7 Steps that May Reduce Taxes on Your Income and Portfolio

Achieving your investment goals isn’t just about the amount you invest and the returns it generates. Reducing tax liabilities in your portfolio can also play a key role in helping you build wealth over the long run. As you review your income and investments, consider these steps to help reduce potential federal tax liabilities: 

By taking all available deductions, you can lower your taxable income, which reduces the amount of taxes that you have to pay each year. Starting with the 2025 tax year, the new tax law increased the standard deduction amount to $15,750 for single filers and $31,500 for married couples filing jointly, indexed for inflation. In 2026, the deductions will jump to $16,100 for singles and $32,200 for joint filers.¹ This and other changes mean that the majority of taxpayers will benefit from taking the standard deduction when filing taxes.¹

If you’re among the taxpayers who will still itemize, there are important new deductions under the One Big Beautiful Act (“OBBBA”) for you to keep in mind as well. Those include a higher individual state and local tax (SALT) deduction limit of $40,000 for 2025, up from $10,000 previously, followed by 1% increases annually from 2026 through 2029.²

OBBBA also changes the rules around charitable deductions for taxpayers who itemize their deductions. Under the new rules, charitable contributions will only be deductible to the extent they exceed 0.5% of adjusted gross income (the “AGI floor”). The rules also limit the value of itemized deductions for taxpayers in the highest income bracket. After applying the AGI floor and all other limitations, the total amount of itemized deductions will be reduced by 2/37ths of the lesser of (1) the total itemized deductions, or (2) the amount by which taxable income exceeds the threshold where the 37% tax bracket begins. This 2/37ths reduction effectively limits the tax benefit of itemized deductions (including charitable contributions) to 35% for taxpayers whose income reaches the 37% bracket threshold.³

Work with your tax professional to determine which approach to itemizing and potential deductions make sense for you.

Tax-loss harvesting is a tax-efficient investing strategy that can help reduce the amount of federal capital gains taxes you must pay on your investments. Capital gains are generally the profits you realize when you sell an investment for more than you paid for it, and capital losses are generally the losses you realize when you sell an investment for less than you paid for it. “Harvesting” or selling investments at a loss allows you to offset capital gains for US federal income tax purposes.

If you wish to maintain similar portfolio exposure while avoiding a “wash sale” (which would disallow the current deduction of the capital loss), you can sell the original holding, realize the capital loss, then buy back the same or substantially identical security 30 days after the date of the sale or disposition.

Another strategy to consider is carrying over capital losses from one year to offset capital gains in another year. If you have offset all your capital gains and still have capital losses remaining, you can potentially apply up to $3,000 of capital losses to offset your ordinary income, further reducing this year’s tax liability. If you have additional losses that aren’t captured, carry those capital losses forward to the next year. There is no limit to how long you can carry capital losses forward into the future across your lifetime.   

Do you hold international securities in your investment accounts?

Investors that own international securities are often subject to withholding taxes by foreign governments on investment income (dividends and interest). If double taxation treaties exist between the country where you reside and the location of the security issuer, you may be entitled to reclaim all or some of these foreign taxes, but you must do so within the statute of limitations.

In addition, you may credit certain foreign tax amounts against United States federal income taxes. You should discuss this with your tax advisor.

If you are working, money that you  contribute to tax-advantaged retirement accounts, such as your workplace 401(k) account and/or an individual retirement account (IRA) can not only help you save money on taxes now, but could also potentially help set you up for income in retirement.

In 2025,  you can contribute up to $23,500 in a 401(k) retirement account in the form of salary deferrals, and those age 50 and older can contribute an extra $7,500 in salary deferrals (with an enhanced catch-up limit for those aged 60-63, in which case that extra catch-up limit is instead $11,250 for 2025).⁴ Those numbers increase to $24,500 as the salary deferral limit in 2026,⁵ with catch-up limits increased to $8,000 (but with the same enhanced catch-up limit of $11,250 for 2026).

With a traditional retirement account, such as a traditional IRA or traditional 401(k), your contributions are generally made on a pre-tax basis. (Your contributions to a traditional qualified retirement plan, such as a traditional 401(k), are generally excluded from your income for federal income tax purposes.) Investment earnings on those contributions then generally grow tax-deferred, and distributions of your pre-tax contributions and earnings are generally subject to income tax at the time of such withdrawal, except in certain limited circumstances.

Some companies also offer Roth 401(k) accounts. With a Roth retirement account, your contributions are not eligible for a tax deduction and are generally made on an after-tax basis. Investment earnings on those contributions then generally grow tax-free. If certain conditions are met, distributions of your after-tax contributions are not subject to income tax, and distributions of your earnings may be tax-free.

If you don’t have an employer-sponsored retirement account, you can still save for retirement through an IRA, as noted above. In 2025, the limit for traditional IRA contributions is $7,000, with an additional $1,000 catchup contribution limit for those age 50 and older.⁶ In 2026, the limit for traditional IRA contributions is $7,500, with an additional $1,100 limit for catch-up contributions.⁷

You can contribute to either a traditional IRA or a Roth IRA, although the ability to contribute to a Roth IRA is phased out:

(1) for 2025, for single filers with a Modified Adjusted Gross Income (MAGI) between $150,000 and $165,000, and for those married filing jointly with a MAGI between $236,000 and $246,000; and,

(2) for 2026, for single filers with a MAGI between $153,000 and $168,000, and for those married filing jointly with a MAGI between $242,000 and $252,000..

If you are enrolled in a qualifying high-deductible health plan (HDHP), you may be eligible to contribute to a health savings account (HSA). The funds you contribute to an HSA are generally tax deductible if you make them directly.  Depending on your employer, your employer may also contribute to your HSA with a pre-tax salary reduction.

Any earnings in HSA accounts generally grow income tax-free, and distributions may be income tax-free if used to pay for qualified medical expenses like medication, doctor’s fees and X-Rays. State and local tax treatment may vary.

HSA funds remain in your account from year-to-year if they aren’t spent, and you retain ownership of the account, even if you leave your job or switch health plans.

You have until your tax filing deadline without extensions—April 15, 2026, for most individual taxpayers—to contribute funds to an HSA account for the 2025 tax year. For 2025 taxes, if your HDHP covers only yourself, you can generally contribute up to $4,300 to an HSA. If you have family HDHP coverage, you can generally contribute up to $8,550 to an HSA.⁸

There is also a catch-up contribution limit of $1,000 at any time during the calendar year for those who are 55 or older, and are not enrolled in Medicare.

For 2026, contribution limits rise to $4,400 for an HSA for individual coverage or up to $8,750 for family coverage. If you have more than one HSA account, your total contributions to all HSA accounts cannot exceed these limits.⁸

The 2025 federal estate and gift tax exemption is $13.99 million per individual or $27.98 million for a married couple. In 2026, the limits will increase to $15 million per individual and $30 million for a married couple.9 These higher exemption amounts were set to expire after December 31, 2025, but the OBBBA permanently extended these exemption amounts, which will adjust annually for inflation after 2026.

You can also give annual gifts of up to $19,000 per recipient (or $38,000 from a married couple electing to split gifts) without any federal gift tax consequence. This limit will not change in 2026.⁹

Article Footnotes

¹ https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors

² https://taxfoundation.org/research/all/federal/obbba-income-tax-complexity-tax-breaks/

³ https://taxfoundation.org/blog/charitable-deduction-big-beautiful-bill/

⁴ The full deduction can be claimed by individuals and married couples filing jointly with income less than $500,000 per year and phases out at higher income levels.

⁵ https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500

⁶ https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000

⁷ https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500

⁸ https://www.irs.gov/pub/irs-drop/rp-24-25.pdf

⁹ https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill

CRC# 5056555  12/2025