Reducing your adjusted gross income (AGI) is one of the most effective ways to lower your tax burden. By taking advantage of specific deductions and contributions, you can not only save on taxes but also prepare for future financial needs.
A Traditional IRA is a powerful tool for saving for retirement while reducing your taxable income. Contributions to a Traditional IRA are tax-deductible, and the earnings grow tax-deferred until withdrawal.
For 2026, you can contribute up to $7,500 to your IRA ($8,600 if you’re 50 or older), or the amount of your taxable compensation—whichever is less. Even if you don’t qualify for a deduction due to income limits, you can still make nondeductible contributions to grow your retirement savings.
If you’re self-employed or own a small business, a Simplified Employee Pension (SEP) IRA allows you to make higher contributions compared to a Traditional IRA. Contributions are tax-deductible, and earnings are not taxed until withdrawal.
In 2026, you can contribute up to 25% of your income (up to $360,000) or $72,000—whichever is less. SEP IRAs are also a great option for employers looking to provide retirement benefits to their employees.
A SIMPLE IRA is ideal for small businesses with 100 or fewer employees. Employers must make contributions to the plan, and employees can defer a portion of their income. Contributions grow tax-deferred, providing significant tax benefits.
For 2026, employees can defer up to $17,000, with additional catch-up contributions of $4,000 for those aged 50-59 or 65 and older, and $5,250 for those aged 60-63.
If you’re enrolled in a high-deductible health plan, contributing to a Health Savings Account (HSA) can reduce your AGI while helping you save for future medical expenses. Contributions are tax-deductible, and employer contributions are excluded from income.
For 2026, the maximum HSA contribution is $4,400 for individuals with self-only coverage and $8,750 for those with family coverage. Funds in your HSA roll over year-to-year, making it a valuable long-term savings tool.
If you’re paying off student loans, you may be eligible to deduct up to $2,500 in interest paid during the year. This deduction directly reduces your AGI, but it’s subject to income limits. The loan must have been used solely for qualified education expenses.
Reducing your AGI not only lowers your taxable income but can also help you qualify for additional tax credits and deductions. It’s a smart strategy for minimizing your tax liability while building financial security for the future.
At AllTax Accounting, we’re here to help you explore the tax advantages of retirement plans, HSAs, and education benefits tailored to your situation. Contact us today to discuss how you can reduce your taxable income and achieve your financial goals.