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

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.