying less taxes:

What to do all year

1. Assess tax-loss harvesting

If your investments grew this year and you recognized gains, you may be able to lower your tax bill by implementing a tax-loss harvesting strategy. Tax-loss harvesting requires you to sell securities (for example, stocks and bonds) at a value less than their cost basis to create a loss, and these losses can then be used to offset recognized capital gains. Using this strategy, taxpayers may also be able to deduct up to $3,000 of any remaining losses to offset ordinary income each year and carry additional losses into future years.

With the potential for volatility in the market, harvesting capital losses should not be limited to the end of the year. Instead, consider reviewing with your advisor throughout the year, which may help you take advantage of market swings, avoid wash sale situations (the purchase of a “substantially identical” security within 30 days), understand the impact on dividend distributions and transaction fees, and make sure it works with your overall strategy.

Be sure to work closely with your tax advisor as well regarding how tax-loss harvesting could impact your tax situation.

2. Plan charitable giving

If you expect to realize capital gains this year due to investment transactions or a sale of other assets, such as a business or real estate, consider implementing a charitable giving strategy to help reduce your tax bill. If you are sure you want to benefit charity yet are uncertain which charitable organizations you wish to benefit, a donor-advised fund is a flexible option. With a donor-advised fund, you get the benefit of the immediate tax deduction, but grants from the fund do not need to be made this year. It is important to review your charitable giving plan to ensure that you receive any available charitable deductions in the desired tax year. Your tax and other financial advisors can outline strategies to consider.

Read more about donor-advised funds.

Explore more: 3 steps to creating a charitable giving strategy

What to do at open enrollment

3. Review the amount of withholding tax from your paycheck

If you are owed a tax refund, it means that you paid more taxes during the year than you owed. Since you will not receive any interest on this money from Uncle Sam when it comes back to you, consider reviewing your W-4 to adjust the amount of withholding tax from each paycheck, which will have the effect of increasing your paychecks throughout the year.

On the flip side, if you owe taxes at the end of the year, it simply means that you did not have enough withheld from your earnings over the course of the year. This can happen if your employer does not withhold enough from your paychecks based on the information you provided on your W-4, or if you did not properly make quarterly estimated tax payments to the IRS.

While you can change your W-4 any time, a good rule of thumb is to review your withholdings at your employer’s open enrollment, which is usually in the fall. Be sure to update your W-4 if there is a change in your tax filing status, such as from single to married, or adding a dependent.

4. Open a health savings account

A health savings account (HSA) is a type of tax-advantaged account for individuals who are eligible for high-deductible medical plans. Contributions to HSAs are fully deductible from taxable income, grow tax-deferred within the account, and are not taxable so long as the money is used for qualified healthcare expenses. In 2025, you can contribute up to $4,300 if you are covered by a high-deductible health plan just for yourself, or $8,550 if your family is also covered. In 2026, you can contribute up to $4,400 for yourself, or $8,750 for your family. Individuals aged 55 and older can make a $1,000 annual catch-up contribution. There are a lot of upsides to this, so if you can afford it and you are eligible, consider maximizing it.

What to do at the end of the year

5. Supercharge deductions by bunching

Bunching is a strategy in which you alternate between taking the standard deduction in one year and itemizing your deductions in the next year. By making certain donations or payments, such as charitable or medical, in a particular year in order to exceed the standard deduction threshold, you can increase the likelihood of being able to itemize deductions and receive a tax benefit for these payments.

For example, if you make donations to a particular charity every year, you can make your normal contributions during the year but then prepay the entire subsequent year’s contribution in a lump sum in December of the current year. So essentially, you’re paying two years’ worth of deductions in a single tax year and have no charitable deductions in the next year.

6. Donate appreciated assets

In certain circumstances, gifting an asset that has appreciated in value may be advantageous because you may be able to eliminate the capital gains tax that otherwise would have been owed if the asset had been sold and the net sale proceeds donated to the charity. Ultimately, this means that you save on taxes and the charity receives more. Since December 31 is the deadline for completion of gifts, it is advisable to start the process earlier in the year.

What to do at tax time

7. Contribute to tax-advantaged retirement accounts to maximize deductions

Traditional IRAs, 401(k)s, 403(b)s, and 457(b)s accounts allow for a dollar-for-dollar reduction of taxable income for contributions made. Once contributions are made to these types of accounts, the asset can grow tax-deferred over time. You can make contributions toward your taxes for a given year any time between January 1 of that year until April 15 the following year. When distributions are made at retirement, income is payable on the distribution amount.

By contrast, Roth IRA and Roth 401(k) contributions don’t provide taxable income reduction up front but do allow for tax-free growth and tax-free qualified distributions.¹ For 2025, employees can contribute up to $23,500 to a Roth 401(k), with additional catch-up contributions for those ages 50 and older ($7,500) or ages 60-63 ($11,250), depending on plan rules. The total combined employee and employer contribution limit is $70,000, rising to $77,500 or $81,250 for older workers making catch-up contributions. Roth IRA contribution limits are $7,000, or $8,000 for those age 50 and older, but eligibility is subject to income phase-outs: $150,000-$165,000 for single filers and $236,000-$246,000 for married couples filing jointly.

Read more about IRAs.

8. Compare standard deduction to itemized deductions

Deductions can reduce the amount of income that is subject to income tax. Some expenses paid during the year, like mortgage interest, can be deducted as itemized deductions. Charitable contributions and medical expenses can also be included as itemized deductions. Due to tax law changes in recent years, it is generally advantageous for most taxpayers to take the standard deduction. For the 2025 tax year, the standard deduction is $15,750 for single filers and married filing separately, $31,500 for married filing jointly, and $23,625 for heads of household.

Comparing total itemized deductions available to the applicable standard deduction is a good way to ensure that you are minimizing the income tax that you’re responsible for.

9. Consider tax credits

Credits can be even more valuable than deductions because they reduce the amount of taxes due dollar for dollar. There are a variety of different credits that may be available depending on your situation. Reflect upon any major life events that occurred over the year, such as getting married, expanding your family through birth or adoption, funding education or retirement, paying for child or dependent, incurring significant medical costs, or even home improvements or a new car – these changes may come with a tax benefit.

The following is a non-exhaustive list of credits that may be available depending on your personal and financial circumstances. Be sure to confirm with your tax advisor if you can take advantage of any credit to reduce your tax obligation. See more in the Wells Fargo Advisors Tax Planning Tables (PDF).

• Earned Income Tax Credit — For eligible families below certain income limits.
• Child Tax Credit 
• Child and Dependent Care Credit
• Retirement Saver’s Credit — Taxpayers may be eligible for a government “matching” tax credit, which helps earners below certain income limits save more in a 401(k), Achieving a Better Life Experience (ABLE) account, or IRA.
• American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) — Designed to help with the cost of higher education, both credits can be claimed on the same return, but not for the same student or the same qualified expenses.
• Residential Clean Energy Credit — If you are a homeowner who invested in energy efficient upgrades to your home, you may qualify for a credit equal to a percentage of the upgrade’s cost.
• Electric Vehicle Credit — If you bought a new, qualified plug-in vehicle (EV), you may be eligible for up to $7,500 depending on when your car was purchased.

Glossary

401 (k) and IRA: Contributions to these accounts may be tax-deductible, reducing your current taxable income and allowing your investments to grow tax-deferred until retirement.

Capital gains are the profits realized from the sale of capital assets, such as stocks, bonds, and property.

Donor-advised funds allow you to make a tax-deductible donation today and then recommend gifts (known as grants) to charities from the fund over time, so the account can grow tax-free.

Itemized deductions are designated expenses that you can subtract from your taxable income and can be claimed in lieu of the standard deduction.

Securities broadly describes a wide array of investments, including stocks, bonds, limited partnership interests, oil and gas interests, and investment contracts.

Standard deduction is a flat amount based on your filing status that reduces the amount of income on which you’re taxed.

Tax credits are dollar-for-dollar amounts you claim on your tax return to reduce the income tax you owe. You can use them to reduce your tax bill and potentially increase your refund.

Tax-advantaged accounts offer ways to pay less in taxes and save more. They include 401(k)s, IRAs, Roth IRAs, 529s, and HSAs and FSAs.

Tax-loss harvesting is when you sell stocks and bonds at a value less than their cost basis to create a loss, which can then be used to offset capital gains.

Withholding tax is the amount of income tax your employer withholds from your paycheck.

FAQ

What is the difference between a tax deduction and a tax credit?

Tax deductions reduce the amount of income that is subject to income tax. Some expenses paid during the year, like mortgage interest, can be deducted as itemized deductions. Charitable contributions and medical expenses can also be included as itemized deductions.

Tax credits are dollar-for-dollar amounts you claim on your tax return to reduce the income tax you owe. You can use them to reduce your tax bill and potentially increase your refund.

How do I know if I should itemize my deductions?

Itemizing deductions involves listing out eligible expenses, such as mortgage interest, property taxes, charitable donations, and medical costs, to reduce your taxable income. This is an alternative to taking the standard deduction, which is a fixed amount set by the IRS. Consider itemizing if your total eligible deductions exceed the standard deduction. Consult with a tax advisor, accountant, or financial advisor.

Can I deduct charitable donations if I don’t itemize?

You generally cannot deduct charitable contributions if you take the standard deduction, according to the IRS.

Can I still contribute to retirement accounts after the calendar year ends?

You can make contributions to tax-advantaged retirement accounts, such as Traditional IRAs, 401(k)s, 403(b)s, and 457(b)s, for a given tax year any time between January 1 of that year until April 15 of the following year.