The Ultimate Tax-Saving Guide for W-2 Earners

If you’re a W-2 employee making decent money, you might think your tax-saving options are limited—but that’s not true! While you don’t have access to the same write-offs as business owners, there are plenty of strategies to legally lower your tax bill.

This guide covers every major tax-saving strategy for W-2 earners, giving you a roadmap to keep more of your hard-earned money. We’ll touch on the basics here and go in-depth in future posts.

1. Max Out Pre-Tax Retirement Contributions

The simplest way to reduce taxable income is by contributing to pre-tax retirement accounts:

• 401(k) or 403(b) – Up to $23,000 in 2024 ($30,500 if 50+)

• Traditional IRA – Up to $7,000 ($8,000 if 50+), with income limits for deductibility

📌 Pro Tip: If your employer offers a match, contribute at least enough to get the full match—it’s free money!

2. Use a Health Savings Account (HSA) or Flexible Spending Account (FSA)

HSA (For High-Deductible Health Plans)

• Contributions are tax-deductible

• Growth is tax-free

• Withdrawals for medical expenses are tax-free

• Limits for 2024: $4,150 individual / $8,300 family

FSA (For Regular Health Plans)

• Contributions reduce taxable income

• Use it or lose it (must be spent within plan year)

• 2024 limit: $3,200

📌 Why it matters: HSAs triple tax advantage makes it one of the best tax-saving tools available.

3. Take Advantage of Tax Credits

Credits directly reduce your tax liability, making them more valuable than deductions:

• Child Tax Credit – Up to $2,000 per child (phases out at higher incomes)

• Earned Income Tax Credit (EITC) – For lower-income workers

• Lifetime Learning Credit – Up to $2,000 for education expenses

• Saver’s Credit – If you contribute to a retirement account and meet income limits

📌 Pro Tip: Many credits phase out at higher incomes—check IRS income limits each year.

4. Adjust Your Withholdings Strategically

If you always get a big tax refund, that means you’re overpaying throughout the year. Adjusting your W-4 can give you more take-home pay now instead of a lump sum later.

📌 How? Use the IRS Withholding Estimator to calculate the right amount to withhold.

5. Fund a Backdoor Roth IRA (For High-Income Earners)

If your income is too high to contribute directly to a Roth IRA, you can use the Backdoor Roth IRA strategy:

1. Contribute to a non-deductible Traditional IRA

2. Immediately convert it to a Roth IRA (to avoid taxable growth)

📌 Why it works: Roth IRAs grow tax-free and have no required minimum distributions (RMDs)!

6. Deduct Student Loan Interest

If you have student loans, you can deduct up to $2,500 in interest payments if your income is under $155,000 (joint) / $75,000 (single).

📌 Tip: Even if you don’t itemize deductions, this is an above-the-line deduction, meaning it reduces adjusted gross income (AGI).

7. Take Advantage of Employer Benefits

Your job may offer tax-saving benefits you’re not using, such as:

• Commuter Benefits – Pre-tax dollars for public transit or parking

• Dependent Care FSA – Up to $5,000 in tax-free childcare expenses

• Tuition Reimbursement – Some employers offer up to $5,250 tax-free per year

📌 Pro Tip: Check your benefits package—you might be leaving money on the table!

8. Itemize Deductions if It Saves You More

Most W-2 earners take the standard deduction ($14,600 single / $29,200 married in 2024), but if you have large deductible expenses, itemizing could save you more:

• Mortgage interest

• State & local taxes (SALT cap: $10,000)

• Charitable donations

• Medical expenses over 7.5% of AGI

📌 Pro Tip: Bunch donations into one year to exceed the standard deduction limit!

9. Harvest Tax Losses (If You Invest)

If you have taxable investments, use tax-loss harvesting to offset capital gains:

• Sell underperforming stocks to realize losses

• Use up to $3,000 per year to offset other income

• Reinvest in a similar asset (avoiding wash-sale rule)

📌 Tip: This is especially useful in years with strong market fluctuations.

10. Move to a Lower-Tax State (If Possible)

If you live in a high-tax state like California, New York, or Illinois, consider relocating to a no-income-tax state like: ✅ Texas ✅ Florida ✅ Nevada

📌 Why it matters: State income tax can take 6-13% of your earnings, making relocation a major long-term tax strategy.

Final Thoughts

Even as a W-2 employee, you don’t have to accept a high tax bill without question. The more proactive planning you do, the more you can legally keep in your pocket.

If you’re a numbers person, you can implement many of these strategies on your own. But if you’d rather get personalized tax planning while watching the Lakers instead of crunching numbers, I can help— https://www.glavinicfs.com/bookandrew.