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Taxes are part of life, but many people would like to know if there are any ways to lower their tax bill.

While paying no taxes isn’t likely, there are ways you can use the tax code to reduce your taxable income and tax liability. These range from knowing the right filing status to maxing out your retirement contributions to understanding which deductions and credits you may qualify for.

Read on to learn some smart strategies for lowering your tax bill without running afoul of the IRS.

1. Choosing the Right Filing Status

If you’re married, you have a choice to file jointly or separately. In many cases, a married couple will come out ahead by filing taxes jointly.

Typically, this will give them a lower tax rate, and also may help make them eligible for certain tax breaks, such as the Earned Income Tax Credit (EITC), the American Opportunity Tax Credit (AOTC), and the Lifetime Learning Credit (LLC) for education expenses. But there are certain circumstances where couples may be better off filing separately.

Some examples include: when both spouses are high-income earners and earn the same, when one spouse has high medical bills, and if your income determines your student loan payments.

Seeking advice from a tax professional or preparing returns both ways can help you assess the pros and cons of filing jointly or separately.

2. Maxing Out Your Retirement Account

Generally, the lower your income, the lower your taxes. However, you don’t have to actually earn less money to lower your tax bill.

Instead, you can reduce your gross income (which is your income before taxes are taken out) by making contributions to a 401(k) retirement plan, a 403(b) retirement plan, a 457 plan, or an IRA.

The more you contribute to a pre-tax retirement account, the more you can reduce your adjusted gross income (AGI), which is the baseline for calculating your taxable income. A lower taxable income may also put you into different tax brackets. It’s important to keep in mind, however, that there are annual limitations to how much you can put aside into retirement, which depend on your income and your age.

Even if you don’t have access to a retirement plan at work, you may still be able to open and contribute to an IRA. And, you can do this even after the end of the year.

While the tax year ends on December 31st, you may still be able to contribute to your IRA or open up a Roth IRA or traditional IRA (if you meet the eligibility requirements) up until the tax deadline in mid-April.

3. Adding Up Your Health Care Costs

Health care expenses are typically only deductible once they exceed 7.5% of your AGI (and only for those who itemize their deductions). But with today’s high cost of medical care and, in some cases, insurance companies passing more costs onto consumers, you might be surprised how much you’re actually spending on health care.

In addition to the obvious expenses, like copays and coinsurance, it’s key to also consider things like dental care, prescription medications, prescription eyeglasses, and even the mileage to and from all medical appointments.

4. Saving for Private School and College

If you have children who may attend college in the future, or who attend or will attend private school, it can pay off to open a 529 savings plan.

Even if your children are young, it’s never too early to start setting aside money for their education. In fact, because of the power compounding returns with long-term investing, starting early could help make college a lot more affordable.

A 529 savings plan is a type of investment account designed to help parents save for educational expenses (such as for private schools or colleges) in a tax-advantaged way. While you won’t typically get a federal tax deduction for the money you put into a 529, many states offer a state tax deduction for these contributions.

The big tax advantage is that no matter how much your investments grow between now and when you need the money, you won’t pay taxes on those gains, and any withdrawals you take out to pay for qualified education expenses will be tax-free.

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5. Putting Estimated Tax Payments on Your Calendar

While this move won’t technically lower your taxes, it could help you avoid a higher-than-necessary tax bill at the end of the year.

That’s because income tax in the United States works on a pay-as-you-go system. If you are a salaried employee, the federal government typically collects income taxes throughout the year via payroll taxes.

If you’re self-employed or a freelancer, however, it’s up to you to pay as you go. You can do this by paying the IRS taxes in quarterly installments throughout the year.

If you don’t pay enough, or if you miss a quarterly payment due date, you may have to pay a penalty to the IRS. The penalty amount depends on how late you paid and how much you underpaid.

The deadlines for quarterly estimated tax payments are typically in mid-April, mid-June, mid-September, and mid-January.

For help calculating your estimated payments, individuals can use the Estimated Tax Worksheet from the IRS .

6. Saving Your Donation Receipts

You may be able to claim a deduction for donating to charities that are recognized by the IRS. So it’s a good idea to always get a receipt whenever you give, whether it’s cash, clothing and household items, or your old car.

If your total charitable contributions and other itemized deductions, including unreimbursed medical expenses, mortgage interest, and state and local taxes, are greater than your available standard deduction, you may wind up with a lower tax bill.

Note: For any contribution of $250 or more, you must obtain and keep a record.

7. Adding to Your HSA

If you have a high deductible health plan, you may be eligible for or already have a health savings account (HSA), where you can set aside funds for medical expenses.

HSA contributions are made with pre-tax dollars, so any money you put into an HSA is income the IRS will not be able to tax. And, you can typically add money until mid-April to deduct those contributions on the prior year’s taxes.

Distributions from your HSA are tax-free as long as they’re used for yourself, your spouse, and your dependents for qualifying medical expenses. If you don’t end up needing the money to pay for health care, you can simply leave it in your HSA until you reach age 65, at which point you can withdraw money from an HSA for any reason.

HSAs typically allow you to invest your funds, and in that case, the interest, dividends, and capital gains from an HSA are also nontaxable for qualified distributions.

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8. Making Student Loan Payments

You may be able to lower your tax bill by deducting up to $2,500 of student loan interest paid per year, even if you don’t itemize your deductions.

There are certain income requirements that must be met, however. The deduction is phased out when an individual’s income reaches certain thresholds.

Even so, it’s worth plugging in the numbers to see if you qualify.

9. Selling Off Poorly Performing Investments

If you have investments in your portfolio that have been down for quite some time and aren’t likely to recover, selling them at a loss might benefit you tax-wise.

The reason: You can use these losses to offset capital gains, which are profits earned from selling an investment for more than you purchased it for. If you profited from an investment that you held for one year or less, those gains can be highly taxed by the IRS.

This strategy, known as tax-loss harvesting, needs to be done within the tax year that you owe, and may be used to reduce capital gains on both short-term and long-term investments (short-term gains are taxed at a higher rate than long-term gains). Tax-loss harvesting can help a taxpayer who has made money from investments avoid a large, unexpected tax bill.

The Takeaway

The key to saving on taxes is to get to know the tax code and make sure you’re taking advantage of all the deductions and credits you’re entitled to.

It can also be helpful to look at tax planning as a year-round activity. If you gradually make tax-friendly financial decisions like saving for retirement, college, and health care throughout the year, you could easily reduce your tax burden and potentially score a refund at the end of the year. If you do score a tax refund, you can put it to good use, paying down debt or earning interest in a bank account.

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FAQ

How can I lower my tax payments?

Filing jointly, when applicable, can often get you a lower tax rate and a higher standard deduction. Other common ways to reduce taxes include contributing the maximum amount to retirement accounts, such as 401(k)s and IRAs, making tax-deductible contributions to an HSA account, deducting charitable contributions, and deducting up to $2,500 in student loan interest payments.

With investments, tax-loss harvesting may also help reduce the amount of taxes owed on capital gains.

How can saving for retirement help me lower my taxes?

Contributing to traditional, pre-tax retirement accounts like 401(k)s, 403(b)s, 457 plans, or IRAs can lower your taxable income for the year. These pre-tax contributions reduce the income you report to the IRS, which can result in a smaller tax bill now, while also allowing your retirement investments to grow tax-deferred until retirement.

Are there tax advantages to saving for health care expenses?

Yes, if you have a high-deductible health plan, you may be eligible for a Health Savings Account (HSA). HSAs offer a few different tax advantages: your contributions are tax-deductible, the money, if invested, may grow tax-free, and withdrawals for qualified medical expenses are also tax-free. In addition, non-medical withdrawals made after turning 65 are also tax-free.

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SOBNK-Q225-099

As of January 2025, the U.S. national debt had reached $36.1 trillion — the amount the government owes to its creditors. About 80% of U.S. national debt is owned by foreign governments like Japan, China, and the U.K., as well as businesses and individual investors. The rest is intragovernmental debt.

The United States borrows money typically by issuing Treasury securities, such as bills, notes, and bonds to these various entities — who loan the U.S. the funds it needs for various operations.

While there are different viewpoints on the extent to which the national debt may impact individual investors, many investors are aware that the total amount of national debt, and the government’s ability to manage its payments, can impact interest rates, bond yields, and more.

How Much Debt Does the US Have?

The amount of debt taken on by the U.S. government over time has grown precipitously. In the 100 years between 1924 and 2024, the national debt grew from $365 billion to $35.46 trillion.

Each year that the United States cannot pay the deficit between its revenue and expenses, the national debt grows. As of July 2025, the U.S. had once again reached its debt ceiling — roughly $36.1 trillion — which is the maximum amount the government can legally borrow.

It’s anticipated that Congress will once again raise the debt ceiling later this year, so that the U.S. does not default on its debt obligations, which could have severe market impacts worldwide.

The U.S. national debt comes from Treasury securities issued to foreign governments, as well as intergovernmental loans, in addition to those sold to businesses and individuals. These include Treasury bills, notes, bonds, floating-rate notes, and Treasury Inflation Protected Securities (or TIPS).

Because the U.S. has never defaulted on its debts, many people anticipate that the government’s ability to borrow will be extended at some point in 2025.

Who Is the US in Debt to?

There are generally two categories of debt: intragovernmental holdings and debt from the public. The debt that the government owes itself is known as intragovernmental debt. In general, this debt is owed to other government agencies such as the Social Security Trust Fund and other programs.

Because the Social Security Trust Fund doesn’t use all its capital, for example, it invests the excess funds in U.S. Treasuries — effectively loaning other parts of the government its cash. If the Social Security Trust Fund needs money, it can redeem the Treasuries.

The public debt consists of debt owned by individuals, businesses, governments, and foreign countries. Foreign countries own roughly one-third of U.S. public debt, with Japan owning the largest chunk of American debt hovering around $1.1 trillion. US debt to China ranks second, with that country owning roughly $859 billion of American debt.

What Is the History of the National Debt?

Since the founding of the United States and the American Revolution, debt has been a reality in America.

Creating a System of Lending

When America needed funding for the Revolutionary War in 1776, it appointed a committee, which would later become the Treasury, to borrow capital from other countries such as France and the Netherlands. Thus, after the Revolutionary War in 1783, the United States had already accumulated roughly $43 million in debt.

To cover some of this debt obligation, Alexander Hamilton, the first Secretary of the Treasury, rolled out federal bonds. The bonds were seemingly profitable and helped the government create credit. This bond system established an efficient way to make interest payments when the bonds matured and secure the government’s good faith state-side and internationally.

Using Debt to Fund War

The debt load steadily grew for the next 45 years until President Andrew Jackson took office. He paid off the country’s entire $58 million debt in 1835. After his presidency, however, debt began to accumulate again into the millions once again.

Flash forward to the American Civil War, which ended up costing about $5.2 billion. To manage some of the debt at hand, the government instituted the Legal Tender Act of 1862 and the National Bank Act of 1863. Both initiatives helped lower the debt to $2.1 billion.

The government borrowed money again to fuel World War I, and then substantially more money to pay for public works projects, and to stem deflation during the Great Depression. It borrowed even more to pay for World War II, reaching $258 billion in 1945.

The Debt Ceiling Is Established

Since 1939, the United States has had a debt ceiling, which limits the total amount of debt that the federal government can accumulate. The Treasury can continue to borrow money to fund government operations, but the total debt cannot exceed the prescribed limit.

However, Congress regularly raises the ceiling. The latest change came in June 2023, when President Biden signed a bill that suspended the limit until January 2025, in exchange for imposing some cuts on federal spending.

Since the debt ceiling was first introduced, American debt’s growth continued, with the pace accelerating in the 1980s. U.S. debt tripled between 1980 and 1990. In 2008, quantitative easing during the Great Recession more than doubled the national debt from $2.1 trillion to $4.4 trillion.

More recently, the national debt has increased substantially, with Covid-related stimulus and relief programs adding nearly $2 trillion to the national debt over the next decade.


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Why the National Debt Matters to Investors

As the national debt continues to rise, some policymakers worry about the sustainability of increasing debt, and how it will impact the future of the nation. That’s because the higher the U.S. debt, the more of the country’s overall budget must go toward debt payments, rather than on other expenses, such as infrastructure or social services.

Those worried about the increase in debt also believe that it could lead to lower private investments, since private borrowers may compete with the federal government to borrow funds, leading to potentially higher interest rates that can affect investments and lower confidence.

In addition, research shows that countries confronted with crises while in great debt have fewer options available to them to respond. Thus, the country takes more time to recover. The increased debt could put the United States in a difficult position to handle unexpected problems, such as a recession, and could change the amount of time it moves through business cycles.

Additionally, some worry that continued borrowing by the country could eventually cause lenders to begin to question the country’s credit standing. If investors could lose confidence in the U.S. government’s ability to pay back its debt, interest rates could rise, increasing inflation or other investment risks. While such a shift may not take place in the immediate future, it could impact future generations.

The Takeaway

The national debt is the amount of money that the U.S. government owes to creditors. It’s a number that’s been steadily increasing, which some investors and policymakers worry could have a negative impact on the country’s economic standing going forward.

Some economists believe that the growing national debt could lead to higher interest rates and lower stock returns, so it’s a trend that investors may want to factor into their portfolio-building strategy, especially over the long-term.

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FAQ

Who owns the most U.S. debt?

The largest amount of U.S. debt — about 42% or $15.6 trillion — is held domestically, by private investors and entities such as institutions, corporations, and individual investors.

How serious is the U.S. debt crisis?

Given that the national debt exceeds the U.S. GDP, many investors are concerned that without finding ways to stem the tide of borrowing, the economy could suffer slower growth, higher interest rates — not to mention the risk of a financial crisis, if the U.S. were to default.

Could the U.S. default on its debts?

The United States has never defaulted on any of its debt obligations, and it’s unlikely it will do so now. A more likely scenario is that the government will move to extend the debt ceiling to allow more borrowing.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.