Tax Planning Ideas for Employees: How to Maximize Your Savings

In recent years, employees have seen a reduction in certain tax benefits that were previously available to them. The Tax Cuts and Jobs Act (TCJA) of 2017 significantly limited or eliminated many tax deductions for employees, particularly those related to job expenses. For instance, employees can no longer deduct unreimbursed business expenses, such as travel, meals, or home office costs, unless they are self-employed. Additionally, the TCJA also imposed a cap on state and local tax (SALT) deductions, which can affect employees who live in high-tax states. These changes have made it more challenging for employees to reduce their taxable income through typical work-related expenses, requiring a more strategic approach to tax planning. Here are several key tax planning strategies for employees to help you optimize your tax situation in the upcoming year.

1. Adjust Your Withholding

Your withholding amount directly impacts your tax refund or how much you owe at the end of the year. If you’re receiving large tax refunds, you may be overpaying taxes throughout the year. Adjusting your W-4 with your employer can help you keep more of your paycheck. On the other hand, if you’re consistently owing a large sum, you may need to increase your withholding to avoid an unexpected tax bill come April.

• Pro Tip: Use the IRS’s Tax Withholding Estimator tool to determine if your withholding is on track.

  
  

2. Contribute to Retirement Accounts

One of the best ways to reduce your taxable income is by contributing to retirement accounts, such as a 401(k) or an IRA. These contributions can be made pre-tax, lowering your overall taxable income for the year.

• 401(k): If your employer offers a 401(k) plan, consider increasing your contributions. The maximum contribution limit for 2025 is $23,500 (or $31,000 if you're 50 or older).

  
  

• Traditional IRA: You can also contribute up to $7,000 ($8,000 if you're 50 or older) to a traditional IRA, depending on income limits and eligibility. These contributions can also reduce your taxable income.

  
  

• Roth IRA: If you don’t qualify for a deduction on a traditional IRA, consider contributing to a Roth IRA, which won’t reduce your taxable income but allows tax-free withdrawals in retirement.

  
  

3. Maximize Flexible Spending Accounts (FSAs)

FSAs allow you to set aside pre-tax money for certain expenses, such as medical, dental, and dependent care costs. For the 2025 tax year, the contribution limit for health FSAs is $3,300, while the dependent care FSA limit is $5,000 for individuals or married couples filing jointly.

• Pro Tip: If you’re not using the full amount of your FSA, you may lose the remaining balance at the end of the year, depending on your employer’s rules. Be sure to plan and use these funds before the deadline to avoid losing your contributions.

  
  

4. Take Advantage of Employer Benefits

Your employer might offer benefits that can reduce your taxable income. Some common ones include:

• Health Savings Accounts (HSAs): If your employer offers an HSA, you can contribute up to $4,300 for an individual and $8,550 for a family in 2025. HSA contributions are tax-deductible, and the money grows tax-free, which means you can use it for healthcare expenses without paying taxes on the withdrawals.

  
  

• Commuter Benefits: Some employers offer pre-tax commuter benefits for things like public transportation or parking costs. If this is available to you, take full advantage of it to reduce your taxable income.

  
  

• Student Loan Repayment Assistance: If your employer offers student loan repayment assistance, this can be a valuable tax benefit. The IRS allows employers to pay up to $5,250 annually in student loan repayment benefits without it being considered taxable income.

  
  

5. Consider Tax-Loss Harvesting

If you have taxable investment accounts, tax-loss harvesting can be an effective strategy for reducing your taxable income. This involves selling investments that have decreased in value to offset any gains you've realized during the year.

• Pro Tip: Be mindful of the “wash sale” rule, which prevents you from claiming a loss on a security if you repurchase it within 30 days before or after the sale. Work with a tax professional to maximize this strategy without violating IRS rules.

  
  

6. Review Your Filing Status

Your tax filing status can significantly impact your tax rate and eligibility for various deductions. For example, if you’re married, you may have the option to file as “Married Filing Jointly” or “Married Filing Separately.” In most cases, filing jointly offers the best tax advantages, but depending on your financial situation, it may be worth considering separate filings.

• Pro Tip: If you have dependents, review whether you qualify for credits like the Child Tax Credit, which can lower your overall tax bill.

  
  

7. Donations to Charity

If you’re feeling generous, charitable donations can provide significant tax benefits. Donations made to qualified charities are tax-deductible, which can help reduce your taxable income.

• Pro Tip: Keep all receipts for donations and consider donating appreciated assets like stocks, which may allow you to avoid paying capital gains tax while still getting a charitable deduction.

  
  

8. Keep Track of Job-Related Expenses

While the Tax Cuts and Jobs Act (TCJA) eliminated many deductions for employees who work for someone else, there are still certain job-related expenses that may be deductible, such as for traveling or working from home if you qualify for certain allowances.

• Pro Tip: If you are self-employed or have side income in addition to your main job, you may qualify for business deductions, including home office expenses, supplies, or mileage. Keep good records throughout the year.

  
  

9. Consider Tax Planning for the Long-Term

Taxes don’t just affect you this year—they’re a long-term consideration too. Consider speaking with a tax advisor about long-term strategies, such as creating a tax-efficient investment portfolio, estate planning, or using trusts to minimize your estate tax burden.

• Pro Tip: A tax advisor can help you set up a long-term strategy that balances tax deferral with tax-free growth, especially if you're considering options like 529 college savings plans or insurance products.

  
  

10. Plan for Health Insurance

If you're purchasing health insurance through your employer or on the marketplace, be sure to review your options before the open enrollment period ends. Depending on your income and the size of your family, there may be subsidies or tax credits available.

• Pro Tip: If you’re eligible for an HSA-compatible plan, you can further reduce your tax bill by contributing to an HSA.

  
  

Conclusion

Tax planning for employees requires proactive effort, but the rewards can be significant. By taking advantage of tax-advantaged accounts, adjusting your withholding, maximizing employer benefits, and seeking professional advice, you can keep more of your hard-earned money and reduce your tax liability. Start planning today, and you’ll thank yourself when tax season rolls around!

The information provided in this blog post is intended for general informational purposes only and should not be construed as legal or tax advice. While every effort has been made to ensure the accuracy of the information, tax laws and regulations are subject to change, and individual circumstances may vary. For personalized advice and to ensure compliance with current tax laws, it is strongly recommended that you consult with a qualified tax professional, financial advisor, or legal counsel. The author and publisher of this blog assume no responsibility for any errors or omissions, or for any actions taken based on the information contained herein.