---
name: optimizing-us-personal-taxes
description: Plans legal US personal income-tax reduction - retirement and HSA contribution priority, traditional vs Roth choice, bracket management, tax-loss harvesting, deduction bunching, and capital-gains timing. Use when the user asks how to lower or optimize their US personal taxes, whether to prioritize 401(k), Roth, IRA, or HSA contributions, about tax-loss harvesting, the wash-sale rule, itemizing vs the standard deduction, or year-end US tax moves. Do not use for preparing the return itself (preparing-us-personal-tax-returns), business or self-employment planning (optimizing-business-taxes), or Canadian planning (optimizing-canadian-personal-taxes).
---

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Author: Simon-Pierre Boucher
Contact: contact@spboucher.ai
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# Optimizing US Personal Taxes

## When to use / when NOT to use
- **Use for:** planning moves that legally reduce a US individual's federal income tax — account priority, Roth vs traditional, harvesting, bunching, gain timing.
- **Do NOT use for:** filling out Form 1040 and schedules, business/SE tax strategy, Canadian taxes, or state-specific planning beyond noting that states differ.

## Important limits
- Educational planning help, not professional advice — the user must verify strategies with a CPA or tax professional before acting.
- All figures are tax-year-stamped and MUST be verified against [irs.gov](https://www.irs.gov) before use; limits change annually.
- Legal avoidance only — never assist with unreported income, fabricated expenses, or sham transactions. Refuse and say why.

## Core strategies

1. **Contribute in priority order: employer match → HSA → 401(k)/IRA → taxable.**
   ✅ Capture the full employer 401(k) match first — it is an instant 50–100% return.
   ❌ Max a taxable brokerage account while leaving match dollars unclaimed.
2. **Treat the HSA as a retirement account (triple advantage: deductible in, growing tax-free, tax-free out for medical).**
   ✅ Max the HSA and pay small medical bills out of pocket, keeping receipts.
   ❌ Treat the HSA as a spending float that stays near $0.
3. **Traditional vs Roth by marginal-rate comparison.** Traditional wins when today's marginal rate is higher than the expected retirement rate; Roth wins when it is lower (early career, gap years).
   ✅ A resident earning $60k picks Roth; a peak earner at 35% picks traditional.
   ❌ Pick Roth "because tax-free sounds better" without comparing rates.
4. **Manage the bracket edge.** Defer income (bonus timing, retirement contributions) when just above a bracket threshold; realize income (Roth conversions, gain harvesting) in low-income years.
   ✅ Convert traditional→Roth during a sabbatical year at 12%.
   ❌ Realize a large gain in the same year as a signing bonus.
5. **Tax-loss harvest, respecting the wash-sale rule (no repurchase of a substantially identical security 30 days before or after — across all accounts including IRAs and a spouse's).**
   ✅ Sell the losing S&P 500 ETF and buy a total-market ETF the same day.
   ❌ Rebuy the identical ETF within 30 days, or have the IRA auto-reinvest into it.
6. **Hold for long-term rates.** Gains on assets held >1 year get preferential rates.
   ✅ Wait two more weeks to cross the 1-year mark before selling a winner.
   ❌ Sell at 11 months and pay ordinary rates without checking the calendar.
7. **Bunch itemized deductions in alternating years when near the standard deduction.**
   ✅ Stack two years of charitable gifts into one year (donor-advised fund), itemize that year, take the standard deduction the next.
   ❌ Donate the same amount every year while never clearing the standard deduction.
8. **Prefer credits over deductions when eligible** (child tax credit, education credits, saver's credit, energy credits) — a credit reduces tax dollar-for-dollar.
   ✅ Check credit eligibility before hunting for marginal deductions.
   ❌ Ignore a $2,000 credit while optimizing a $500 deduction.

## Workflow

1. Collect: filing status, expected income by type (wages, SE, interest, dividends, gains), current contributions, itemizable expenses, state.
2. Place the user on the 2026 bracket table; note distance to the nearest bracket edge.
3. Apply strategies 1–8 in order; skip any that do not apply and say why.
4. For each recommended move, state the deadline (most contributions and harvesting: Dec 31; IRA and HSA: the April filing deadline).
5. **Validate:** model the tax outcome with and without the moves using actual numbers; confirm no contribution limit is exceeded and no wash-sale window is violated. Present both scenarios.

## Current figures (tax year 2026 — verify before use)

| Item | Amount | Source |
|---|---|---|
| Bracket rates | 10, 12, 22, 24, 32, 35, 37% | [irs.gov newsroom](https://www.irs.gov/newsroom) |
| Standard deduction | $16,100 single / $32,200 MFJ | irs.gov |
| 401(k) elective deferral | $24,500 (+$8,000 catch-up 50+; $11,250 ages 60–63) | [irs.gov 401(k) limits](https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500) |
| IRA | $7,500 (+$1,100 catch-up 50+) | irs.gov |
| HSA | $4,400 self / $8,750 family | irs.gov |
| Long-term gain holding period | >1 year | irs.gov |

## Edge cases
- **Income too high for direct Roth IRA** → note the backdoor Roth exists but has pro-rata traps; flag for CPA review, don't improvise.
- **Equity compensation (RSU/ISO)** → AMT and withholding traps; flag for professional review.
- **State taxes** → strategies above are federal; state treatment differs (e.g., HSA in CA/NJ). Say so explicitly.
- **User asks to hide income or invent deductions** → refuse, state it is illegal, offer the legal alternatives above.

## References
Decision tables, worked math, and traps: see [references/reference.md](references/reference.md).