Let’s be real—taxes aren’t sexy, but they don’t have to be scary. Taxes are an unavoidable part of life, but with the right financial strategies, you can reduce your tax burden instead of bleeding out every April.
This guide is for the working girls, the side hustlers, and anyone who’s ever thought “Wait… do I owe money or get a refund?” From choosing the right filing method to smart strategies like tax-loss harvesting and maxing out your HSA, we’re breaking it all down. Let’s get into it.
File Taxes Affordably
If you make under $75,000, you can file for free through the IRS Free File program. Another great option is FreeTaxUSA, which lets you file federal taxes for free. I’ve personally used TaxAct, but last year, I begrudgingly switched to TurboTax because it was the easiest way to handle my Coinbase activity. I do not actively trade crypto and at the moment I do not plan to go further down that path. Can you blame me for checking out what the fuss was about?
Before choosing a service, check if your employer offers any benefits that provide reduced filing costs. Additionally, filing early often comes with discounted deals, so don’t procrastinate!
Capital Gains Tax – Long vs. Short Term
When dealing with capital gains, it’s crucial to understand the difference between long-term and short-term tax rates. If you hold an asset for more than a year before selling, you qualify for the lower long-term capital gains tax rate, which is typically 10-15% depending on your income. However, keep in mind that you’ll still owe state and local taxes. For those living in high-tax areas like New York City, this can add a significant cost.
| Scenario | Amount Sold | Federal Cap Gains (15%) | NY State (approx. 6.33%) | NYC Tax (approx. 3.876%) | Total Taxes Paid | You Keep |
|---|---|---|---|---|---|---|
| Sold while living in NYC | $100,000 | $15,000 | $6,330 | $3,876 | $25,206 | $74,794 |
| Sold in a no-income-tax state | $100,000 | $15,000 | $0 | $0 | $15,000 | $85,000 |
A part of me regrets selling as much as I did last year because I don’t plan to stay in NYC forever, but at the same time my RSUs made up nearly 80% of my portfolio. That was a risk I wasn’t comfortable with. Although selling my RSUs technically cost me around $35,000 in potential gains, I reinvested and diversified my assets, minimizing my net loss to about $10,000. Reinvestment is key—dwelling on “what could have been” is not the right mindset when managing investments.
Given
1) at a later time in my life I may move to another city/state with lower taxes and
2) I’m not comfortable with my RSUs taking up a larger chunk of my portfolio
In the future I may sell my RSUs once they vest, and reinvest with a few index funds, so my bank account doesn’t absolutely wreck itself come tax season when I decide to sell a big chunk of stocks in the next 3-5 years while I’m living in the expensive ass city.
The example provided shows a $10,206 difference just based on where you live when you sell. It’s not about gaming the system or timing the market perfectly—it’s about being aware. If you’re planning a move to a lower-tax state and sitting on a sizable RSU vest, it might be worth waiting to sell until after the move. Just don’t let taxes paralyze your investing decisions—it’s just important to balance diversification and optimization.
Tax Loss Harvesting
Sell those losses, baby! If you have under performing stocks that are dragging down your portfolio, it might be time to cut them loose. That said, don’t sell at a loss just for the sake of selling. According to IBD founder William O’Neil’s rule in “How to Make Money in Stocks,” you should sell a stock when you are down 7% or 8% from your purchase price, no exceptions.
Early in my investing journey, I made impulse purchases of so-called “value stocks” that turned out to be duds. When I finally sold them, I didn’t pocket the cash—I reinvested it into something more stable because it turns out I’m not a risky gal. If I pocketed the leftover cash, I would be admitting defeat, because evidently I’m also a stubborn gal, and did not want to lock in my losses without any future upside.
Example: Using Capital Losses to Offset Your Taxes
Let’s say you bought 10 shares of a very hyped tech stock at $100 each for a total of $1,000, but it tanked and is now worth $400. Oof. You decide to sell it and take the $600 loss.
Scenario 1: Smart Loss
You sell it and don’t repurchase it (or a substantially similar stock) for 30+ days. That $600 loss can be used to offset:
- Any capital gains you had this year
- And up to $3,000 against ordinary income (like your salary)
- Any leftover loss after that ($3,000 limit per year) carries forward to future years
So, if you also sold another stock this year for a $2,000 gain, your $600 loss reduces that to just $1,400 in taxable gains. If you had no capital gains this year, you could deduct the $600 from your regular income—like your W-2 salary.
Smart Loss + Reinvesting
If you reinvest it in a more stable ETF or blue-chip stock—and let’s say that new investment gains 25% over the next year, so your $400 turns into $500.
Meanwhile, your $600 loss gave you a tax break too. If you’re in the 24% income tax bracket, that loss can reduce your taxable income and save you:
$600 × 0.24 = $144 in taxes
So your total comeback looks like this:
| What You Did | Value |
|---|---|
| Tax savings from loss deduction | $144 |
| New value of reinvested $400 (25% gain) | $500 |
| Total value recovered | $644 |
| Original investment loss | $600 |
| Net Outcome | + $44 |
Scenario 2: Wash Sale Womp Womp
You sell at a $600 loss… but two weeks later, you’re like “Maybe it’ll bounce back” and rebuy the same stock. The IRS says “nah,” and disallows that $600 loss because of the wash sale rule. You can’t claim the deduction because you bought the same security within 30 days of selling it. You’re stuck holding the loss with no tax benefit.
TL;DR:
Use losses strategically, but don’t rebuy the same stock too soon—or you lose the deduction. Think of it like a tax breakup: you need a clean 30-day separation before getting back together.
The IRS allows you to deduct up to $3,000 in capital losses per year against ordinary income, and any additional losses can be carried forward to future years. Keep in mind the wash sale rule, which prevents you from claiming a loss if you repurchase the same security (or a substantially identical one) within 30 days before or after selling it.
Maximizing Tax-Advantaged Accounts
Take advantage of tax-advantaged accounts to minimize your taxable income and maximize long-term wealth. We’ll share more in depth articles on each of these tax-advantaged accounts, but for the purpose of this article I’ll focus on how contributing to these accounts can benefit you come tax season.:
529 Plans
In certain states, you can get up to a $10k tax deduction for contributing to a 529. In Colorado you can deduct the full contribution. Bless you, Colorado. The contribution grows tax free when used for qualified education expenses. For non-qualified withdrawals, you will owe income tax + 10% penalty.
| Tax bracket | $5,000 deduction savings | $10,000 deduction savings |
| 10% | $500 | $1,000 |
| 12% | $600 | $1,200 |
| 22% | $1,100 | $2,200 |
| 24% | $1,200 | $2,400 |
| 32% | $1,600 | $3,200 |
| 35% | $1,750 | $3,500 |
| 37% | $1,850 | $3,700 |
Health Savings Accounts (HSA)
Maximum contribution limit in 2025 for a single plan is $4,300. This amount can be deducted from your taxes. Do not go over this amount. The excess contributions will turn into a 6% excess-contribution penalty tax for EACH YEAR the excess remains in your HSA. All HSA interest growth is 100% tax-deferred when used on eligible medical expenses.
Let’s fast forward to your future self:
You:
- Retired early at 45
- Have a modest lifestyle and planned accordingly with your Roth + Pre-tax 401(k)s.
- But at 62, you’re hit with a $45,000 medical expense for an unexpected surgery not fully covered by Medicare.
- You don’t want to yank from your retirement accounts, because it’ll raise your income for the year, bump up your tax bracket, and reduce other benefits.
Using Retirement Funds vs. Using an HSA
Option 1: Withdrawal from Traditional IRA
You’re in the 22% tax bracket at 62.
To cover $45,000 in medical bills, you’d need to withdraw:
$45,000 x 0.22 = ~$57,700 from your IRA
That’s $12,700 in taxes you just paid on top of the $45K bill.
Option 2: Withdrawal from HSA
You use $45,000 from your HSA, which was invested over the years and grew tax-free.
- You pay $0 in taxes
- You protect your retirement accounts
- You stay in your tax bracket
- You sleep at night knowing you didn’t wreck your finances
How much you’d need to invest today in different account types to cover $45,000 in medical expenses 20 years from now, assuming a 7% annual return and a 22% tax bracket in retirement:
| Account Type | Tax Treatment | Investment Needed Today | Notes |
|---|---|---|---|
| HSA | Contributions are tax-deductible, growth and withdrawals are tax-free if used for qualified medical expenses | $11,594 | Most efficient option for covering medical costs |
| Roth 401(k) | Contributions are taxed upfront, but growth and withdrawals are tax-free | $14,865 | You’d need to earn more initially to contribute this amount post-tax |
| Traditional IRA | Contributions are pre-tax, but withdrawals are taxed as income | $15,003 | You’d need to withdraw ~$57,692 to net $45,000 after 22% tax |
Thinking about your mortality is an uncomfortable but important consideration when you’re planning your finances. Consider the value of being able to use your HSA as a tax-free emergency medical fund when you’re older—because aging doesn’t just bring wisdom, it brings bills.
Why your HSA matters?
Medical bills are the #1 cause of personal bankruptcy in the U.S., especially among people who are nearing or in retirement. Even with Medicare, there are gaps, copays, premiums, and long-term care costs that can add up fast. Your HSA is your armor.
I watched my grandmother spend her last years in a subpar nursing home and it was expensive. We had to move her a couple times because the staff at some locations weren’t attentive and she got bed sores. Getting old sucks, but you can plan to make it as painless as possible now.
In the scenario we walked through, to cover $45k in medical expenses in your 60s, in the next 20 years you need to contribute about $500 a year. That’s $45 a month. Keep in mind our generation may not have social security around to help with these costs.
Low-tier nursing homes (basic care):
These typically offer standard care with fewer amenities and activities. The average cost for a semi-private room is around $6,000 to $7,000 per month, though it can be lower depending on the state and facility.
That is more than my cost of living in a 1 bd apartment in NYC.
High-tier nursing homes (luxury or specialized care):
These facilities offer more personalized care, luxury accommodations, and extensive amenities, such as private rooms, fine dining, and additional services. The cost for a semi-private room can range from $8,000 to $15,000 per month, with some of the most upscale options exceeding $20,000 per month.
I hope by the time we get to that age, with advocacy, activism, and voting for the right civil servants, we can put to end the greed in the for-profit healthcare system in America. But I also hope that young people planning for a sh8t future doesn’t encourage sh8t behavior from health related executives and politicians. Okay I’ll get off my soap box now, but I hope I conveyed why financial literacy and being aware of political conditions are so important at a young age.
401(k) & IRAs
If you contribute to a Pre-Tax 401k, you can lower your taxable income for the year, but it’s generally advised to contribute to a Roth 401k when you’re younger as you may make more money later in life than you are today. If you’re in a position where you think you will make less as you get older, you may start contributing to both a Pre-tax and Roth 401k earlier. If you’re over the income limit for a Roth IRA, consider a backdoor Roth IRA strategy. Let’s break down the scenario for those who may want to FIRE at a more modest income.
Scenario 1: Pre-Tax 401(k) Now, Tax Later
You’re in a high tax bracket now, so you contribute $22,500 to a Pre-Tax 401(k) in 2025 (the max). That contribution lowers your taxable income today, saving you:
$22,500 × 35% = $7,875 in taxes this year.
You invest that $7,875 tax savings into a taxable brokerage account, and it grows at a modest 7% annual return for the next 15 years.
At Age 40:
That $7,875 has grown to about $21,750.
Meanwhile, your 401(k) account has also grown (untaxed), and when you withdraw in retirement, you’re now in a lower tax bracket (24%), so you pay less tax on the money later.
Scenario 2: Roth 401(k) Now, Tax-Free Later
Instead, you contribute $22,500 to a Roth 401(k). You pay taxes upfront at the 35% rate:
$22,500 × 35% = $7,875 paid in taxes now.
So your take-home money is lower today, and you don’t have that $7,875 to invest in a taxable account. BUT—the $22,500 grows completely tax-free, and when you withdraw it in retirement, you owe nothing.
7% annual return over 15 years:
| Pre-Tax Strategy (35% → 24%) | Roth Strategy (35% now) | |
|---|---|---|
| 401(k) account at 40 | $62,500 (est. growth) | $62,500 |
| Taxes owed at withdrawal | 24% of $62,500 = $15,000 | $0 |
| After-tax 401(k) value | $47,500 | $62,500 |
| Tax savings invested | $7,875 → $21,750 | $0 |
| Total Value at 40 | $47,500 + $21,750 = $69,250 | $62,500 |
Who Wins?
In this example, the Pre-Tax strategy wins by $6,750—because you’re in a very high tax bracket now and a moderate one later, and you reinvested the tax savings. This is key: it only works if you’re disciplined enough to invest that saved tax money.
But When Could Roth Be Better?
- If you don’t invest the tax savings, the Roth usually wins. That’s the hidden catch.
- If you end up in a higher tax bracket in retirement (due to passive income, inheritance, big portfolio growth), Roth wins again.
- Roth also gives you more flexibility in retirement since withdrawals don’t affect your taxable income, which can help with things like ACA subsidies, capital gains thresholds, or Social Security taxes.
If you’re making big money now and planning to downshift your lifestyle later, a Pre-Tax 401(k) plus strategic reinvestment might give you the best shot at early retirement. But it’s a commitment—you’ve got to invest your tax savings, not just spend it
Calculating Withholding & Avoiding Underpayment Penalties
To avoid surprises at tax time, review your withholding and estimated tax payments throughout the year. If you underpay, you could face penalties. However, if you can prove that you paid at least 90% of what you owe or that your total tax payments match at least 100% of the previous year’s tax liability (110% if your AGI is over $150,000), you may qualify for a penalty waiver.
If you unexpectedly underpay, there are ways to minimize the damage. The IRS allows you to request a waiver under certain circumstances, such as if you had an unusual financial event or if your underpayment was due to reasonable cause rather than willful neglect.
The IRS has a tax withholding estimator to help you make sure you have your withholdings percentage set correctly. https://www.irs.gov/individuals/tax-withholding-estimator
Smart Payment Strategies
If you expect to owe taxes, make sure you have enough cash available before filing. While you can pay with a credit card, keep in mind that most processors charge a 3% fee. However, if you have a rewards credit card with cashback or travel points value that exceed the 3% fee, or if you need to hit a spending threshold for a sign-up bonus or making status, it could make sense to pay via credit card, you fancy lady. Otherwise, paying with cash will save you from that extra fee.
By implementing these financial habits throughout the year, you can significantly reduce your tax burden and avoid last-minute stress during tax season. Plan ahead, stay organized, and take full advantage of tax-saving opportunities!
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