Top 10 Tax-Saving Tips for Tech Professionals

Tax season can be daunting, especially for tech professionals with complex income sources like salaries, bonuses, stock options, and side hustles.

Though there are many tax instruments that can benefit tech employees, finding an accountant who can structure a tax plan around equity compensation can be difficult. In a survey of 1,500 employees at public tech companies, for instance, only 47 percent reported having a tax plan.

Fortunately, with strategic planning, you can reduce your tax liability significantly. Here are the top 10 tax-saving tips.

1. Max Out Your 401(k) Contributions

• Think about putting the most you can into your retirement account each year. For 2024, that's $23,000. If you're 50 or older, you can put in up to $30,000.

• An employer can add up to $69,000 to an employee's 401k. This total includes both the employer's and the employee's contributions.

• You can personally contribute up to $23,000 to your 401k plan in 2024.

• Doing this is helpful because it lowers the amount of income you have to pay taxes on, so you pay less in taxes that year. Plus, the money in your retirement account grows without being taxed right away.

2. Signup for a HSA Investing Account:

HSAs are paired with high-deductible health plans (HDHPs). To qualify for an HSA, you must have an HDHP, which means a higher deductible you'll pay out-of-pocket before your insurance kicks in. However, HSAs offer significant advantages:

• Contributions are tax-deductible, grow tax-free, and withdrawals for medical expenses are tax-exempt.

• The 2024 limits are $3,850 for individuals and $7,750 for families.

HSA Account - The Triple-Tax-Advantaged Powerhouse

HSAs are considered "triple tax-advantaged" because your contributions are tax-deductible, the money grows tax-free within the account, and withdrawals for qualified medical expenses are tax-free.

Investment Opportunity

Unlike FSAs, HSAs allow you to invest your contributions, growing your healthcare savings significantly over time. Remember to Invest! Many people neglect to invest their HSAs, missing out on valuable tax-free growth.

Long-Term Flexibility

HSAs aren't just for medical expenses. Once you reach retirement age (59 ½), funds can be withdrawn for any purpose, similar to an IRA, but with continued tax advantages.

HSAs: Who Should Consider Them?

HSAs are ideal for those in good health who can manage a higher deductible. They're also a good option if you're planning for future healthcare needs and want to maximize your healthcare savings. If you choose an HSA, prioritize investing your contributions to leverage the tax-free growth potential.

HSAs: A Powerful Reimbursement Option

An HSA offers a unique strategy: you can pay for medical expenses out of pocket, keeping receipts. Then, later (even years later) you can reimburse yourself from your HSA using the saved receipts. This allows your HSA funds to continue growing tax-free while you wait for reimbursement.

3. Claim Foreign Tax Credits

If you pay taxes in another country and in the U.S., use Form 1116 to get credit for the foreign taxes you paid. This helps you avoid being taxed twice by using the U.S. tax agreement with other countries.

4. Deduct Student Loan Interest

If you're asking, "Can I deduct student loan interest?" the answer is yes. Federal student loan borrowers can deduct up to $2,500 of interest each year on their tax return. You can claim this deduction as an adjustment to your income, and you don't need to itemize your deductions to do so.

5. Leverage lifetime learning credit (LLC) for Certifications and Training

• Many tech professionals invest in certifications like AWS, PMP, or advanced degrees.

• Deduct tuition and fees under the Lifetime Learning Credit (up to $2,000 per year).

6. Choose Between Standard and Itemized Deductions

When filing your tax return, you should decide if listing your deductions one by one is better than taking the standard deduction. You might want to list your deductions if they add up to more than the standard deduction for your situation. Some expenses you can list include state and local taxes.

For the 2024 tax year, the standard deduction amounts are:

• $14,600 for Single filers

• $29,200 for Married Filing Jointly (MFJ)

7. Utilizing Donations to decrease the taxable income for the year 2024

Giving to Goodwill or other charities can help lower your taxes and make a difference. Whether you donate money or items like clothes and furniture, you might get a tax deduction.

To benefit the most, keep receipts for all donations and get written proof for bigger ones. If you give items, note their value to maximize your tax benefits. You can also donate things like stocks to avoid extra taxes. With good records and planning, your donations can benefit both you and the causes you care about!

8. Avoid Tax Penalties: A Painful Lesson for Tech Workers

• For tech workers with stock benefits like RSUs or stock options, unexpected tax bills can be a big surprise. Imagine an NVIDIA employee whose stock value jumps. While this is exciting, the tax situation can be confusing if not handled correctly.

• When stock becomes available (vests), it's taxed as income based on its value that day, even if the you don't sell it. If you don't save enough for taxes, you might face penalties when filing.

• This can get worse if you keep the stock, hoping it will increase in value, but don't plan for quarterly tax payments or market changes. These penalties and interest on unpaid taxes can add up fast, turning a financial gain into a stressful problem.

• To avoid this, you should calculate possible taxes when stock vests or is sold and plan for tax payments throughout the year.

• A little planning can prevent big penalties and keep stock benefits rewarding, not stressful.

About Lesser.Tax 

Most of us in tech are first gen — first to go to college, first to be an engineer, first to be paid in RSUs.

Tax planning is often neglected when it comes to equity compensation. Most companies treat RSUs as supplemental income, which means withholding much less tax. This results in tech employees owing substantial amounts to the IRS after a vest.

Though there are many tax instruments that can benefit tech employees, finding an accountant who can structure a tax plan around equity compensation can be difficult. In a survey of 1,500 employees at public tech companies, for instance, only 47 percent reported having a tax plan.

Companies today offer little support in helping employees understand and plan for taxes.

The complexities of the US tax system are mind boggling. Riddled with credits and tax breaks at the state and federal levels, it’s no wonder why the U.S. has 3x accountants per capita vs other developed nations. Even for middle class American households, getting a fair tax outcome requires an expensive accountant.

We’re redesigned tax filing experience from the ground up around personalization, intelligence, and impeccable customer experience. We think that people shouldn’t have to choose between the personalization and comfort of human services, and the convenience and accessibility of software.

At Lesser, we work with high-achieving professionals from top Bay Area companies. We help you navigate tax optimization for private and public equity, rental incomes, and angel investments, so you can focus on what you do best while we handle the rest.