News & Trending Tax News

9 Moves to Make So Moving Up a Tax Bracket Won't Cost You Money

The right moves can help you make the most of higher income.

By Sarah Sharkey

Edited by Chris Kissell

Updated Dec. 3, 2024

If your income is growing, there is a good chance your tax liabilities also are increasing. To keep more of your hard-earned cash away from Uncle Sam, you can make some strategic moves that minimize your tax obligations when you "move up" a tax bracket.

Here are some smart money moves to help you lower your tax bill during 2025.

Steal this billionaire wealth-building technique

The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.

A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.

If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)

What are the tax brackets for 2025?

Taxpayers fall into different tax brackets based on their income. For federal income taxes, the marginal tax bracket you fall into will help determine how much you owe.

The highest dollar you earn will be taxed at the highest rate. This is known as your "marginal rate." Other income you earn will be taxed at lower rates.

Here is a look at the marginal tax brackets for 2025 for single filers:

37% for incomes over $626,350
35% for incomes over $250,525
32% for incomes over $197,300
24% for incomes over $103,350
22% for incomes over $48,475
12% for incomes over $11,925
10% for incomes of $11,925 or less

Here is a look at the marginal tax brackets for 2025 for married couples who file jointly:

37% for incomes over $751,600
35% for incomes over $501,050
32% for incomes over $394,600
24% for incomes over $206,700
22% for incomes over $96,950
12% for incomes over $23,850
10% for incomes of $23,850 or less

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

Contribute more to tax-advantaged retirement accounts

Contributing to tax-advantaged retirement accounts offers a straightforward way to lower taxable income.

If you contribute more to your traditional 401(k) or traditional IRA, you can reduce what you owe to the government.

For example, if you contribute $5,000 to your traditional IRA, it will lower your taxable income by $5,000.

In 2025, contribution limits are $23,500 for a 401(k) and $7,000 for an IRA.

Contribute to an HSA or FSA

Both a health savings account (HSA) and flexible spending account (FSA) offer tax-advantaged ways to save for health care expenses.

To contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP). In 2025, contributions are limited to $4,300 for individuals and $8,550 for families. The contributions you make are deducted from your taxable income.

FSAs are another option for savvy savers. The contributions you make aren't subject to federal income taxes, which can help you lower your tax bill. Contribution limits for 2025 are $3,300 per individual.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.00% (as of 12/27/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

Sell losing investments

If you have investments that are losing money, selling those assets to realize a loss can help you offset some of your taxable gains.

By offsetting those gains, you can lower your overall tax obligation.

Batch itemized deductions

Many of us opt to take the standard deduction when filing a tax return. However, in some situations, itemizing deductions can lead to a lower taxable income.

Some people might find that making charitable donations strategically allows them to itemize in some years and lower their taxable income. For example, instead of donating to your favorite charity once per year, consider doubling up your donation every other year.

Through this batched method of itemized deductions, you can potentially reduce your tax bill every other year. In years you don't make the big donation, you simply take the standard deduction.

Choose more tax-efficient investments

Some investments are more tax-efficient than others.

For example, stocks and bonds tend to be more tax-efficient than mutual funds and ETFs. In addition, actively managed funds often come with higher tax burdens than passively managed funds.

When building your investment portfolio, keep tax-efficiency in mind so you avoid an unhappy surprise at tax time.

Grow Your $$: 11 brilliant ways to build wealth after 40

Avoid selling too many assets in the same year

When you sell an asset at a gain, it can increase your taxable income. For that reason, selling too many assets in one year can push your tax obligation higher.

It's probably a mistake to base your decision about whether to sell solely on what this move might do to your tax bill. Still, all things being equal, it can make sense to spread out the sale of assets over several years so you can lower your tax obligation.

Try to time your income and business expenses if you are self-employed

Self-employed folks may find that properly timing business income and expenses can help them lower their tax bill. Generally, timing expenses is easier than timing income.

For example, let's say you have a major business purchase to make, like a piece of equipment. If you earn a lot of income in one year, you might want to make that purchase before the end of that year.

However, if you expect a higher income next year, you might decide to hold off on your purchase until January to help lower your taxable income next year.

Make better use of 'asset location'

Where you keep your assets can impact your tax bill. For instance, keeping bonds in a Roth IRA can offer bigger tax benefits than keeping them in a standard brokerage account, since the money in a Roth is never taxed.

However, the right strategy for you likely depends on your goals and tax situation. So, consider consulting with a tax professional when deciding where to keep your assets.

Earn up to a $300 bonus and grow your money with up to 3.80% APY

This powerful combination checking + savings account from SoFi® allows you to earn up to a $300 bonus with direct deposit and grow your money with up to 3.80% APY.⁴ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. See full bonus and annual percentage yield (APY) terms at <a href="http://www.sofi.com/banking#1">sofi.com/banking#1</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC. SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of Jan. 24, 2025. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>. See the SoFi Plus Terms and Conditions at <a href="https://www.sofi.com/terms-of-use/#plus">https://www.sofi.com/terms-of-use/#plus</a>.

This is one of the top accounts we’ve seen, and offers like this can be rare. You work hard, and now it’s time to make your money work for you — with SoFi, you can grow your money with hardly any effort!

SoFi has no account fees⁵ We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a> or overdraft fees⁶ Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A.  The 30-Day Evaluation Period refers to the "Start Date" and "End Date" set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the "30-Day Evaluation Period"). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY.  Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage. and additional FDIC insurance up to $3 million on deposits is available through a seamless network of participating banks.⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>. Plus, you can receive your paycheck up to 2 days early.⁸ Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

How to earn up to $300: Sign up and make a direct deposit within the first 25 calendar days of the promotional period, then collect a $300 cash bonus with a direct deposit of $5,000 or more.

SoFi is a Member, FDIC. ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.

Open your SoFi account and set up direct deposit

Make qualified charitable distributions

If you have reached age 73 and now have to make required minimum distributions, making qualified charitable distributions (QCDs) directly from your IRA can help reduce your taxable income.

Although the QCD isn't tax-deductible, it isn't subject to federal income taxes. The amount of your distribution can also qualify for your RMD for the year.

Just make sure the charity receives the funds by Dec. 31 of the year you hope to lower your taxable income.

Bottom line

Strategic planning around your tax bill can help you get ahead financially.

If you aren't sure which tax strategies are best for your situation, consider working with a qualified tax professional so you can reduce your obligations to the government in 2025.

More from FinanceBuzz:

Invest in Paintings by Basquiat, Picasso, Banksy

Masterworks Benefits

Invest in art like a millionaire for a relatively low cost
Art investments have outperformed the S&P 500 by over 131% for 26 years
Purchase shares of artwork by top artists
Hedge against inflation and diversify your portfolio

Visit Masterworks