How to LEGALLY Pay Less Taxes (2025 Guide)

Answer Box: TL;DR

You probably pay more tax than you legally need to—mostly because you’re reactive, not proactive. In this video, Dan explains how to use the U.S. tax system to your advantage in 2025 by understanding how tax brackets actually work, optimizing withholding, and layering in smart use of retirement accounts, HSAs, business deductions, and targeted credits. Instead of treating your tax refund like a “bonus,” he shows you how to plan all year so you keep more of what you earn—legally and strategically.

Key Takeaways

Tax refunds are not free money.
- A big refund means you overpaid the IRS during the year.
- Most employers over-withhold so you don’t owe in April—but that just gives the government an interest-free loan.
- With multiple income sources (salary, bonuses, stock, side gigs), it’s easy to miscalculate and default into overpaying.
The biggest problem: reactive (April-only) tax planning.
- Most people don’t plan in January; they panic in April.
- By then, it’s too late to change last year’s withholding, contributions, or strategic moves.
- Proactive, year-round planning is where the biggest savings live.
Understand how tax brackets really work.
- Moving into a higher bracket does not mean all your income is taxed at that higher rate.
- The U.S. system is progressive: income is taxed in “chunks” across brackets.
- This knowledge helps you decide when to:
  - Take deductions now vs. later
  - Time income and capital gains
  - Use Roth vs. pre-tax strategies
Watch out if you changed jobs, got equity, or have side income.
- Each employer’s payroll may assume you get the full standard deduction with them—leading to under-withholding.
- Side hustles, freelancing, or consulting can trigger:
  - Regular income tax, plus
  - Self-employment tax (15.3% for Social Security and Medicare).
- Result: surprise tax bills in April if you haven’t adjusted your W-4 or made estimated payments.
Fix the problem with better withholding and quarterly payments.
- Work with a CPA or planner during the year to estimate your true tax liability.
- Adjust your W-4 with each employer to avoid both big refunds and big tax bills.
- If self-employed or side-gigging, start making quarterly estimated payments.
Use “qualified” accounts the IRS has built for you.
- 401(k)/403(b) (2025):
  - Max contribution: $23,000 (or $30,500 if 50+).
  - Pre-tax contributions reduce taxable income.
  - Employer match is essentially free money.
- HSA (with high-deductible health plan):
  - Pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
  - One of the few truly “triple-tax-advantaged” accounts.
- Roth IRA / Roth 401(k):
  - No deduction now, but tax-free growth and withdrawals later (if rules are met).
  - Key for future tax diversification.
- Backdoor Roth:
  - Still available (when done correctly) in 2025.
  - Allows high earners to route money into Roth despite income limits on direct contributions.
- Use these based on your current vs. expected future tax brackets, not randomly.
If you run a business or side gig, treat it like a real business.
- Key 2025 deductions include:
  - Business meals (50% deductible)
  - Software, subscriptions, phone, internet used for business
  - Mileage or actual vehicle expenses
  - Home office (if used regularly and exclusively for business)
  - Equipment purchases (often expensable under Section 179)
- You can also use retirement plans like:
  - Solo 401(k) or
  - SEP IRA, contributing as both “employer” and “employee.”
- Depending on income, that can mean up to about $69,000 in tax-deferred savings.
Advanced strategies that many people miss.
- Rental property depreciation: Can offset rental income and reduce current tax—but expect recapture when you sell.
- Hiring your kids or family: Pay kids for genuine work; wages may be tax-free to them and deductible to the business.
- Spousal IRA contributions: Working spouse can contribute to an IRA on behalf of a non-working spouse.
- Spousal loans: High-income spouse lends at the IRS prescribed rate; lower-income spouse invests, potentially shifting income into a lower bracket.
- Charitable giving:
  - “Bunch” contributions into one year to exceed the standard deduction and itemize.
  - Use a donor-advised fund for timing flexibility and better tax efficiency.
Key 2025 tax credits to know.
- Childcare credit: Up to ~$3,000 per child (subject to income limits).
- EV credit: Up to $7,500 for qualifying electric vehicles.
- Education credits: Lifetime Learning and other credits for tuition/qualifying education expenses.
The tax code rewards planners, not procrastinators.
- If you wait until April, you’re just reacting.
- If you start in January, you can engineer a lower bill using contributions, deductions, entity selection, and timing.
- But none of this matters if your basic financial foundation is shaky—organization and automatic saving come first.

Key Moments

(00:00) – Why you’re probably overpaying taxes. Dan opens by calling out common mistakes like misunderstanding tax brackets and over-relying on refunds.
(00:23–00:52) – Refunds explained. He explains that refunds are a sign of over-withholding, especially common when you have multiple income streams.
(00:52–01:16) – Reactive vs. proactive planning. Dan emphasizes that most people only think about taxes at filing time instead of planning throughout the year.
(01:16–01:41) – Progressive tax brackets 101. He debunks the myth that hitting a higher bracket raises tax on all income and explains how income is taxed in layers.
(01:41–02:08) – Job changes, equity, and side gigs. Dan warns about under-withholding when multiple employers or side jobs are involved—and the added impact of self-employment tax.
(02:08–02:32) – The fix: better estimates & W-4 updates. He encourages working with a CPA or planner to estimate taxes and adjust withholding or make quarterly payments.
(02:32–03:31) – Using qualified accounts (401(k), HSA, Roth, backdoor Roth). Dan walks through 2025 limits for 401(k)/403(b), highlights HSAs as triple-tax-advantaged, and stresses the future value of Roth accounts and backdoor Roth strategies.
(03:31–04:20) – Business owners and contractors: deductions & retirement plans. He details what expenses can be written off and how solo 401(k)s and SEP IRAs can dramatically increase tax-deferred savings.
(04:20–05:13) – Advanced planning moves. Dan rapid-fires ideas like rental depreciation, hiring kids, spousal IRAs, spousal loans, and charitable bunching / donor-advised funds.
(05:13–05:37) – 2025 tax credits to watch. He highlights child care, EV, and education-related credits.
(05:37–06:04) – The mindset shift. Dan reiterates that the tax code favors those who start planning early and integrate tax into their overall financial strategy.
(06:04–06:25) – Build the foundation first. He reminds viewers to get organized and automate savings before chasing advanced strategies.
(06:25–end) – Free checklist & call to action. Dan offers a free “Executive Tax Reduction Checklist” for high-income earners and invites viewers to like and subscribe.

Episode Summary

In this 2025 tax guide, Dan tackles one of the most common frustrations for high earners and professionals: paying more in taxes than they legally need to. He starts by reframing tax refunds, explaining that they’re not a gift from the IRS, but evidence that you overpaid throughout the year. With multiple income sources—salary, bonuses, equity, and side businesses—it’s easy to see how people drift into over-withholding or under-withholding without realizing it.

He then explains the mechanics of the U.S. progressive tax system, knocking down the persistent myth that moving into a higher tax bracket makes all of your income taxed at that higher rate. In reality, income is taxed in tiers, which opens the door to smarter planning: deciding whether to take deductions now or later, how to time income and capital gains, and when to lean into Roth versus pre-tax savings.

From there, Dan shifts into practical fixes. If you’ve changed jobs, received stock that’s vesting, picked up a side gig, or gone partially self-employed, your withholding could easily be off. Each employer’s payroll system may treat you as if you get the full standard deduction with them, setting up a surprise bill at tax time. And if you’re freelancing or consulting, you may owe both income tax and self-employment tax. The solution he outlines: work with a tax pro or planner during the year to estimate your true liability, adjust your W-4s, and set up quarterly estimated payments.

The heart of the video is about leveraging the tax code’s own tools—what Dan calls the IRS’s “playbook.” He walks through 2025 contribution limits for 401(k)s and 403(b)s, highlighting how they directly reduce taxable income and often come with employer matches. He emphasizes the unique power of HSAs, pointing out their triple-tax advantage, and explains how Roth IRAs and Roth 401(k)s support long-term tax diversification, even if you don’t get a deduction today. For high earners, he notes that the backdoor Roth remains a viable way to push money into tax-free buckets when done correctly.

For business owners and contractors, he outlines a range of deductions—meals, software, home office, mileage, and Section 179 expensing of equipment—and explains how setting up a solo 401(k) or SEP IRA allows them to contribute as both “employer” and “employee,” potentially deferring tax on tens of thousands of dollars. He then layers on more advanced moves: using rental property depreciation to offset rental income (with an eye toward future recapture), hiring children legitimately in the business, making spousal IRA contributions, structuring spousal loans at the IRS rate to shift income, and bunching charitable gifts or using a donor-advised fund to maximize deduction value.

Finally, Dan highlights a few key tax credits for 2025, including child care, EV, and education credits, and drives home the central theme: the tax code heavily rewards those who plan early. If you only look at taxes in April, you’re stuck reacting. If you start in January, you can design your withholding, contributions, and strategies to meaningfully reduce your bill. He closes by encouraging viewers to shore up their financial basics—organization and automation—before layering on advanced tactics, and he points them to his free Executive Tax Reduction Checklist for concrete next steps.

Full Transcript

Dan: If you’re tired of paying too much in taxes, you might be making the same mistakes that most people do, like misunderstanding how tax brackets actually work. In this video, you’ll learn how to legally lower your tax bill using deductions, credits, and smart strategies with retirement and investment accounts so you can stop overpaying and start keeping more of your hard-earned money.

Dan: Let’s start with the basics. Tax refunds aren’t free money. They’re a sign that you overpaid the IRS throughout the year. Most employers withhold more than necessary so that you don’t owe anything come April, but all that does is result in more of your money sitting in the government’s hands interest-free.

Dan: You layer in multiple income streams like salary, bonuses, company stock, maybe even a side gig, it’s incredibly easy to miscalculate what you owe. Overpaying is common, but the bigger issue, most people aren’t doing proactive tax planning throughout the year. They react in April instead of starting to plan in January.

Dan: Here’s a myth that we should put an end to in 2025. If you move into a higher tax bracket, it does not mean that all of your income is taxed at that higher rate. The United States uses a progressive tax system. That means that your income is taxed in chunks. So, if you make 200,000, only the dollars in the top bracket get taxed at that rate, not your entire income.

Dan: Knowing this helps you to plan better. It can mean the difference between taking a deduction now versus pushing it into the future and a potentially lower income tax year.

Dan: If you’ve got a side hustle, stock options that are vesting, or you switch jobs this year, you should watch out. Each employer may treat you like you qualify for the full standard deduction on their payroll. That’s a recipe for under-withholding and a surprise tax bill come April. And if you’re self-employed or freelancing on the side, you might owe both income tax and self-employment tax, an extra 15.3% for Social Security and Medicare.

Dan: So, what’s the fix? Work with a CPA or a financial planner throughout the year to calculate what you actually may owe. Then adjust your W-4s and start making quarterly payments.

Dan: One of the most effective ways to reduce your taxable income is by using the IRS’s own playbook. I’m talking about qualified accounts. Here are the key ones for 2025.

Dan: 401(k)s and 403(b)s. The max contribution for 2025 is 23,000 or 30,500 if you’re over 50. This directly lowers your taxable income and many employers still make matching contributions.

Dan: HSA or health savings account if you’re in a high deductible health plan. This triple tax advantage account allows you to contribute pre-tax, grow tax-free, and withdraw tax-free for medical expenses.

Dan: Roth IRA or Roth 401(k), you don’t get a tax deduction for your contributions, but your money grows tax-free and you get to take tax-free withdrawals in retirement. These accounts are key for future tax diversification.

Dan: The backdoor Roth strategy, which is still available in 2025 if done correctly. This is great for high earners who don’t qualify for direct Roth contributions.

Dan: The bottom line, use these accounts strategically based on your current versus future tax bracket.

Dan: And if you’re running a business or working as a contractor, you’re leaving money on the table if you’re not treating your business like a business. Here’s what you can write off in 2025. Business meals are 50% deductible, software, subscriptions, phone, and internet, mileage or other qualifying vehicle expenses, a home office if it’s used regularly for your business, and most equipment purchases qualify under section 179.

Dan: Also, you can set up a solo 401(k) or SEP IRA, letting you contribute both as an employer and an employee. Depending on income, that could mean up to 69,000 in tax-deferred savings.

Dan: Okay, now let’s rapid-fire a few advanced strategies. Rental properties. Depreciation can offset rental income and reduce taxes. Just know that you’ll recapture it when you sell. So, make sure you plan ahead.

Dan: Hiring your kids or family. You can pay your kids to work in the business and their wages may fall below the taxable threshold and you can deduct those wages as a business expense.

Dan: Spousal IRA contributions. If one spouse doesn’t work, the other can still contribute to an IRA on their behalf.

Dan: Spousal loans. A high-income spouse loans to a lower-income spouse at the IRS prescribed rate, which is still very low in 2025. The lower-income spouse then invests the money, which is great for income splitting.

Dan: Charitable giving. Bunch donations into one year to exceed the standard deduction and itemize or use a donor-advised fund to maximize tax benefits and donate strategically.

Dan: Here are some tax credits to watch for in 2025. The child care credit, which is up to $3,000 per child, but income limited. The EV credit, which is up to $7,500 if buying a qualifying vehicle. Education credits, lifetime learning, or credits for tuition.

Dan: Here’s the truth. The tax code severely rewards those who plan. And if you wait until April to think about taxes, well, then you’re just reacting. But if you start in January, then you can engineer a much lower tax bill.

Dan: And while there are plenty of strategies out there, none of it matters if your financial foundation is shaky. Focus first on getting organized, automating savings, and then layering in the advanced stuff.

Dan: The tax code isn’t rigged. It’s just misunderstood. But now you’ve got the blueprint. Start using these deductions, credits, and accounts the smart way.

Dan: Do you want to cut your 2025 tax bill without the guesswork? Grab our free executive tax reduction checklist. The link is in the description below. Inside, I walk through seven high-impact strategies for high-income earners with complex compensation. These are quick, actionable, and designed to keep more of what you’ve earned.

Dan: And if this video helped you feel a little more confident about tax time and planning throughout the year, go ahead and leave a like and subscribe to the channel for more straightforward, actionable financial content. You’ve worked really hard to earn it. Now, let’s make sure you keep more of it.

Resources & Concepts Mentioned

Progressive tax brackets: Income taxed in tiers, not all at one rate.
W-4: IRS form used by employers to calculate how much tax to withhold from your paycheck.
Qualified accounts: 401(k), 403(b), HSA, Roth IRA, Roth 401(k), and backdoor Roth strategies.
Self-employment tax: Additional 15.3% for Social Security and Medicare on net self-employment income.
Section 179: Tax provision that can allow immediate expensing of qualifying business equipment.
Donor-advised fund (DAF): Charitable vehicle allowing you to “bunch” contributions and grant them over time.
Executive Tax Reduction Checklist: Dan’s free resource for high-income earners with complex compensation.

FAQs

Is getting a big tax refund a good thing?

Not really. A big refund usually means you overpaid throughout the year. You could’ve used that cash for saving, investing, or debt payoff instead of giving the IRS an interest-free loan.

How do I avoid a surprise tax bill if I have multiple income sources?

Work with a tax pro to estimate your total annual income (salary, bonus, stock, side gigs) and adjust your W-4s and/or quarterly estimates so your withholding lines up with what you’ll actually owe.

Which is better—pre-tax 401(k) or Roth 401(k)?

It depends on your current vs. future tax bracket. Pre-tax 401(k) reduces today’s taxable income; Roth 401(k) gives you tax-free withdrawals later. Many high earners use a blend to diversify future tax exposure.

I run a small business. What’s the biggest mistake I might be making on taxes?

A common mistake is not treating your business like a business—missing legitimate deductions, not keeping good records, and failing to set up retirement plans (like a solo 401(k) or SEP IRA) that can massively reduce taxable income.

Are these strategies only for very high-income people?

No. While some tactics (like backdoor Roths or spousal loans) are more common with high earners, many ideas—better withholding, HSAs, Roth contributions, and smart use of credits—can help a wide range of income levels.

Disclaimer

This video and written summary are for educational and informational purposes only and do not constitute financial, tax, or legal advice. They do not create a client relationship with Tailored Wealth or any related entity.

Tax laws change frequently and strategies that work in one year or situation may not be appropriate in another. Before making any decisions, you should consult with:

A licensed financial advisor or planner
A qualified tax professional (CPA or EA)
Legal counsel, where appropriate

Any examples given are illustrative only and are not guarantees of results. Actual tax outcomes depend on your individual facts and circumstances.

Next Steps

If you want to pay less in taxes—legally—consider:

Review your withholding: Adjust W-4s so you’re not massively over- or under-paying.
Maximize key accounts: Check how much you’re putting into 401(k)/403(b), HSA, and Roth accounts.
Audit your deductions: Especially if you run a business or side gig (home office, mileage, subscriptions, etc.).
Plan charitable giving: Explore bunching donations or using a donor-advised fund.
Download the checklist: Use Dan’s Executive Tax Reduction Checklist as a practical starting point for 2025 planning.

With a bit of proactive planning, you can turn the tax code from something that happens to you into a tool that works for you.