How To Avoid Paying Taxes in 2025
Reading Time: 5 minutes“How to avoid paying taxes” is Tax Avoidance—finding a legal way to reduce your taxes. It is often misinterpreted as Tax Evasion—not paying taxes at all.
Tax evasion conceals financial information from tax authorities, which can result in significant fines, penalties, and damage to a business’s reputation and growth.
Instead of avoiding paying taxes, you should focus on finding legal and ethical ways to reduce them.
Here are…
Simple ways to avoid paying taxes legally:
Click on the links to navigate to specific sections.
- 401k/Contribution to IRA
- Open a Health Savings Account
- Itemized Deductions
- Claim Tax Credits
- Charitable donations
- Flexible Spending Accounts (FSA)
- Invest in Municipal Bonds
- School Enrollment
- Self-employed/Independent contractor deductions
- Seek professional advice
401k/Contribution To IRA
Contributing to an Individual Retirement Account (IRA) can reduce your annual taxable income.
While your contributions can’t exceed the total income earned or maximum yearly contribution in a taxable year, it is 100% deductible.
The retirement plans must satisfy IRS requirements and include, but are not limited to:
- Roth IRA
- Simple IRA
- Solo 401(k)
- Keogh plan
You are probably asking…
How much can I contribute to my 401k?
Each year, usually in October or November, the Internal Revenue Service (IRS) reviews the contribution limits for 401(k) plans, individual retirement accounts (IRAs), and other retirement savings vehicles.
- Employees can contribute up to $23,000 to their 401(k) plan in 2025. Additionally, those aged 50 or over can make a catch-up contribution of $7,500, bringing their total contribution limit to $30,500.
- The general limit on total employer and employee contributions for 2025 is $70,000, and with catch-up contributions for those aged 50 and over, the limit is $77,500
Open A Health Savings Account
Freelancers or self-employed individuals covered by a High-Deductible Health Plan (HDHP) are eligible for a health savings account (HSA).
You can contribute to a health savings account to lower taxable income if you have an eligible high-deductible medical plan.
Contributions to these accounts are tax deductible and can be withdrawn tax-free for qualified medical expenses.
Furthermore, balances at the end of the year can roll over indefinitely.
Itemized Deductions
Most people commonly use the standard deduction because of its simplicity. However, itemized deductions allow you to make a detailed list of all payments or contributions that are tax deductible.
Payments for mortgage interest, property taxes, medical expenses, and local and state taxes fall under tax deductibles.
Itemizing these payments qualifies you for tax deductions subtracted from your adjusted gross income, reducing your taxable income.
Check out the Tax deduction cheatsheet for small businesses.
Claim Tax Credits
Tax credits reduce the tax you owe to the IRS or other tax authorities, with the possibility of a refund.
For the 2025 tax year, the maximum Earned Income Tax Credit (EITC) amount is $8,046 for qualifying taxpayers with three or more qualifying children. This is an increase from $7,830 for tax year 2024
The maximum amount available for qualifying taxpayers is as follows:
– Those with two eligible children, the amount will be $7,152, an increase from $6,960 in 2024.
– Those with one qualifying child, the amount will be $4,328, up from $4,213 in 2024.
– For those with no qualifying children, the amount will be $649, rising from $632 in 2024.
2025 Earned Income Tax Credit (EITC)
| Number of children | Maximum earned income tax credit | Max income: Single or head of household | Max income: Married or filing jointly |
| 0 | $649 | $19,104 | $26,214 |
| 1 | $4,328 | $50,434 | $57,554 |
| 2 | $7,152 | $57,310 | $64,430 |
| 3 or more | $8,046 | $61,555 | $68,675 |
The Earned Income Tax Credit (EITC) is calculated using a formula considering income and family size.
The credit’s income limits range from $19,104 for single taxpayers with no children to $68,675 for married couples filing jointly.
The IRS website breaks down all the credits you may be eligible for as a business or an individual.
Charitable Donations
You can claim charitable contributions as itemized deductions on Schedule A of IRS Form 1040 under “Gifts to Charity.”
Charitable contributions made with payroll deductions, checks, cash, and donations of goods and clothing are all deductible.
For deduction eligibility, it is essential to have tax receipts for donations made online to a charity or even volunteering expenses.
Flexible Spending Account (FSA)
A Flexible Spending Account is a pre-taxed payroll deduction by an employer to fund an account for employee expenses such as insurance copays or over-the-counter medication.
There are two types of FSAs:
- Medical FSA: A medical FSA allows employees to set aside pre-tax dollars to pay for qualified medical expenses such as copays, prescription drugs, and over-the-counter medications.
- Dependent care FSA: A dependent care FSA allows employees to set aside pre-tax dollars to pay for qualified dependent care expenses such as child care or adult daycare.
In both cases, there are limits to how much you can deposit, and money may be forfeited if not used by the end of the year.
Invest in Municipal Bonds
Municipal bonds are debt securities issued by state and local governments or government agencies to finance public projects such as infrastructure, schools, and hospitals.
Municipal bonds are considered relatively safe investments, as the issuing government entity with low default risk backs them.
Buying a municipal bond essentially exempts you from paying taxes, as the total amount of your original investment plus interest is repaid once the bond reaches its maturity date.
School Enrollment
Another way to avoid paying taxes is to get credit for education enrollment. The US government offers credits and deductions to return to school online or in your community.
You can take advantage of the education tax credits through the American Opportunity Tax Credit, which offers up to $2,500 credit paid during the taxable year per student. This credit is available for the first four years of higher education and can be used to cover tuition, fees, and course materials.
You could also consider the Lifetime Learning Credit, which offers up to $2,000 off tuition, fees, and course materials. This credit can be claimed once per year and is available for an unlimited number of years, making it a valuable option for those pursuing higher education or improving job skills.
Check out: The 2023 Income Tax Brackets for Individuals and Married Couples.
Self-Employed/Independent Contractor Deductions
You can claim tax deductions as a self-employed, independent contractor, or freelancer.
The self-employment tax rate remains at 15.3%, which includes 12.4% for Social Security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance)
For the 2025 tax year, the Social Security wage base limit has increased. The first $176,100 of your combined wages, tips, and net earnings are subject to any combination of the Social Security part of self-employment tax, Social Security tax, or railroad retirement (tier 1) tax. This is an increase from the $168,600 limit in 2024.
However, you must pay the 2.9% Medicare part of the self-employment (SE) tax on all your net earnings.
You can compute self-employment tax on Schedule SE (Form 1040). When figuring out your adjusted gross income on Form 1040 or Form 1040-SR, you can deduct one-half of the self-employment tax.
Seek Professional Advice
Working with a tax expert or financial advisor can help your business identify tax-saving strategies that comply with all relevant laws and regulations.
A professional can help a business understand its options and make informed decisions about how to avoid paying taxes.
Final Thoughts!
Overall, your business can use many strategies to minimize the cost of taxes and improve profitability.
The goal should not be to evade taxes but to reduce the amount you pay to the government in an accounting year.
It is critical to comply with all relevant tax laws and regulations and seek professional advice to minimize the tax burden and improve financial performance.
