This year, Killingsworth Spencer  is seeing subtle “tax bracket creep.” Tax bracket creep occurs when inflation causes wages to increase at a faster rate than tax bracket limits adjust to reflect economic shifts. Here are a few ways taxpayers can reduce their tax bill and increase their purchasing power this year and next. If household income is near a cutoff, these methods can lower AGI, keep one income in a lower tax bracket, and preserve credits.

 

  • Contribute to retirement accounts: Contributions made to 401(k) and IRA accounts come out of an employee’s salary and are made using pre-tax dollars, thereby reducing the amount of taxable income reported at the end of the year up to $44,350. Self-employed taxpayers can deduct up to $72,000 using a SEP or Solo-K. These are 2026 maximum deductions.

 

  • Maximize charitable donations: Donations to qualified non-profit organizations are tax-deductible. In most cases, the amount of charitable cash contributions taxpayers can deduct on schedule-A as an itemized deduction is 60% of their adjusted gross income (AGI). Qualified contributions are not subject to this limitation. Individuals may deduct qualified contributions of up to 100% of their AGI. To qualify, a contribution must be: a cash contribution, made to a qualifying 501(c)3 organization, and made within the calendar year for which is being filed.

 

  • Health Savings Account (HSA): HSAs are tax advantaged accounts for individuals with high-deductible health plans offering tax-free contributions, growth, and withdrawals for qualifying health expenses. Eligibility requirements include being enrolled in a high-deductible health plan for 2026 ($1,700 for self-coverage or $3,400 for family coverage) and having no other disqualifying health coverage. Taxpayers cannot be enrolled in Medicare or be claimed as a dependent on someone else’s tax return to utilize this account. Annual contribution limits for HSAs are $4,400 for individuals or $8,750 for families. Individuals aged 55 or older may contribute an additional $1,000.

 

  • Payout deferral: Taxpayers expecting make a significant taxable gain within the year from disbursements such as the sale of a property, severance, or insurance/lawsuit payouts may want to consider whether they can collect those funds in the following year if the additional income would push them over into a higher tax bracket. Similarly, those who do freelance work in addition to a full-time job may consider deferring payment from the freelance work to the following year if possible.

 

  • Utilize tax credits: Education tax credits such as the American Opportunity Tax Credit and the Lifetime Learning Credit can help reduce the amount of taxes owed at the end of the year. These credits are available for qualified tuition and related expenses for higher education. The Child Tax Credit (CTC) can reduce the amount of tax owed by up to $2,200 per qualifying child for 2026.

 

  • Tax loss harvesting: Tax-loss harvesting is the timely selling of securities at a loss to offset the amount of capital gains tax owed from selling profitable assets. This strategy can be used on short-term capital gains, which are commonly taxed at a higher rate than long-term capital gains. After cancelling capital gains, $3,000 of excess losses can offset ordinary income. Additional losses can be carried forward in future years.

 

  • Savers credit: The savers credit is a nonrefundable tax credit of up to $1,000 ($2,000 for married couples) for low-to-moderate-income individuals contributing to retirement accounts.

 

At Killingsworth Spencer in Roswell, GA, we are dedicated to helping taxpayers in North Atlanta determine the best options for their particular circumstances. For more information or to schedule an appointment, please call us at 770-552-8286. Visit us at www.killingsworthspencerllc.com

 

Disclaimer: This post is for general information only and should not be taken as legal or financial advice.