# 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).

# 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 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)

# 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.