Updated February 9, 2026, 12:09 PM ET
Alexander Smith emphasizes viewing tax returns as a potential opportunity rather than just a responsibility. By understanding your financial situation and tracking your income, it becomes possible to anticipate the taxes owed and potentially adjust spending habits to lower tax liabilities in the future. Smith, a behavioral economist at Worcester Polytechnic Institute in Massachusetts, hopes that taxpayers will find new motivation to lower their taxes simply by altering their current behaviors.
He points out that many individuals miss the chance to save money by understanding the intricacies of the tax system. “This is crucial. It can be a learning moment,” he notes.
Smith believes taxpayers often fixate too much on seeking out tax breaks and loopholes related to past income, neglecting to consider how current choices can influence future tax bills. “After all, there’s not much we can adjust from last year,” he adds.
Would you like to have more fun saving tax?
A lot of people don’t get very enthusiastic about tax savings. According to Smith, even something simple like receiving a $2,000 tax refund or discovering a $20 bill on the street fails to spark much excitement. “If I dropped a stack of hundreds on the ground, you would see a much different reaction,” he remarks. “But saying you can make decisions that might save you the same amount doesn’t elicit the same thrill.”
People interact with money differently based on its origin—a behavioral concept known as “mental accounting.” Smith commonly illustrates this point by holding a $100 bill in class, prompting astonished reactions from his students. He advocates for more discussions with tax professionals concerning future taxes, a sentiment echoed by tax accountants.
“We aim to connect with our clients early in the year about next year’s tax situation,” says Scott Dobbs, a certified public accountant from Rockford, Illinois.
“Being a good client of your accountant involves asking insightful questions,” explains Larry Johnson, a senior tax manager at Sikich in Springfield, Illinois. “Such questions can lead to unexpected insights that result in significant savings.”
Understand tax classifications
Smith stresses the need to comprehend your marginal tax rate, which is crucial for navigating tax returns.
The progressive tax bracket system implies that individuals are taxed at increasing rates according to their income. The lowest income bracket is taxed at the lowest rate, while the highest earners pay the uppermost rate on their excess income.
For instance, if someone has a taxable income of $75,000 in 2025 and is single, the tax rates would be structured as follows: the initial $11,925 would incur a 10% tax, income between $11,926 and $48,475 would be taxed at 12%, and any income over $48,475 would face a steep 22% rate.
Smith shares favorite strategies for tax reduction, beginning with a solid understanding of tax classifications. Here are four effective strategies.
Retirement contributions
Putting money into a tax-advantaged retirement account like a 401(k) or IRA can lessen taxable income. Surprisingly, many individuals are unaware of how much they could be saving.
For the 2025 tax year, contributions to a 401(k) could reach up to $23,500, with higher limits for older Americans.
Let’s say the federal tax rate is 22%, plus an additional 3% in state and local taxes. Contributing $1,000 to a 401(k) could lead to a total tax benefit of $250, according to Smith.
It’s understandable to hesitate at the thought of relinquishing $1,000 that could be spent right now; however, Smith encourages shifting the focus towards future value creation. “Everything becomes much more enjoyable when you can think long-term,” he advises.
Contributing to HSA
The logic applies just as strongly to health savings accounts (HSAs).
Similar to a traditional 401(k), an HSA is funded with pre-tax dollars. If you were to deposit $1,000 into an HSA, it could also yield a tax saving of $250. If managed correctly, you wouldn’t owe taxes on what you withdraw for qualified expenses in the future.
For families, the contribution limit for 2025 is set at up to $8,550.
Much like with a 401(k), HSA funds can grow and accumulate value, available for use whenever needed. “Future profits are worth it,” says Smith.
Charitable donations
Smith advocates for a clear understanding of tax benefits associated with charitable contributions.
The IRS allows deductions for charitable donations, permitting individuals to deduct up to half of their adjusted gross income as charitable contributions.
People can give money, items, or even vehicles, but tax experts advise following IRS guidelines closely. This includes retaining receipts and estimating the fair market value of donated items. The Salvation Army provides helpful resources for valuation.
To claim maximum deductions for charitable gifts on a 2025 tax return, itemization is necessary, rather than accepting the standard deduction. For single filers, this means itemizing any deductions that exceed $15,750.
Itemization can prove beneficial when deductions from charitable giving, state taxes, mortgage interest, and certain medical costs stack up.
Recovery of loss
This method is often seen among wealthier taxpayers. It involves selling an investment at a loss, swapping it for a similar one, and using the loss to balance out gains from other investments on your tax return.
