Tax season can be a stressful time for many individuals, but with the right strategies in place, you can reduce your tax liability and keep more of your hard-earned money.

By taking advantage of available tax breaks, deductions, and credits, it's possible to minimize what you owe the government.

1. Maximize Retirement Contributions

One of the most effective ways to reduce your tax liability is by contributing to tax-advantaged retirement accounts, such as a 401(k), IRA, or a Roth IRA. Contributions to traditional retirement accounts are often made with pre-tax dollars, which reduces your taxable income in the year you make the contribution. In turn, this lowers the amount of income that is subject to taxation.

For example, the IRS allows individuals under 50 to contribute up to $20,500 to a 401(k) in 2022, and those over 50 can contribute up to $27,000. Similarly, contributing to an IRA can also reduce your taxable income—up to $6,000 for individuals under 50, with a catch-up contribution of an additional $1,000 for those 50 or older.

2. Take Advantage of Tax Credits

Tax credits directly reduce the amount of taxes you owe, making them more valuable than deductions. While tax deductions only lower your taxable income, tax credits directly reduce the amount of taxes due. Some common credits include the Child Tax Credit, Earned Income Tax Credit (EITC), and the American Opportunity Tax Credit (AOTC) for education expenses. For example, the Child Tax Credit offers up to $3,000 per qualifying child aged 6 to 17 and $3,600 for children under 6. Similarly, the Earned Income Tax Credit is designed to help lower-income workers, potentially reducing their tax bill by thousands of dollars.

3. Capitalize on Tax-Deferred Accounts

Tax-deferred accounts, such as Health Savings Accounts (HSAs) and 529 college savings plans, offer excellent opportunities to reduce your tax bill. For example, contributions to an HSA are tax-deductible, and the money grows tax-free. You can withdraw funds tax-free if used for qualified medical expenses, making it a powerful tool for both healthcare savings and tax reduction.

Additionally, 529 plans allow individuals to save for their children's education expenses while offering tax-deferred growth and tax-free withdrawals for qualified educational expenses. Contributions to 529 plans are not deductible on federal taxes, but many states offer deductions or credits for contributions made to the plan. These accounts can serve as a powerful financial planning tool, especially for individuals looking to save for medical or educational expenses while reducing their taxable income.

4. Offset Gains with Losses: Tax-Loss Harvesting

Tax-loss harvesting is an investment strategy that involves selling securities at a loss to offset capital gains taxes. If you've made profits from the sale of other investments, you can use these losses to reduce the taxable gains. This strategy is particularly useful during periods of market volatility, when some of your investments might be down.

For example, if you sold stocks that gained $10,000 in the past year, and also sold stocks that lost $5,000, you can offset those gains with the losses, reducing your taxable income by $5,000. Keep in mind that the IRS allows you to use up to $3,000 of net capital losses to offset ordinary income each year, with the remaining losses carried forward to future years.

5. Bundle Your Deductions for Bigger Tax Benefits

If you are eligible to itemize deductions, consider bundling them in one year to maximize your tax benefit. For example, charitable donations, medical expenses, and mortgage interest can be deducted if they exceed the standard deduction. However, since the Tax Cuts and Jobs Act nearly doubled the standard deduction, fewer people are itemizing their deductions.

To get around this, you can "bunch" your deductions in one year to surpass the standard deduction threshold. For instance, if you make charitable donations, you can donate two years' worth of contributions in one year, allowing you to itemize and gain a larger deduction for that year. Similarly, medical expenses that exceed 7.5% of your adjusted gross income (AGI) can be deducted, so consolidating medical expenses in one year may increase the amount you can claim.

Martin Feldstein – Economist, in a critical appraisal of supply-side claims, Feldstein argued that the notion of tax cuts increasing revenues is overstated: "It is not that you get more revenue by lowering tax rates, it is that you don't lose as much."

Reducing your tax liability is a combination of proactive planning, understanding the tools at your disposal, and taking advantage of all available deductions and credits. With implementing these five tips, maximizing retirement contributions, utilizing tax credits, leveraging tax-deferred accounts, using tax-loss harvesting, and bundling deductions—you can reduce your taxable income and keep more of your earnings in your pocket.

Tax laws are ever-changing, and it's essential to stay informed and consult with tax professionals to ensure you're utilizing the best strategies for your unique situation. As you approach tax season, consider these strategies, and don't be afraid to ask an expert for guidance—they can help you navigate the complexities of tax planning and ensure you're on the path to saving more.