How to Decrease Your Tax Bill in 2026

Title: How to Decrease Your Tax Bill in 2026

Hello everyone! Today we're going to talk about everyone's favorite subject - taxes.

I'm excited to walk through some helpful education, common myths, and proven planning concepts that can help you better understand how the tax system works and how people legally manage their tax exposure.

If we haven't met, I'm Joel, CEO of Flames Financial Planning. We're a flat-fee financial planning firm where your investment management, financial planning, tax filing, and estate planning are all included in one comprehensive membership.

Let's start with a key foundational concept - the difference between your marginal tax rate and your effective tax rate.

Your marginal tax rate is the tax bracket that your last dollar of income falls into. That's the percentage of tax you'll pay on your next dollar earned.

Your effective tax rate is your overall average tax rate - the actual percentage of your total income that goes to taxes.

Let's walk through a quick visual example.

This shows how our progressive tax system works using the 2025 federal tax brackets. Your first dollars are taxed at the lowest rate. In this example:

The first $11,925 is taxed at 10%. The next $36,550 is taxed at 12%. The next $54,875 is taxed at 22%. And the next $93,950 is taxed at 24%.

In this scenario, total taxable income is $197,300 and the estimated federal tax bill is about $40,199, which puts the effective tax rate at roughly 20.4%.

This helps us bust one of the biggest tax myths out there - that making more money is bad because it might push you into a higher tax bracket.

That's simply not how our tax system works.

You only pay the higher rate on the portion of income that crosses into that bracket. It is always better to earn more money and pay some additional tax than to avoid income entirely.

Now that you understand this, you officially have a great dinner-party tax trick to impress your friends.

So how do people actually reduce taxes?

The answer depends heavily on what stage of life you're in.

If you're in your working and accumulation years, two of the most powerful tools are pre-tax retirement contributions and Health Savings Accounts.

Maxing out a pre-tax 401(k) allows you to reduce your current taxable income. In our simplified example, contributing the full $24,500 could reduce federal taxes by roughly $5,900, with additional potential state tax savings. Actual results depend on your full financial picture.

Health Savings Accounts, or HSAs, are another incredibly powerful tool if you're eligible. They offer a rare triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free withdrawals when used for qualified medical expenses.

Now what if you're already retired?

How do you manage lifetime taxes once you're no longer earning income or contributing to traditional retirement plans?

Here are a few important concepts.

One common strategy retirees often explore is Roth conversions. This involves intentionally moving money from pre-tax retirement accounts into Roth accounts over time. The goal is to create long-term tax efficiency, manage future required minimum distributions, and potentially reduce lifetime taxes.

One way I do this for my clients is by using Holistiplan tax software to simulate a full tax return. This allows me to input your income, deductions, and tax credits, review the applicable tax brackets, and preview your estimated tax bill before anything is finalized - so we can proactively optimize your strategy rather than react later.

This process requires careful analysis. When done properly, it balances current taxes with long-term benefits, while also monitoring factors like Medicare premium surcharges and future income thresholds.

Another important area is gifting strategies.

Due to changes in inheritance rules, many beneficiaries now have only 10 years to fully withdraw inherited retirement accounts. This can create a significant tax burden.

In some cases, gifting while alive - within IRS guidelines - can be a powerful way to help family members when they need it most and potentially reduce future tax strain. Gifting strategies should always be coordinated with your full financial and estate plan.

Lastly, let's talk about deductions.

Each year, you'll take either the standard deduction or itemized deductions - whichever is higher.

For 2026, the standard deduction is projected to be $16,100 for individuals and $32,200 for married couples,with additional benefits for those age 65 or older.

Itemizing may still make sense if you have significant mortgage interest, charitable donations, or state and local taxes. One major change for the 2025 tax filing year was the SALT Deduction Cap being raised from $10,000 to $40,000 with inflation increases going forward.

Tax planning is about understanding which strategy best fits your situation each year.

The big takeaway?

Taxes impact nearly every major financial decision - income, investing, retirement planning, charitable giving, and estate planning.

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And if you'd like to learn more about our planning approach, you can find additional educational resources and firm information in the description below.

Thanks for watching - see you next time!