As a financial advisor and investing expert, I often see clients thrilled about a pay raise—until they realize it might come with a catch. If your wages have increased this year, that’s great news for keeping up with rising costs. However, it could also lead to an unexpected tax surprise known as tax-bracket creep. This occurs when your income growth pushes you into a higher marginal tax bracket, increasing your tax bill. During periods of high inflation, when wages rise to combat the soaring prices of essentials like food, housing, and auto repairs, this phenomenon becomes even more pronounced. The result? A double hit to your finances: higher living expenses and a heftier tax burden.

The federal government adjusts tax brackets annually for inflation, but many credits, deductions, and surcharges—like the Net Investment Income Tax (NIIT)—remain static, potentially raising your effective tax rate. Fortunately, you don’t have to sit back and watch your hard-earned money slip away. Below, I’ll outline eight actionable strategies to tackle tax-bracket creep and reduce your taxable income. These ideas, rooted in smart financial planning and investment expertise, can help you keep more of your money working for you.

1. Maximize Retirement Contributions

One of the simplest and most powerful ways to lower your taxable income is by maximizing contributions to retirement accounts like a 401(k) or traditional IRA. These contributions are made with pre-tax dollars, reducing your taxable income dollar-for-dollar.

• • 2025 Limits: You can contribute up to $23,500 to a 401(k), with an additional $7,500 catch-up contribution if you’re 50 or older. Starting in 2025, those aged 60-63 can make an even larger catch-up contribution of $11,250. For IRAs, the limit is $7,000, with a $1,000 catch-up for those 50+.

• • Key Considerations: 401(k) contributions have no income limits, but IRA deductions may phase out based on your income and access to a workplace plan. Check IRS guidelines or consult a tax professional to confirm eligibility.

Example: If you earn $100,000 and contribute $23,500 to your 401(k), your taxable income drops to $76,500—potentially keeping you in a lower bracket.

2. Leverage Your Health Savings Account (HSA)

If you’re enrolled in a high-deductible health plan, a Health Savings Account (HSA) is a triple-tax-advantaged gem. Contributions reduce your taxable income, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.

• • 2025 Limits: Individuals can contribute $4,300, families $8,550. If you’re 55 or older (and not on Medicare), add a $1,000 catch-up. For couples where both spouses are 55+ and not on Medicare, each can contribute $1,000—but into separate HSAs, raising the family limit to $10,550.

• • Why It Works: Lowering your taxable income now while saving for future healthcare costs is a win-win.

Pro Tip: Even if you don’t need the funds now, max out your HSA and invest the balance for tax-free growth.

3. Defer Payouts and Payments

Timing is everything in tax planning. If extra income—like a bonus, severance, or capital gains—threatens to push you into a higher bracket, consider deferring it to the next tax year.

• • Examples: Delay selling a stock or property until January, or postpone invoicing freelance work. For home sales, you can exclude up to $250,000 ($500,000 for married couples) of gains if you’ve lived there for 2 of the last 5 years.

• • Caution: Ensure deferral aligns with your broader financial needs—don’t sacrifice liquidity just for tax savings.

Scenario: Selling a rental property for a $50,000 gain? Splitting the sale across two years could keep you below the NIIT threshold ($200,000 single/$250,000 married).

4. Optimize Roth Conversions

A Roth conversion—moving funds from a traditional IRA to a Roth IRA—can help manage future taxable income, though the converted amount is taxable in the year of the switch.

• • Benefits: Roth IRAs have no required minimum distributions (RMDs), unlike traditional IRAs (RMDs start at 73). This can lower future taxable income and mitigate bracket creep in retirement.

• • Timing: Convert in a year when your income is lower to minimize the tax hit. Withdrawals are tax-free after age 59½ and a 5-year holding period.

• • Trade-Off: Weigh the upfront tax cost against long-term savings.

Example: Converting $20,000 now might add to your 2025 taxes but save you from higher RMD-driven taxes later.

5. Practice Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss to offset gains elsewhere, reducing your taxable income.

• • How It Works: Offset unlimited capital gains, plus up to $3,000 of ordinary income annually, with excess losses carried forward.

• • Watch Out: Avoid the wash-sale rule—don’t repurchase the same or a substantially identical security within 30 days.

• • Strategy: Replace the sold asset with a similar one (e.g., swap one ETF for another) to maintain your portfolio’s direction.

Case Study: Sold a stock for a $10,000 gain? Sell another at a $10,000 loss to neutralize the tax impact.

6. Master Asset Location

Asset location is about placing investments in the right accounts based on their tax efficiency. This subtle shift can significantly reduce your tax liability.

• • Tax-Advantaged Accounts: Put tax-inefficient assets (e.g., bonds, high-dividend stocks, actively managed funds) in IRAs or 401(k)s where income grows tax-deferred.

• • Taxable Accounts: Hold tax-efficient investments (e.g., index funds, stocks for long-term gains) in brokerage accounts.

• • Impact: Less taxable income hits your return each year.

Illustration: Keep a bond fund in your IRA and an S&P 500 ETF in your brokerage account to optimize tax treatment.

7. Boost Charitable Contributions

Charitable donations can lower taxable income if you itemize, especially with smart planning.

• • 2025 Standard Deduction: $15,000 (single) or $30,000 (married filing jointly). Itemize only if your deductions exceed these.

• • Tactics:
    • • Bunching: Combine multiple years’ donations into one to surpass the standard deduction.
    • • Donor-Advised Funds: Deduct now, distribute later.
    • • Appreciated Assets: Donate stocks held over a year to deduct their fair market value and skip capital gains tax.

• • Limits: Deductions may cap based on your adjusted gross income (AGI).

Benefit: A $5,000 donation could cut your taxable income—plus, you’re supporting a cause you care about.

8. Use Qualified Charitable Distributions (QCDs)

For those 70½ or older, Qualified Charitable Distributions (QCDs) are a tax-savvy way to give.

• • Details: Transfer up to $108,000 ($216,000 for couples) directly from an IRA to a charity. It’s excluded from taxable income and counts toward your RMD (required at 73).

• • Eligibility: Starts at 70½; the charity must qualify, and funds must move by December 31.

• • Advantage: Lowers your income without needing to itemize.

Example: A $10,000 QCD reduces your taxable income by $10,000 and satisfies part of your RMD.

Conclusion: Take Control of Your Tax Future

Tax-bracket creep may feel like an inevitable sting, but it doesn’t have to be. These eight strategies—maximizing retirement contributions, leveraging HSAs, deferring income, optimizing Roth conversions, harvesting losses, refining asset location, boosting charitable giving, and using QCDs—offer practical ways to combat it while reducing your taxable income. Each approach can be tailored to your unique financial situation, whether you’re mid-career or nearing retirement.

Inflation may ease, and tax brackets will adjust, but proactive planning remains your best defense. The NIIT and other static thresholds remind us that tax laws don’t always keep pace with our wallets. As your financial advisor, I urge you to review these options with a tax professional or planner. Together, we can craft a strategy that not only tackles tax-bracket creep but also builds a stronger financial foundation for your future.