5 Ways to Pay Less Taxes (Legally)

Posted on By greg
Taxes

Here are the Top 5 Legal Ways to Pay Less Taxes—simple, effective, and commonly used by high-income earners, business owners, and everyday taxpayers alike. These strategies apply broadly in the U.S. and many other tax systems, though details vary by country.

Why is this critical to wealth building?

When we go to withdraw money from our passive income machines (aka investment accounts) years after we have worked and saved diligently, it is quite possible that taxes can eat up most of our gains. You see taxes, inflation, and the demise of fiat currencies are real threats to wealth building. They are poisonous to becoming rich and staying rich.

Therefore, tax strategies are critical. So here are 5 commonly utilized categories of tax savings that are totally legal.

1. Max Out Tax-Advantaged Accounts

These accounts reduce taxable income today or provide tax-free growth.

Examples:

  • 401(k), 403(b), 457 contributions

  • Traditional IRA (pre-tax)

  • HSA (Health Savings Account) – triple tax advantage

  • Roth IRA / Roth 401(k) – tax-free withdrawals

  • 529 Plans for education (tax-free growth)

Impact:
Lower your taxable income now and grow money tax-deferred or tax-free.

2. Use All Available Deductions & Credits

Most people miss deductions that directly reduce tax liability.

Valuable deductions:

  • Home mortgage interest

  • Property taxes (within limits)

  • Student loan interest

  • Charitable donations

  • Medical expenses (above thresholds)

High-value credits:

  • Earned Income Tax Credit

  • Child Tax Credit

  • Education tax credits

  • Energy efficiency/home improvement credits

Impact:
Credits reduce taxes dollar-for-dollar; deductions reduce taxable income.

3. Start a Business or Side Hustle

The tax code massively favors business owners.

Benefits:

  • Deduct a portion of your home, phone, internet

  • Deduct equipment, tools, software

  • Deduct travel & business meals

  • Deduct health insurance premiums

  • Start a Solo 401(k) or SEP IRA with much higher contribution limits

Impact:
Business owners convert everyday expenses into legitimate tax deductions.

4. Invest for Long-Term, Lower-Tax Growth

Tax-efficient investing lowers taxes without reducing returns.

Strategies:

  • Hold investments >1 year to use long-term capital gains rates (usually lower).

  • Use index funds/ETFs to reduce taxable distributions.

  • Tax-loss harvesting: offset gains with losses.

  • Prioritize tax-inefficient assets in retirement accounts.

Impact:
Grow wealth while minimizing yearly taxes on investment returns.

5. Use Real Estate Tax Advantages

Real estate offers generous tax benefits even for small investors.

Strategies:

  • Rental property deductions (maintenance, interest, depreciation)

  • 1031 exchanges to defer capital gains

  • Homeowner exclusion: avoid tax on up to $250k–$500k in home sale profits

  • Bonus depreciation (when available)

Impact:
Reduce taxable rental income—sometimes even while earning positive cash flow.

Quick Bonus Strategies

If you want more, here are 5 additional totally-legal tax reducers:

  • File jointly if married (often lowers tax brackets).

  • Use FSAs or dependent care accounts.

  • Bundle charitable donations into specific years.

  • Contribute to employer stock plans (ESPP) wisely.

  • Relocate to a low-tax state if it aligns with life goals.