Boris Jovanovic/Getty Images/iStockphoto
Commitment to our readers
The GOBankingRates editorial team is committed to providing you with unbiased reviews and information. We use data-driven methods to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our review methodology for products and services.
20 years
help you get rich
trusted by
millions of readers
When people are concerned about their tax bill, it is often too late. By the time April arrives, most of the decisions determining how much you owe have already been made.
Curious to know if there was still something realistic I could do to reduce next year’s tax bill, I asked ChatGPT to walk me through the options. It highlights several overlooked steps that can determine how much taxpayers are owed.
Tax Planning Needs to Start Earlier Than Most People Think
Many taxpayers think of taxes as a once-a-year event, but ChatGPT emphasized that your tax bill or refund is the result of decisions you make throughout the year. The timing of income, savings choices and even how the money is invested can all affect the impact you see on returns.
Reducing future tax bills means adjusting how your money flows from month to month. It said that the sooner these adjustments take place, the more flexibility taxpayers will have.
Adjusting withholding can prevent costly surprises
Last year’s tax situation can help you prepare for this. If you owe a lot of money or received a large refund, your withheld paycheck may need to be adjusted, ChatGPT said. Many people either give the IRS an interest-free loan by withholding more or face unexpected tax bills by withholding less.
Even small changes can reduce penalties, limit refund delays, and make tax season more predictable.
Retirement contributions do double duty
One of the most useful tools for minimizing taxes is to put money into tax-advantaged retirement and savings accounts, ChatGPT said. These include:
- 401(k) or 403(b): Contributions here reduce taxable income dollar for dollar.
- Traditional, Roth or SEP IRA: Individual retirement accounts (IRAs) offer either tax-deferred growth (traditional IRAs) or tax-free growth and withdrawals (Roth IRAs).
AI stressed that increasing contributions at the beginning of the year spreads the impact on the paycheck and can feel much less disruptive than depositing funds into an account at the last minute.
Use Health Savings Accounts
Health-related tax breaks don’t always get the same attention as retirement accounts, but ChatGPT highlights health savings accounts (HSAs) as a powerful way to reduce taxes. Some health accounts allow tax-deductible contributions, tax-free growth, and tax-free withdrawals when used correctly.
For eligible taxpayers, these accounts can reduce taxable income while also creating a buffer for future medical expenses. Be sure to pay attention to the eligibility rules before you expect benefits to apply and make sure you’re only spending on eligible health care expenses.
Strategically defer income
Another step you can take is to focus on the timing of income, not just the total amount. ChatGPT notes that when income comes sometimes matters as much as how much comes, especially for people with variable income.
Deferring income is one way to reduce the tax bill. This may mean postponing sales or cashing out investments, seeking bonuses in the next calendar year, or holding off on collecting additional gig income until a later date whenever possible.
Another option is to group deductions. If you’re close to the standard deduction, grouping charitable gifts or medical expenses in one year could push you over the limit, ChatGPT said.
Take all credits and deductions
Sometimes taxpayers miss out on credits that can reduce their taxable income dollar for dollar. ChatGPT suggests considering credits like education credit, child and dependent credit, EV credit and energy-efficient home improvement credit.
For the self-employed, make sure you’re taking all the deductions available to you, such as home office, mileage, software, equipment and health insurance premiums for the self-employed.
Small changes add up to the plan over time
Rather than suggesting radical changes, ChatGPT focused on incremental adjustments. Reviewing filing status, tracking deductible expenses, and revisiting investment placements can all affect long-term tax outcomes.
Individually, these changes may seem minor. Together, they can meaningfully reduce how much of a household’s income goes to taxes year after year.