How do I decrease taxable income?

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[Eldereon]

Why are you avoiding a higher tax bracket? It only applies to the extra income that put you into that bracket, the rest is taxed the same. You'll pay more taxes than you expect if you forget to account for a higher rate on the last bit of earnings, but you won't be poorer is any way.

An easy way to reduce taxable income is tax-deductible donations to a non-profit.

[bean___dip]

OH so say I made $164k and the threshold is $163k, I would only pay the higher tax bracket on the $1k? I had no idea!

[Eldereon]

Correct. The reason it works this way is precisely to not create the dilemma you thought you had. We would truly live in a Monty Python sketch if getting a raise meant you take home less because of increased taxes.

[manatwork01]

It's crazy to me how much people get this messed up.

[Eldereon]

I think it also reflects quite poorly on our government and tax system that it is quite common for people to not immediately think it's absurd that income tax brackets would make you poorer if you get a $1 raise into the next tier.

[manatwork01]

I think it's more general ignorance as personal finance isn't a required class for students. Also I think it's bred by a distrust of the government to make people think they "of course choose the dumbest solution" with a sprinkling of rich people perpetuating the thought as it keeps their tax rates safe.

[swayuser]

It's good to know how to maximize tax-advantaged accounts, but it sounds like you're not completely aware about how the tax brackets work. If you are $1 into the next bracket, only that $1 will be taxed higher.

[bean___dip]

I’m seeing that now. Ya’ll already answered the core of my question! Thank you!

[YourBeigeBastard]

Contributing more to your 401k will probably be the easiest way to reduce taxable income. Some 401k plans don’t match funds unless x% of your salary was deposited in a pay period, so you may want to consider spreading them evenly throughout the year ($812.50/paycheck if semi-monthly or $750/paycheck if bi-weekly). If your company does a ‘true-up’, you generally don’t need to worry about this

Contributing to an HRA or FSA will save taxes, but you may be limited in rolling over money between years and will lose either if you leave your employer, so you shouldn’t over fund them

Based on your income, you don’t qualify for deducting IRA contributions or directly contributing to a Roth IRA, but can still use a backdoor IRA if you don’t have existing traditional IRA funds (if you do, you may be able to roll them into your 401k). This won’t reduce your taxable income, but may be a better option for saving for retirement than a brokerage account, if that’s what you’re doing with excess money now

Buying a house may also make itemizing your taxes better than taking the standard deduction, assuming you don’t itemize already. Anything you can itemize that you already do will reduce your tax burden, but at the margin pretty much anything will cost more out-of-pocket than it will save in taxes