Reviewed by Sandra Wolfe, Enrolled Agent · Last reviewed: June 2026

The overall goal of tax planning is to legally minimize the amount of taxes you owe by organizing your financial affairs in the most advantageous way possible. This can generally be accomplished in three ways: taking advantage of available tax credits, maximizing allowable deductions, and reducing taxable income where appropriate. In many cases, the best results come from using a combination of all three strategies together, as they are not mutually exclusive.

Applicable Tax Credits

Tax credits can be one of the most valuable tools available to help reduce a taxpayer’s overall tax bill. Unlike deductions, which reduce taxable income, tax credits directly reduce the amount of taxes owed and, in some cases, may even increase a refund.

Some of the more common tax credits include:

• The Child Tax Credit for taxpayers with qualifying dependent children
• The Earned Income Tax Credit (EITC) for eligible low-to-moderate income workers and families
• The American Opportunity Tax Credit and Lifetime Learning Credit for qualifying education expenses
• The Child and Dependent Care Credit for childcare or dependent care expenses related to work
• The Adoption Credit for certain qualified adoption expenses
• The Saver’s Credit for eligible taxpayers contributing to retirement accounts such as IRAs or employer-sponsored retirement plans

Each credit has its own rules, income limits, and qualification requirements, which can change from year to year. Proper tax planning and reviewing all available credits can help ensure taxpayers are not paying more than they legally owe.

Increasing your Tax Deductions

Taxable income is the leftover amount, once you have configured your Adjustable Gross Income (AGI). While you can’t do both, you are left with two choices, including: itemizing all qualifying deductions, or claim the standard deduction for your given filing status.

What qualifies as an itemized deduction in 2025?

• Health Care Expenses (in excess of 7.5% of the AGI)
• Property Taxes
• Personal Property Taxes (car registration fees, etc.)
• State and Local Taxes
• Charitable Gifts
• Mortgage Interest

Beginning, and maintaining an annual list of itemized expenses is the key to any good tax planning strategy, particularly by utilizing simple spreadsheets or personal finance software. You should take the higher of your standard deduction (or itemized deduction) in order to avoid paying taxes on more income than required. This “list” method allows you to quickly compare your expenses with your standard deduction.

What are the standard deductions for the 2025 tax year?

• $31,500 for Married Taxpayers (filing jointly)
• $23,625 for Head of Household
• $15,750 for Married Taxpayers (filing separately)
• $15,750 for Single Filers

Reducing your Overall Taxable Income

As your income increases, your Adjusted Gross Income (AGI) increases as well, which can impact both the amount of taxes you pay and the tax benefits you qualify for. AGI is one of the most important numbers on a tax return because it serves as the foundation for many IRS calculations. Your eligibility for certain tax credits, deductions, and even your overall tax rate can all be affected by your AGI. Understanding how AGI works is an important part of effective tax planning and can help taxpayers avoid paying more tax than necessary.

How to Best Determine your Personal AGI

Your Adjusted Gross Income (AGI) is calculated by taking your total income from all sources and then subtracting any qualifying adjustments to income. These adjustments are often referred to as “above-the-line deductions” because they can be claimed without itemizing deductions on Schedule A. Instead, they are generally reported directly on Schedule 1 and carried over to your Form 1040. Depending on the adjustments claimed, they can either reduce or increase your overall AGI.

Schedule 1 is commonly used to report additional income sources as well as adjustments to income. If a taxpayer has additional income but does not qualify for adjustments, their AGI will generally increase. On the other hand, qualifying adjustments can help lower AGI, which may improve eligibility for certain tax credits, deductions, and other tax benefits.

What is an Additional Source of Income?

• Business income or loss from self-employment
• Rental real estate, royalties, partnerships, S-corporations, and trust income
• Unemployment compensation
• Alimony received for certain pre-2019 divorce agreements
• Gambling winnings
• Farm income or loss
• Jury duty pay
• Canceled debt income in certain situations
• Taxable refunds of state or local taxes
• Certain prizes, awards, or hobby income

Adjustments to income, as of 2020, include (but are not limited to):

• Educator expenses for eligible teachers and school employees
• Health Savings Account (HSA) deductions
• Deductible contributions to traditional IRAs
• Student loan interest deductions
• Self-employment tax deductions
• Self-employed health insurance deductions
• Contributions to SEP, SIMPLE, and other qualified self-employed retirement plans
• Penalties for early withdrawal of savings
• Alimony paid for certain pre-2019 divorce agreements
• Jury duty pay turned over to an employer

Additional Taxes you should Avoid

There are several strategies that may help reduce unnecessary taxes and penalties with proper planning. One common example involves retirement accounts such as IRAs and 401(k)s. In many cases, taking withdrawals before reaching age 59½ may not only result in the funds becoming taxable income, but could also trigger additional early withdrawal penalties. Understanding how these rules apply before accessing retirement funds can help taxpayers avoid unexpected tax consequences and preserve more of their savings.

If you have questions about tax planning strategies or would like to learn more about ways to potentially reduce future tax liabilities, please contact us at (855) 749-2859 to schedule a consultation.