I'm working as a software engineer in the Bay Area.

I file my taxes as "Single" and because of the high salary, I fall into the 32% bracket. Some of my salary goes into a 401(k).

What are some ways I can pay less tax?

  • 66
    How do you feel about marriage?
    – Roger
    Commented Dec 4, 2019 at 15:57
  • 4
    re:@Roger Also, how do you feel about earning less money to begin with? A dollar not earned is a dollar not taxed... (yes, this is a trick question)
    – user12515
    Commented Dec 6, 2019 at 0:37
  • Missing information: a) Sounds like you are a renter not a homeowner? b) You are a salaried employee, not self-employed, and don't have your own company c) Do you have geographic flexibility about moving to either a lower-tax state and/or where you can afford to buy a house e.g. TX, NC, VA, CO, NM, AZ, NV d) Presume you don't have kids so currently only care about low taxes and house prices, not quality of education system e) "Some of my salary goes into a 401K" but does that 401K plan allow you borrow for home purchase? f) Caveat: don't buy house before the impending 2020/2021 recession
    – smci
    Commented Dec 6, 2019 at 3:23

11 Answers 11


Assuming the bulk of your income comes from "earned income," your best bets are moves that lower your taxable income.

You say that some of your salary goes into a 401(k). The more you contribute to your 401(k), the less taxable income you have. In 2019 the maximum amount you can contribute is $19,000. In 2020 that number will go up to $19,500.

Other tax-advantaged investment opportunities are available as well. Your income is probably too high to deduct Traditional IRA contributions, but if you have a high-deductible health insurance plan you can contribute up to $3,500 ($3,550 in 2020) to a health savings account. This money is saved pre-tax, grows tax-defered, and withdrawn tax-free if used for medical expenses. Otherwise, it can be withdrawn after retirement age just like a traditional retirement plan withdrawal. If you don't have a high-deductible plan or decide against an HSA for some other reason, an FSA could be another option to cover some healthcare expenses tax-free, but beware the "use-it-or-lose-it" rules.

Contributing to a 529 college savings plan doesn't provide any immediate lowering of federal income taxes, but it can reduce your state income taxes, depending on your state. This is a good idea if you think you might have children (or nieces/nephews or friends or yourself or whatever) someday whose college education you'd like to support. You must set a beneficiary for a 529 plan, but that beneficiary can be changed at a later date.

If you are willing to itemize your deductions, there are other things you can do. Charitable donations are fully tax-deductible. As is any interest you pay on (up to the first $750,000 of) a mortgage if you purchase a home. These will reduce your tax burden as long as they (in total) exceed the standard deduction of $12,200 ($12,400 in 2020).

If you do have some realized capital gains this year, you can offset some of those by realizing corresponding capital losses. Losses can also be used to offset a small amount of regular income.

Finally, one of the biggest ways you can reduce your tax burden is by marrying someone who makes less money than you. You can then file a joint tax return and also some of the income limits and contribution limits for things mentioned above increase. Having children could also entitle you to some tax credits or deductions.

  • 13
    @mai that's right, but that's not until retirement which could be long in the future. Also, without the high-paying job, income taxes in retirement could be significantly less.
    – Daniel
    Commented Dec 4, 2019 at 13:30
  • 5
    It's really hard with the current rules to make itemizing worth it in the general case.
    – Joe
    Commented Dec 4, 2019 at 16:59
  • 36
    Just to point out the obvious: raising children costs more than it saves in tax cuts. Don't decide to raise children for the tax benefits.
    – Flater
    Commented Dec 5, 2019 at 9:39
  • 23
    To expand on @Flater 's excellent remark: Please don't marry someone just because they are fiscally attractive. It's not a good basis for marriage :)
    – Douwe
    Commented Dec 5, 2019 at 12:25
  • 6
    I don't know @douwe - someone who starts off financially attractive is very likely to stay that way, some other types of attractiveness that are often used for selection fail to do so.
    – JCRM
    Commented Dec 5, 2019 at 16:31

Generally speaking, you cannot lower your expenses related to taxes. You can lower your taxes, but not in a way that will make sense.

For example, if you qualify for itemized deductions, then a $1 deductible expense will save you up to $0.32 in taxes. While you did cut your taxes, it cost you $0.68 to reduce your taxes.

There are exceptions to the above statement, though. For example, if you are renting but plan to live in the same location for at least a decade, then a mortgage may reduce your taxes. I say may because it may not, or it may reduce taxes so little that you would be better off without it.

You automatically get $12,500 off your income. If you had a mortgage of $13,500, then your taxes would be reduced by $320. However, if you spent $11,500 in interest or rented, then you would be $1000 ahead in that you still get the deduction on the remaining $1000 as if you paid it.

If you need to save for retirement anyway, you can reduce your taxes by contributing a 401(k). Nonetheless, the money is no longer available for other uses. Still, the tax incentive is enough to be a source of added return to your portfolio.

If you are asking yourself, "Is there nothing at all I can do?" There are three ways to reduce your taxes in a limited set of circumstances.

First, you can lower your health insurance deductible if it is insurance paid with pre-tax dollars. Increasing your premiums if you believe you are going to use health care over the next year reduces your expenses by converting them from after-tax to pretax expenses. You will need to do a formal tradeoff analysis to see what levels make sense for you. If you do not believe you may be ill, then this will be of no help.

Second, if you invest money in anything other than "buy and hold," then you may be able to reduce your taxes by purchasing either life insurance or an annuity for some or all of your investment. With that said, the added cost of the life insurance or annuity fees could easily be greater than the cost of the taxes on the portfolio. Nonetheless, income from a traditional whole life policy can accumulate essentially forever without paying taxes on it. An annuity has the same benefit, except that you pay penalty taxes like that of an IRA or retirement plan for early withdrawal. Annuities can also have other tax issues that should be avoided if you think you may touch the money.

Again, if you are not investing outside your 401(k) then it will not be useful to do either.

Finally, you could become a landlord. I know that sounds strange but real estate investing provides tax advantages from a present value perspective. Unfortunately, at your bracket, you may run into all types of restrictions such as the alternative minimum tax and passive activity rules.

Any type of business that is capital intensive can create a present value improvement in your overall situation through tax deferrals. Nonetheless, they are not tax deductions but tax deferrals. At some point in the future, in real estate or investing in capital intensive businesses, you will have to pay a higher level of taxes to make up for the early deductions.

None of that is useful if you do not want to own rental real estate or a capital intensive business.

Essentially, if you are an employee of a firm, you cannot generally reduce your taxes without burdening yourself with higher than necessary expenses. Always focus on cash flows and never focus on taxes. If you can increase your net cash flow although increasing your taxes, then do the behavior that increases your taxes. You are seeking to maximize free cash flow, not minimize current taxes due.

  • 29
    "Always focus on cash flows and never focus on taxes." This should be bolded. It is the critical point. Commented Dec 4, 2019 at 10:07
  • 5
    An additional way to pay less tax is to earn less. Depending on the OP's financial status, it may make sense to negotiate a pay cut in exchange for a shorter working week or more holidays. Commented Dec 4, 2019 at 10:08
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    @MartinBonnersupportsMonica bolded and underlined and red. Reducing tax burden is not valuable on its own. People focus on the negatives and forget that a high tax burden generally means a high amount of income, which is good.
    – Chieron
    Commented Dec 4, 2019 at 13:57
  • @Daniel: That's only true if you can predict medical needs for the year. If not, the expense is all the money you put in and lose by not using it. For many people the likely out-of-pocket medical expenses are tens or at most hundreds of dollars, but could the ACA max-OOP (or even higher due to ER out of home coverage area, etc.) in a worst case. Commented Dec 4, 2019 at 14:06
  • 4
    "If you had a mortgage of $13,500" - only mortgage interest is deductible, not the principle, so you'd have to have a mortgage with more than that in interest. (Of course, in the bay area that seems a trivial amount to surpass... a $400k house would easily be $15k or more in interest, for example, and that seems like tables stakes for a house there).
    – Joe
    Commented Dec 4, 2019 at 18:11

What are the ways I can pay less taxes?

Daniel already noted that you can reduce your taxes by making charitable contributions; note that these lower your taxable income and not your taxes. That is, it is a deduction, not a credit. If you give your last earned dollar to charity, it lowers your taxes by the 32 cents that you would have paid on that dollar of income, not by the dollar.

This may seem like an odd way to lower your taxes, but think about it this way: in order to buy a $100 pair of shoes you need to make $150 in income, but to make a $100 charitable donation, you only need to make $100; charitable donations are effectively massively discounted compared to all other purchases.

If you intend to do a large amount of charitable giving over your lifetime, but expect to have a high income for a relatively small amount of that lifetime, you can optimize the tax implications of your charitable giving by starting a Donor Advised Fund with your financial institution; most of the big ones offer this service now.

The idea of a DAF is: it is an investment account like any other. You can put into the fund cash or stocks. When you do so, you immediately take the entire donation as a tax deduction. You can manipulate the contents of the fund the way you would any other; you can sell stocks out of the fund for cash, and buy new stocks with the proceeds for instance. The difference between a DAF and an ordinary brokerage account is that the only withdrawals you can make are charitable disbursements. The institution will take care of all the donation paperwork for you; it is very convenient.

Software engineers in the Bay Area are often compensated partially in stock; you can sometimes get a particularly good tax advantage by donating tracts of stock that you would otherwise be paying capital gains taxes on. Your financial institution can assist you in figuring out how to maximize the tax efficiency of your donations.


You're probably better off having an accountant or tax lawyer going over your finances than having people on the internet try to come up with ideas that might apply to you, but one small thing is that if you use public transit and your employer has a transit program set up, you can put $265 a month of pre-tax money on a Clipper Card or towards other public transit spending. https://en.wikipedia.org/wiki/Employer_transportation_benefits_in_the_United_States

  • 1
    Probably the best answer here!
    – Fattie
    Commented Dec 5, 2019 at 16:24
  • 1
    As someone who comes from a family of accountants, I'll concur that your first 14 words are the correct answer. There are lots of accountants who specialize in exactly this and are far more knowledgeable than random netizens or people at those retail "tax prep" stores. Sure, they'll cost you money, but an accountant that's worth their salt will make sure that they're saving you far more money than they're billing you.
    – bta
    Commented Dec 5, 2019 at 23:29

In addition to the other excellent answers, consider doing a "Backdoor Roth IRA." Assuming that your income is too high to fund a traditional IRA with pre-tax dollars, fund it to the max with after-tax dollars, then immediately do a Roth IRA conversion. There is no immediate tax cost or benefit the first year, but as soon as the Roth IRA begins earning interest, dividends or capital gains, the taxes on those earnings will be zero, i.e., lower than they would have been if you had left the funds in a taxable account. When a Roth IRA has existed for 5 years or more and the owner is 59-1/2 or older, both the principal and all the growth can be withdrawn completely tax-free. When younger than that age, even the principal can be withdrawn without taxes or penalties, should the need arise. And if you have heirs when you die, the Roth IRA goes to them tax-free as well.

"So what? The taxable earnings on $6000 are minimal" you say? Give it time. Over decades, the tax advantage becomes huge.

  • My understanding is that the $6000 limit is for a Roth IRA, but a backdoor or mega-backdoor Roth conversion, the limits are much higher, correct?
    – Sam
    Commented Dec 4, 2019 at 20:20
  • @Sam The $6000 per year limit is for a traditional IRA for a person under 50. If that contribution is immediately converted to a Roth IRA, it's called a "backdoor" only because of the way the funds traveled. For a Roth IRA conversion of funds already in an IRA, there is no statutory limit; it's limited only by the amount you can afford to pay in taxes that result from the distribution from the IRA.
    – MTA
    Commented Dec 4, 2019 at 21:23
  • In decades this person's tax rate will be 75%
    – john doe
    Commented Dec 5, 2019 at 18:45
  • This works is the OP currently doesn't have any tax-deferred savings in a traditional IRA (+1). But if the OP does have traditional IRA savings, the pro-rata rule could make the backdoor IRA a bad idea (or at least cause a major tax bill, which is the thing we're trying to avoid here)
    – Daniel
    Commented Dec 8, 2019 at 23:06
  • @Daniel Yes, important to remember the pro rata rule, but in the OP's case, I presume that the entirety of the current-year IRA contribution is nondeductible (made with post-tax dollars) so the pro rata rule should not come into play. No matter what portion of the existing IRA was deductible and not taxed yet, the tax on the $6000 back door conversion amount has already been withheld from wages.
    – MTA
    Commented Dec 9, 2019 at 0:22
  1. Get married
  2. Get divorced
  3. A huge chunk of your income will be allocated to "spousal support", which is tax deductible for you (taxable for your ex-spouse). This will significantly reduce your tax burden.
  • 1
    Probably not if you get divorced immediately after getting married.
    – Daniel
    Commented Dec 6, 2019 at 12:25

One way to pay less taxes is with the mortgage deduction. The mortgage payment replaces a rent payment but the interest on the mortgage is deductible. Then hopefully the property also increases in value by more than the interest cost of the mortgage. Also, consider the property taxes.

  • 3
    This works in Bay Area because housing is so overpriced. Not in places where it's priced reasonably and mortgage interest is like 30-70% of the standard deduction. Commented Dec 4, 2019 at 14:07
  • According to a mortgage calculator that uses 3.92% interest rate, the mortgage deduction could tip past the single-filer standard deduction at about $216000 property cost. Of course early year's mortgage payments are mostly interest. But property taxes are also deductible up to a limit. Now the mortgaged property is an inflation hedge since it locks-in much of the housing cost.
    – S Spring
    Commented Dec 4, 2019 at 18:18
  • 15 or 30 year? How much down payment? My 30-70% estimate off the top of my head was for joint filers so I could see it being plausible to tip past for single filers, although conversely single filers would probably save a lot more money by having a more suitably sized home for a single person... Commented Dec 4, 2019 at 19:24
  • Thanks to the Tax "Cuts" and Jobs Act of 2017, the mortgage interest is now capped for 750K of mortgage, and SALT (including property tax) is now capped at 10K. In places like California with high mortgages or places like Texas with no income tax (hence SALT is all we've got), one or the other of these can bite you easily. It only takes around $410K of real estate in TX to hit a $10K property tax.
    – shoover
    Commented Dec 4, 2019 at 20:47

As a software developer, have you considered incorporating and being paid as an independent contractor? There are a lot of things you do now that could be written off as an independent contractor such as commuting to an office, purchasing a computer, software licenses, and other office supplies.

If you have a home office, you can write off the portion of your home/apartment that is dedicated to an office. The same is true for utilities (i.e. if you have a 250 sqft office in a 1000 sqft apartment, then you can write off up to 25% of your utilities, rent, etc).

There are some caveats. You cannot be a W-2 employee. Your employer has to sign-off on paying you as a contractor. Your employer cannot provide you with tools to do your job (i.e. desk, computer), nor can they set your hours. Of course, a lot of these things can be written into a contract (i.e. you have to purchase your own computer, but your employer will give you a sign-on bonus that covers the cost of it).

Tax preparation will be more expensive because you have to file your personal and business taxes. State tax may be more depending on which state you incorporate under (check into Wyoming, Delaware, or Nevada Corporations).

Being incorporated, you can also use your incorporation to start other ventures (such as doing Upwork contracts at night, or finally finishing that pet project site you've always wanted to finish).

Ask a tax professional about the best way to incorporate (LLC, S-Corp, C-Corp, Limited C-Corp) and speak with other independent contractors about their experience.

  • Corporation or not corporation (sole proprietor) doesn't change whether a business expense is a deduction. The cost benefit to being paid out of a corporation is avoidance of some payroll taxes, you would need a large amount of income for that savings to offset the cost of preparing the corporation's taxes. REALLY, the benefit to using a corporation to capture earnings is separating business and personal liability, but that value is dubious for single owner operator corporations.
    – quid
    Commented Dec 6, 2019 at 19:16
  • If OP is already has a lot of business related expenses that they cannot write off because they are employed as a W2 employee, switching to a corporation or sole proprietorship would net an instant gain. Preparing a corporation's taxes is a side discussion (i.e. they may have a cousin that will do it for free or they may pay a large accounting firm that is overly expensive). The original question was how to drop to a lower tax bracket. Claiming un-utilized business expenses to a corporation would lower the taxable income, which would lower the tax bracket. Commented Dec 12, 2019 at 23:20
  • But that has nothing to do with incorporating or not incorporating.
    – quid
    Commented Dec 12, 2019 at 23:48
  • @quid, you are correct, OP would not have to incorporate. They could setup an LLC or a partnership. It all depends on how much they have in business expenses that they currently are not deducting and whether that would offset the added business tax preparation and self-employment tax. However, paying for business expenses as a software engineer (new laptop, desk, home office, etc) and writing those off as business expenses would be an easy way to drop down a tax bracket. Commented Feb 11, 2020 at 21:39

This is what I do. This sounds crazy but it is a lot of fun. I put a lot in HSA and I have a lot of kids (like more than 5). this decreases my tax liability. You end up spending a lot on food, love, music lessons, and Doctor bills (that is why we have HSA) instead of giving to govt. We also have 401k and RothIRA. Watch your debt and you can do it.

  • 1
    So you have 6 kids?
    – user12515
    Commented Dec 6, 2019 at 0:38

Buy a copy of Lasser, and their 1001 tips books. They pretty much list all the legal ways to pay less in taxes and explain pub 17 much better than the IRS version. See a lawyer if you want to risk some creative ways to avoid taxes.

What you could do is to move to a place with NO income tax as you can not avoid Federal taxes but states vary all over the place as do counties, cities, and even regions and/or special taxing areas.

But salaries are usually lower in those places, and they make up for state tax with sales tax, and other taxes. But OTOH you would not be amongst those people any longer who think taxing everything to the max is their duty and feel better about it.

I personally worry more about the hidden tax of INFLATION which has cut my spending ability down more than half since I retired. No fun from being well off and going to bumping up against the lowest class of income earners.

Enjoy your big income while you have it but save and invest every penny you do not have to spend so your old age will not be just above the poverty line.


your income is personal and will be taxed accordingly. However, if you have different sources of income all accumulated on a sole proprietorship, then is the business getting taxed. If the business reinvested the income on stock market, then a loss is written as debt while a profit is taxed zero. I believe you may reinvest the low-risk income into high-risk and while stock value fluctuates you may write a loss even if the stock will bounce back. However, if say your 100k earned in day job got burned down to 20k, then the business pays that to you and gets taxed as well. So you still end up with 32% but paid to 20k instead of 100k, and your stock may bounce back. It’s a scam requiring a tax attorney but will end you up with 11% tax on all your income. That includes attorney fees as well.

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