12 Tips to Cut Your Tax Bill This Year

• If you got a huge tax bill this year and don’t want another surprise next year, raise your withholding so you owe less when it's time to file your tax return.

• If you got a huge refund, do the opposite and reduce your withholding — otherwise, you could be needlessly living on less of your paycheck all year.

• You can change your W-4 any time. (How it works.)

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• For 2021 and 2022, the limits are $6,000 per year, or $7,000 for people 50 or older.

• You have until the tax-filing deadline to fund your IRA for the previous tax year, which gives you extra time to take advantage of this strategy. (How it works.)

Setting aside money for Junior’s tuition can shave a few bucks off of your tax bill, too. A popular option is to make contributions to a 529 plan, a savings account operated by a state or educational institution. You can’t deduct your contributions on your federal income taxes, but you might be able to on your state return if you’re putting money in your state’s 529 plan. Be aware, too, that there may be gift tax consequences if your contributions plus any other gifts to a particular beneficiary exceed $15,000 in 2021 and $16,000 in 2022. (How it works.)

• In 2021, the limit was $2,750. In 2022, this rises to $2,850.

• You’ll have to use the money during the calendar year for medical and dental expenses, but you might also be able to use it for related everyday items such as bandages, pregnancy test kits, breast pumps and acupuncture for yourself and your qualified dependents.

• Some employers might let you carry money over to the next year. (How it works.)

• For the 2021 tax year, the IRS will allow for the exclusion of up to $10,500 of your pay that you have your employer divert to a dependent care FSA account, which means you’ll avoid paying taxes on that money. That can be a huge win for parents of kids under 13 (14 in 2021 due to special rules for coronavirus), because before- and after-school care, day care, preschool and day camps usually are allowed uses.

• Elder care may be included, too.

• What's covered can vary among employers, so check out your plan's documents.

• Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, so long as you use them for qualified medical expenses.

• For 2021, if you had a self-only high-deductible health coverage, you could have contributed up to $3,600. For 2022, the individual coverage contribution limit is $3,650.

• If you have family high-deductible coverage, the contribution limit was $7,200 in 2021 and is $7,300 in 2022.

• If you're 55 or older, you can put an extra $1,000 in your HSA.

• Your employer may offer an HSA, but you can also start your own account at a bank or other financial institution. (How it works.)

A tax credit is a dollar-for-dollar reduction in your actual tax bill — as opposed to a tax deduction, which simply reduces how much of your income gets taxed. It’s truly found money, because if a credit reduces your tax bill below zero, the IRS might refund some or all of the money to you, depending on the credit. (How it works.)

Many tax software programs include modules that estimate the value of each item you donate, so make a list before you drop off that big bag of stuff at Goodwill — it can add up to big deductions. (How it works.)

• In general, you can deduct qualified medical expenses that are more than 7.5% of your adjusted gross income for that tax year.

• So, for example, if your adjusted gross income is $40,000, anything beyond the first $3,000 of your medical bills — 7.5% of your AGI — could be deductible. If you rang up $10,000 in medical bills, $7,000 of it could be deductible in this example. (How it works.)

• You can deduct losses on stock sales, which can offset any taxable capital gains you might have. The limit on that offset is $3,000, or $1,500 for married couples filing separately.

• One other note: Never let tax avoidance become a substitute for wise investing. Sell a stock only if it truly doesn’t work for your portfolio anymore. Don’t do it just to get a tax break, because if you decide to buy back your stock within 30 days, the IRS can take back your deduction. (How it works.)

From a tax perspective, there’s a huge difference between doing something on Dec. 31 and doing it a day later. If you know an upcoming expense is going to be tax-deductible, think about whether you can pay for it this year rather than next year. Making January’s mortgage payment in December, for example, could give you an extra month’s worth of mortgage interest to deduct this year. Similarly, if you know you’re near the threshold for the medical-expenses deduction, moving that root canal up might make the pain more bearable if the cost suddenly becomes deductible, too.