
The lower your state and local taxes, the more funds you've got to spend on things that matter to you. How exactly do you achieve that? P3 Accounting is here with some good news: there are plenty of tax planning strategies to reduce your income tax liability without raising any red flags. Over the years, we've worked with many clients across the US, helping them keep more of their hard-earned money through smart and effective tax planning; so, let's go over these strategies one by one.
1. Tax-Advantaged Accounts
Tax-advantaged accounts are one of the easiest ways to lower your tax burden. With these accounts, you can either defer taxes or pay no taxes at all on certain income, depending on the type of account. For example:
401(k) Contributions
If your employer offers a 401(k), contribute as much as possible. In 2024, you can contribute up to $23,000 to your retirement account. This way, you can build your retirement savings while also reducing your taxable income for the year.
Traditional IRA
If you don't have access to a 401(k), traditional IRA contributions can still give you similar tax benefits. Contributions are often deductible, though the amount usually depends on your tax bracket or income level.
Health Savings Account (HSA)
If you have a high-deductible health insurance plan, an HSA can save you money in three ways: contributions are deductible, growth is tax-free, and funds for qualified medical expenses can be withdrawn tax-free.
2. Business Deductions

For small business owners, freelancers, or contractors, you're likely eligible for business deductions. These leave you with a significantly lower adjusted gross income (AGI) and tax bill. But these deductions don't happen automatically—you have to know about them and keep excellent records first.
Home Office Deductions
If you use a part of your house exclusively for business and nothing else, you can deduct a portion of your rent, mortgage interest, utilities, and even internet costs. This deduction applies whether you own or rent.
Mileage and Travel
Keeping a mileage log for business-related travel can pay off. In 2024, the standard mileage deduction rate is 67 cents per mile. Business-related lodging and meals can also be deducted, though meals are capped at 50% of the expense.
Section 179 Depreciation
This allows you to deduct the full cost of qualifying equipment or software in the year you purchase it, rather than spreading it out over several years.
3. Charitable Donations
Instead of donating cash, consider donating stocks or other appreciated assets. This way, you can avoid capital gains tax on the asset's growth while still claiming a deduction for its fair market value. Additionally, note that every contribution over $250 requires a written acknowledgment from the charity you donated to for it to be deductible. For smaller donations, a bank statement or receipt works just fine.
4. Tax Credits

Tax credits are even better than deductions because they reduce your tax liability dollar-for-dollar. Some examples are:
Child Tax Credit: This tax credit is for families with dependents under 17.
Education Credits: Examples are the American Opportunity Tax Credit and Lifetime Learning Credit.
Energy Efficiency Credits: Energy-efficient home improvement projects may qualify for credits to reduce tax liability.
5. Tax Loss Harvesting
If you've sold an investment at a loss or at a lower price than you originally got it for, you can use that loss to offset gains from other investments. If your losses are more than your gains, you can deduct up to $3,000 against your ordinary income (or $1,500 for married couples filing separately). In addition, unused losses can be carried forward to future years. This approach can be especially useful for those managing their own portfolios.
6. Plan Ahead for Quarterly Estimated Taxes

Those who are self-employed or have significant non-W-2 income are required to pay quarterly estimated taxes. Missing these payments can result in penalties, but many taxpayers don't realize how to calculate them properly.
Here's some expert advice: estimate your total income and deductions for the year, then divide your expected tax liability into four payments. To do this, you need careful record-keeping and planning, which are professional services where P3 Accounting excels.
7. Stay Updated on Tax Law Changes
Whether you're a low- or high-income earner, every tax-deductible is important. So, to make sure you don't miss any tax deduction opportunities, always stay informed. After all, state and federal income tax codes are quick to change. Take advantage of them as soon as possible as they can help you achieve more tax savings than in previous years.
Keeping up with these changes isn't easy, which is why many taxpayers turn to tax advisors. At P3 Accounting, we keep track of legislative updates to help our clients adapt their processes and maximize their benefits.
8. Don't Wait Until the Last Minute
Waiting until April to gather documents, crunch numbers, and hunt for deductions is a recipe for stress and inevitable mistakes. Instead, set aside time each quarter to review your financials and adjust your withholdings or estimated payments if needed.
Frequently Asked Questions
Q: What is a taxable interest income?
A: Taxable interest income is the interest you earn from things like savings accounts, certificates of deposits (CDs), and corporate bonds. The IRS taxes this income as part of your regular earnings, which is included in your adjusted gross income (AGI).
Q: How do capital gains work?
A: Capital gains refer to the profits you earn from selling investments like stocks or real estate. The tax rate you pay depends on how long you've held the asset. Assets held for one year or less are called short-capital gains, and they're taxed as ordinary income, meaning they're subject to federal tax brackets. On the other hand, assets held for more than a year, called long-term capital gains, are taxed at lower rates: 0%, 15%, or 20% depending on your taxable income.
Q: What are required minimum distributions (RMDs) and what are the tax consequences of missing them?
A: RMDs are withdrawals that the IRS requires you to take from certain tax-deferred accounts, like traditional IRAs or 401(k)s once you turn 73 (or 72 if you were born before 1952). These withdrawals are taxable as ordinary income.
Q: Are municipal bonds a good way to reduce your taxable income?
A: Yes, municipal bonds are a solid strategy for those in higher tax brackets. Interest earned on municipal bonds is usually exempt from federal income tax. If you invest in bonds issued by your state, the interest may also be exempt from state and local taxes.
Why You Need a Tax Professional at Your Side

Taxes are complicated, and even the most diligent DIY filer can miss opportunities to save. Working with a professional accountant means having someone in your corner who knows the latest tax rates along with the most tax-efficient processes for your exact situation.
At P3 Accounting, our experts help individuals and businesses understand their tax responsibilities and minimize payments as much as possible—all while staying fully compliant.
Contact P3 Accounting for Smarter Tax Strategies and Bigger Tax Savings
Visit our website or give us a call at 405-265-8383 today to learn how we can help you minimize your tax burden while also maximizing your financial potential. We're one of the best accounting firms around, so you know you're working with the best of the best!
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