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Strategy 1: lower your taxable income
One of the most effective ways to reduce the taxes you pay is by reducing your taxable income. This is a strategy where you set aside part of your income into specialized accounts.

Usually, these accounts are for retirement, medical expenses, or education. Anything deposited into them isn’t considered income on your tax returns, which effectively lowers your “taxable income.” Additionally, some of them can grow in the stock market tax-deferred or even tax-free. Here are a few of the most common ones:

Retirement accounts
The most popular retirement account is an employer-provided 401(k), but if your employer doesn’t offer one, you can always start a traditional IRA which offers similar tax benefits.

In a 401(k), you set up automatic deductions from your paycheck with pretax dollars—meaning before taxes are taken out of your paycheck. This money (hopefully) grows in the stock market so you can draw from it in retirement. Many employers who offer 401(k)s also match part of your contributions, so not only is it a tax reduction, it’s basically a free raise from your company that you can use in retirement.

Be sure to stay under the limit for your 401(k) or IRAcontributions, or the IRS could come knocking on your door.

Medical accounts
If your employer offers a flexible savings account (FSA), you could contribute pretax money to it and withdraw funds to pay for medical expenses. FSA dollars are “use it or lose it”—you generally need to spend everything in your FSA before the year ends or it expires. As such, an FSA could be an attractive option if you have anticipated medical expenses.

Alternatively, a health savings account (HSA) is a fantastic tax tool if you’re enrolled in a high-deductible health plan. HSAs operate like FSAs in that they’re checking accounts for medical expenses, only the funds never expire and you can use them even if you leave your employer. But the biggest advantage of HSAs are their unparalleled triple tax advantage: tax-free contributions, tax-free growth, and tax-free distributions.

Keep in mind, HSAs retain tax benefits only if the money is used for medical expenses.

Education accounts
If you’re planning on sending your kids to college, you could start investing in a 529 plan. These plans are run by states rather than the federal government, so rules vary depending on where you live. But in general, a 529 plan lets you put education-destined dollars into mutual funds. The money grows tax-free, and you can withdraw the money tax-free when it’s time to pay your kid’s college bills.

Strategy 2: use deductions
You can deduct certain expenses from your taxes. As long as you keep decent records, you might as well take the deduction—after all, you’ve already spent the money once, why get taxed on it again?

• Student loans: You can deduct the interest you paid on your student loans up to an amount specified by the IRS, depending on your income.¹
• Medical bills: If you itemize your return, you can deduct your medical and dental expenses that exceeds a specified percentage of your adjusted gross income.²
• Donations: Lots of charitable donations qualify for a deduction—too much to cover here. See the rules and limits for IRS charitable contribution deductions.
• Mortgage: If you pay a mortgage, you should be able to deduct the interest from your taxes. As usual, you’ll need to meet specific requirements, but you can use this IRS tool to double check.

Strategy 3: take advantage of tax credits
Unlike tax deductions which lower your taxable income, tax credits lower your tax bill directly. If you get a $100 tax credit, your tax bill is exactly $100 less.

Here are a few of the big ones (but there are lots more):

• Child tax credit: You can get this tax credit if you have a child 16 or under that you claim as a dependent (or foster child, adopted child, grandchild, etc.—it’s a long list). If you’re not sure your dependent qualifies, use the IRS tool.
• Earned income tax credit (EITC): For people with “low to moderate income,” the EITC offers a reliable relief on their tax bill.³ As always, check the IRS rules to see if you qualify.
• Education tax credits: Undergrad students may be eligible for the American Opportunity Tax Credit (AOTC) for their first four years in higher education.⁴ A broader group can qualify for the Lifetime Learning Credit (LLC).⁵ Compare the AOTC and LLC to see which credit might be better for you.

The takeaway
Whether deductions, credits, or both, there are far more ways to pay less tax than we can cover here. (If you need personalized help, contact your tax professional.) But if you can take advantage of a few of these tips, you’ll be on your way to saving on taxes—and potentially improving your finances too.

Sources

1. IRS, “Topic No. 456 Student Loan Interest Deduction,” 2/23/2022
2. IRS, “Topic No. 502 Medical and Dental Expenses,” 2/17/2022
3. IRS, “Earned Income Tax Credit,” 2/24/2022
4. IRS, “American Opportunity Tax Credit,” 12/29/2021
5. IRS, “Lifetime Learning Credit,” 12/29/2021

Despite that, if you can push through uncomfortable conversations and work together, creating a joint financial plan can be incredibly rewarding for your financial goals—and your relationship. Use these six tips to boost your chance of success at handling finances as a team—no matter how long you’ve been together.

Understand each other
Share each of your feelings and views toward money and earnestly listen without judgment. It might feel a little awkward (that’s normal!) but it’s worth it: just this step alone can build empathy for each other, meaning potentially less arguments about differences of opinion later on.

Understand, too, that you won’t agree on everything. Be okay with compromise here and there, and be okay with making space for individual desires in the budget.

Decide if/how to share finances
You have to decide as a couple how you’re going to handle money together. This is a very personal decision and there are challenges and benefits to each, but it’s important you both know your options and choose the one that works best for your needs.

Here are three ways to handle joint finances:

1. Combine everything
   Anything you or your significant other earns gets deposited into joint accounts. All your expenses get withdrawn from co-mingled money so there’s no decisions about who pays for what. Both partners have full access to financial accounts and there is complete transparency on where the money goes.
2. Split the bill
   You and your partner keep separate accounts—no money intermingles. You both figure out who covers certain expenses and try to find an equitable solution. (Some couples split bills 50-50, others contribute proportionally based on their income.)
3. A blend of both
   You and your partner still have individual accounts, but hold a joint account for all shared expenses—housing, food, childcare, vacations, and so on. Partners find an equitable way to contribute money to the joint account and both ensure it’s funded for the household needs.

Watch out for a power dynamic
It’s rare that both you and your partner make the same income or bring identical savings into the relationship. Sometimes that difference can lead to a power dynamic that, however unintentional, results in the bigger earner trying to call the shots.

To manage your finances effectively together, you need equal footing. Each partner needs to be heard, understood, and have equal consideration.

Set goals together
Every financial plan should include long-term goals. Spend time discussing what you both want to work toward, come to a consensus on what’s the most important for your future, and build them into your budget.

There’s really no right or wrong way to go (although most financial advisors recommend prioritizing paying off high interest or unsecured debts). The important thing is that you’re working together toward your goals. That teamwork is what brings the financial magic into the relationship to boost your spending and saving power!

Find a budgeting tool that works for you both
Consider using one of the various online apps and budgeting tools that makes joint tracking easier than pen and paper or Excel sheets. These programs let you link accounts, cards, and share information so that you both have the real-time budget at your fingertips. Budgeting as a couple doesn’t get much easier than that!

Communicate and check in regularly
Healthy relationships require communication. Healthy finances within relationships follow the same requirement.

Meet as regularly as needed to discuss your finances together. Is everything going according to plan with savings/spending? Are you on track with your joint goals? What adjustments are needed? Be open and honest, but non-judgmental.

These frequent meetings keep you both aligned toward your joint goals. But perhaps even more importantly, they create space to strengthen your communication which in turn can bring you closer together.