11 Ways to (Legally) Pay Less Taxes

Let’s face it: No one likes paying taxes.

But not paying taxes is kind of illegal…Not kind of, very illegal.

So, as you’re making money in your life and dealing with taxes, you need to learn the difference between two terms:

Tax evasion: This is when you flat out do not pay your taxes - illegal.

Tax Avoidance: Finding loopholes and other strategies that help you pay less in taxes - legal.

And with tax time right around the corner, everyone is trying to pay less in taxes. Because paying less in taxes gives you more money to save, spend, or invest to grow your wealth.

Today, we’re going to break down the secrets of taxes - and you don’t have to read all 2,000 pages of the tax code or have a law degree to pay less in taxes.

You just have to understand how it was written and how our tax system was designed to benefit.

Spoiler alert: Our tax system was designed to benefit people who invest, own real estate, and build businesses.

Workers pay the highest rates and get the fewest write-offs. 

Investors? It’s actually the opposite.

These 11 strategies are all legal, they're all in the tax code, and most people don’t even know they exist.

Paying less in taxes = more money in your pocket. But how do you get more out of your investments?

Our CEO Jaspreet Singh is hosting a free live investor workshop on March 18th where he’s breaking down how to spot market shifts and potential investment opportunities.

You can register for free by clicking here.

1. Understand the 3 Types of Income

Before you can pay less in taxes, you need to understand why your tax bill is what it is.

There are three general income buckets - and each one is taxed differently.

Most people only have earned income - which comes with the highest tax rates and the lowest deductions.

The more you shift income toward portfolio and passive categories, the lower your effective tax rate tends to be. 

That's entirely by design.

2. Contribute to a Traditional 401(k) or IRA

This is the most accessible tax move for most investors - and a lot of people still aren't maxing it out.

A traditional 401(k) or IRA lets you invest money before taxes. 

That means your taxable income drops by however much you contribute.

Put in $10,000? You're paying taxes on $10,000 less this year.

The money grows tax-deferred inside the account. 

You pay taxes when you withdraw in retirement - ideally at a lower rate than you're paying now.

If your employer offers a 401(k) match, consider contributing at least enough to get the full match. 

That's almost like free money that also lowers your tax bill.

3. Consider a Roth for Long-Term Tax-Free Growth

The Roth 401(k) and Roth IRA work differently. 

You invest after-tax dollars - so no deduction today. 

But the money grows completely tax-free, and withdrawals at retirement are generally tax-free too.

The right choice comes down to one question: will you pay more in taxes now, or later?

If you expect tax rates to rise in the future - which is possible given current government debt levels - paying taxes today with a Roth could be the smarter long-term move.

If you expect lower income in retirement, the traditional route might save you more.

Either way, these accounts are one of the cleanest legal ways to reduce your lifetime tax bill.

4. Hold Investments for Over a Year

Taxes are always something investors need to consider.

Until you sell, your assets are all growing without having to worry about taxes.

But when you finally do, you will need to pay what’s called a capital gains tax.

What’s that? Capital gains are the taxes you pay when you finally sell an investment.

When you sell an investment you've held for less than a year, the gain is taxed as ordinary income - at your regular, higher tax rate.

Hold that same investment for over a year, and it qualifies for long-term capital gains rates: 0%, 15%, or 20% depending on your income level.

So patience isn't just a wealth strategy, it can also help you come tax time, too.

5. Prioritize Qualified Dividends

When a company makes a profit, it has made more money that it needed to in order to pay its bills.

It then can decide what to do with that leftover money.

Some companies spend it on growth - other companies return those profits to investors in the form of dividends.

But not all dividends are the same and there are two common types investors should know for tax purposes:

Qualified dividends: These are paid by several large U.S. public companies and taxed at the same lower long-term capital gains rates. 

Ordinary dividends: These are taxes at your normal income level.

The bottom line: Dividend income you've held and earned the right way gets treated more like investment income than job income.

6. Use Tax-Loss Harvesting

When some of your investments are down, you can actually turn that loss into a tax advantage.

Tax-loss harvesting means selling investments that have lost value to create a tax loss - which you can then use to offset gains elsewhere in your portfolio.

Here's how it works:

• Stock A is up $5,000
• Stock B is down $3,000
• Sell both, and you only owe taxes on $2,000 - not $5,000

You can immediately buy a similar investment to stay in the market. 

Just not the exact same security - the IRS "wash sale rule" says you have to wait 30 days before repurchasing the same investment or the loss is disallowed.

If your total losses exceed your gains in a given year, you can carry the excess forward and apply it to future years. 

7. Track Every Investment Transaction

Ignoring what you’re buying and selling is how investors get surprised at tax time.

Every time you buy or sell in a taxable brokerage account, you create a taxable event. 

The IRS gets a copy of your transaction history directly from your broker through a form called a 1099-B, whether you report it or not.

So you’ll want to keep records of every transaction: 

• The date. 
• Number of shares.
• Price.
• And any fees.

Most modern brokers make this easy through their app. 

Find the "Tax Documents" section each January or February. 

And if your portfolio is getting complex, a tax professional who specializes in investment taxation may be worth considering to keep everything organized.

8. Invest in Real Estate for Depreciation Write-Offs

Real estate has some of the most powerful tax advantages in the entire tax code.

When you own a rental property, you can write off what's called depreciation - a deduction based on the idea that the physical structure of your property wears down over time.

Even if your property's value goes up, you can still take the depreciation deduction. It's a paper write-off - you made money, but you reduce what's taxable.

That's one of the few places in the tax code where you can profit and simultaneously reduce your taxable income.

9. Deduct Your Real Estate Expenses

Beyond depreciation, real estate investors can deduct ordinary and necessary expenses to run their rental business. 

That includes:

• Repairs and maintenance.
• Property management fees.
• Insurance.
• Travel to and from your properties.
• Professional services like accountants and attorneys.
• Mortgage interest.

This is why passive income from real estate often ends up taxed at a much lower effective rate than the same dollars earned from a job. 

You're only paying taxes on what's left after expenses - not on the gross amount.

10. Stop Using Your Tax Advisor Just for Filing

This might be the most underused item on this entire list.

Most people meet with their tax advisor once a year in April. 

They hand over documents, get their return filed, and call it done.

But if filing is all your tax advisor is doing - you're leaving serious money on the table.

The real value is in tax planning: meeting throughout the year to talk about what you can do before December 31 to reduce what you owe. 

Which deductions are available to you right now? 

What should you buy, sell, or contribute before year-end? 

How should you structure your income?

A good tax advisor helps you play offense - not just survive tax season.

11. Become an Owner, Not Just a Worker

We’re all taught growing up to go to school, get good grades, so that you can get a high paying job.

That’s not bad advice - but take a look around you.

Some of the smartest and brightest people in the world, doctors, lawyers, scientists, who are all well paid at their jobs, are not the wealthiest people in the world.

The wealthiest people are the owners of assets and businesses. 

Workers pay between 15% and 37% of their income in taxes depending on how much they earn. 

Investors who generate income from long-term capital gains and qualified dividends pay 0%, 15%, or 20%.

The tax code was written to reward people who build and own assets: businesses, real estate, investments. 

That's the intended design of a capitalist system - the system we currently all live in.

The investors who pay the least in taxes aren't doing anything illegal. 

They understand how the system works and find ways to avoid taxes, legally.

11 Ways to (Legally) Pay Less Taxes - The Short Version

You don't need to memorize 2,000 pages of tax code. 

You just need to understand the simple ways the financially educated avoid taxes.

The most common are:

1. Know which type of income you're earning.
2. Use tax-advantaged accounts first.
3. Hold investments long-term.
4. Invest in qualified dividend-paying stocks.
5. Harvest losses when you have them.
6. Track your transactions.
7. Use real estate for depreciation and expense deductions.
8. Work with a tax advisor year-round - not just at filing time.
9. Shift your financial life toward owning assets, not just earning wages.

Taxes are a part of money - there is no way around that.

But, there are legal ways to reduce how much you are obligated to pay.

You don’t have to be a lawyer or have a PhD to make these 11 strategies work for you, either - you just need to be a little savvier than the average person.

Speaking of which: Savvy investors keep an eye on where markets are headed, not where they have been.

Our CEO Jaspreet Singh is hosting a free live investor workshop on March 18th where he’ll be breaking down how to spot market shifts and potential investment opportunities.

Save your spot by clicking here.