Most individuals are employed by a company and paid wages from a salary (W2 employees). Here are some ways individuals can reduce their tax burden:
1. Max out your company-sponsored 401k or other retirement plans.
2. Traditional IRA if you’re eligible.
3. Tax-loss harvesting at year-end.
4. Contribute money to an FSA or an HSA.
5. Some states offer 529 plans that are deductible on your state-tax return (not federal).
6. Charity! Also, consider bunching your charitable giving all in one year (this helps itemize your tax deduction).
7. Invest for the long run. Mutual funds are not taxed efficiently. Short-term capital gains are taxed higher than long-term gains.
8. Municipal bond interest is federally tax-free (most of the time). But if you live in certain states, you also get a state tax deduction!
9. For top earners, this tax shield could turn a 3.5% municipal bond investment into a 7% after-tax investment.
