Tax Optimization Guide

⚠️ DISCLAIMER: I am not a financial advisor. This is not financial advice. These are notes on a system. Do your own research.

Tax Optimization Overview

Tax optimization isn’t about cheating—it’s about using the rules as designed. The tax code rewards certain behaviors (saving for retirement, healthcare, homeownership). This guide shows you how to capture those benefits.

The Tax-Advantaged Account Priority

Use accounts in this order to minimize lifetime taxes:

401(k) to employer match — Instant 50-100% return (free money)
HSA to max — Triple tax advantage (deduction + growth + withdrawal)
401(k) to max — $23,000/year (2024)
Roth IRA to max — $7,000/year (2024), tax-free growth
Taxable brokerage — After tax-advantaged space exhausted

See Tax-Advantaged Accounts for detailed explanations.

Tax Reduction Strategies by Income Level

Under $50k

Focus: Capture refundable credits, use Roth accounts

Strategy	Benefit
Earned Income Tax Credit	Up to $7,430 refund
Saver’s Credit	Up to $1,000 for retirement contributions
Roth IRA/401(k)	Pay low taxes now, never again
Premium Tax Credit	ACA health insurance subsidy

Key insight: Your tax rate is likely lowest now. Use Roth accounts to lock it in.

$50k-$150k

Focus: Max tax-advantaged accounts, itemize if beneficial

Strategy	Benefit
Traditional 401(k) max	Save $5,000-6,000+ in taxes
HSA max	Save $1,000-2,000 in taxes
Itemize vs Standard	Compare annually
529 plan (state-dependent)	State tax deduction

Key insight: Tax-deferred accounts save you 22-24% immediately. Prioritize them.

$150k-$400k

Focus: Advanced strategies, minimize capital gains

Strategy	Benefit
Mega Backdoor Roth	Up to $46,000 additional Roth
Backdoor Roth IRA	Bypass income limits
Tax-loss harvesting	Offset gains with losses
Charitable giving bunching	Maximize deduction value
ESPP optimization	15% discount + timing

Key insight: You may be phased out of some deductions. Advanced strategies matter.

$400k+

Focus: Asset location, estate planning, advanced structures

Strategy	Benefit
Municipal bonds	Tax-free interest
Qualified Opportunity Zones	Defer/reduce capital gains
Donor-Advised Funds	Front-load charitable giving
Charitable Remainder Trusts	Income + tax deduction
Professional advice	Complex optimization

Key insight: At this level, hire a CPA and estate attorney. ROI is high.

The Big Three Deductions

1. Retirement Contributions

Account	2024 Limit	Tax Benefit
Traditional 401(k)	$23,000	Deduction at marginal rate
Traditional IRA	$7,000	Deduction (income limits apply)
SEP-IRA (self-employed)	$69,000 or 25% of income	Deduction

Impact: Maxing a 401(k) at 24% bracket saves $5,520 in taxes.

2. Health Savings Account (HSA)

Status	2024 Limit	Tax Benefit
Individual	$4,150	Deduction + tax-free growth + tax-free withdrawal
Family	$8,300	Same triple benefit

Impact: HSA contributions are the only “triple tax-advantaged” account. Use it.

3. Standard vs. Itemized Deductions

Filing Status	2024 Standard Deduction
Single	$14,600
Married Filing Jointly	$29,200
Head of Household	$21,900

Itemize only if: Mortgage interest + state/local taxes + charitable giving + medical expenses > standard deduction.

Tax-Efficient Investment Strategies

Asset Location

Place investments in the right account type:

Investment	Best Location	Why
Bonds / Bond funds	401(k), IRA	Interest taxed as income
REITs	401(k), IRA	Dividends taxed as income
High-turnover funds	401(k), IRA	Frequent capital gains
Index funds	Taxable	Low turnover, qualified dividends
International stocks	Taxable	Foreign tax credit available
Municipal bonds	Taxable	Already tax-free

Tax-Loss Harvesting

When investments drop, sell and immediately buy a similar (not identical) fund:

Sell losing investment — Realize the loss
Buy similar fund — Stay invested (e.g., swap S&P 500 for Total Market)
Use loss to offset gains — Reduces tax on winners
Carry forward excess — Up to $3,000/year against income

Timing Strategies

Income Shifting

Strategy	When to Use
Defer income	High-income year (push bonus to January)
Accelerate income	Low-income year (exercise options, sell assets)
Roth conversion	Low-income year (convert traditional to Roth)

Deduction Timing

Strategy	When to Use
Bunch charitable giving	Every other year to exceed standard deduction
Prepay property taxes	December (if itemizing)
Accelerate medical expenses	If close to 7.5% AGI threshold

Common Tax Mistakes

Not contributing to 401(k) match

Cost: Literally free money left on table.

Fix: Contribute at least enough to get full employer match before anything else.

Ignoring HSA

Cost: Missing the only triple tax-advantaged account.

Fix: If you have a high-deductible health plan, max your HSA. Use it as a stealth retirement account.

Holding bonds in taxable accounts

Cost: Bond interest taxed at ordinary income rates (up to 37%).

Fix: Put bonds in tax-advantaged accounts, stocks in taxable.

Not harvesting losses

Cost: Paying unnecessary capital gains taxes.

Fix: Harvest losses in December (or anytime), carry forward indefinitely.

Forgetting state taxes

Cost: Missing state-specific deductions and credits.

Fix: Check your state’s 529 deduction, property tax circuit breakers, and other state-specific benefits.

Year-End Tax Checklist

Max out 401(k) — Check December paycheck
Max out HSA — Can contribute until April 15 of following year
Harvest tax losses — Before December 31
Make charitable donations — Before December 31
Check withholding — Avoid surprise tax bill
Fund 529 plans — If state deduction applies
Review estimated taxes — If self-employed
Consider Roth conversion — If in low tax bracket

2024 Key Numbers Reference

Item	Limit
Standard deduction (single)	$14,600
Standard deduction (MFJ)	$29,200
401(k) employee contribution	$23,000
401(k) catch-up (50+)	$7,500
IRA contribution	$7,000
IRA catch-up (50+)	$1,000
HSA individual	$4,150
HSA family	$8,300
Social Security wage base	$168,600
Long-term capital gains 0% bracket	Up to $47,025 (single)