Americans Pay $500K in Taxes Over Their Lifetimes — 9 Ways To Cut the Cost Down
Written by
G. Brian Davis
Edited by
Cory Dudak
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The average American pays more than half a million dollars ($524,625) over the course of their lifetime in taxes, according to a study by Self Inc. That comes to 34.7% of their total lifetime earnings.
If you would prefer to hand over less of your money to Uncle Sam, now is a good time to consider several strategies that could help slash your tax burden.
Take Advantage of Tax Credits
Too many households across the income spectrum don’t realize they qualify for tax credits. Some tax credits are refundable — even if you don’t owe taxes, the government actually pays you money.
Lower- and middle-income taxpayers can take advantage of the Earned Income Tax Credit, the Saver’s Credit, Child Tax Credit, the Child and Dependent Care Credit and the Lifetime Learning Credit.
Even higher-income households can find tax credits, although it requires more strategy. “Tax credits like research and development credits or energy-efficient investment credits can help you to offset tax liability through specialized investments,” noted Mark Eid, Managing Director of Acts Financial Advisors.
Invest Through Tax-Sheltered Accounts
You can deduct contributions to traditional retirement accounts such as IRAs and 401(k)s.
Mark Luscombe, Principal Analyst at Wolters Kluwer Tax & Accounting, pointed out that many workers’ income fluctuates from year to year. “Contribute the maximum amount to qualified retirement plans during higher-earning years,” he advised.
You can also contribute to a health savings account tax-free to slash your tax bill even further.
Put a Priority on Roth Investments
As great as that one-time tax deduction is, tax-free compounding and withdrawals offer even better benefits.
“Tax rates will likely rise over the long term, given the mounting US budget deficit,” observed Thomas Brock, financial consultant and expert contributor for RetireGuide.com. He recommended taking the tax hit now to avoid paying higher tax rates on a higher compounded sum in the future.
John Vandergriff, owner of Blue Ridge Wealth Planners, urged investors to go even further and convert their traditional retirement funds to Roth accounts. “Taxes are lower than they have been in decades,” he noted. “Especially in lower-income years, move money from traditional accounts to Roth accounts.”
Make Backdoor Roth Contributions
In fact, you can contribute money to a Roth account even if your income exceeds the limit.
“The ‘backdoor Roth strategy’ involves contributing to a traditional IRA or 401(k) even if your income exceeds the limit,” explained financial advisor Ty Powell. You can’t deduct the contribution — but you can roll it over to your Roth account.
Invest in Real Estate
real estate comes with some enormous tax advantages — and you don’t even have to become a landlord.
Eid pointed to tax benefits baked into passive real estate investments like syndications and equity funds. “Depreciation allows property investors to deduct the cost of the buildings over several years,” he said. “Investors also benefit from cost segregation, which accelerates this process.”
Because real estate is inherently an illiquid investment, most investors hold it long-term. Thus, they pay the lower long-term capital gains tax rate on profits.
However, they may not even have to pay that. “For those looking to reinvest their gains, a 1031 exchange allows them to defer taxes by reinvesting the proceeds into a similar property,” Eid noted.
The options don’t end there, either. Vince DeCrow, founder of RISE Investments, likes Qualified Opportunity Zone funds. “The QOZ program lets investors make real estate investments and defer their capital gains taxes through the end of 2026 (which may get extended through 2028),” he explained. “Longer-term investments can appreciate tax-free through the end of 2047. These funds offer tax advantages similar to Roth IRAs.”
Charitable Giving Through a Donor Advised Fund
As a win-win, you can give money to causes you believe in — and avoid paying taxes in the process. The better you plan out your giving, the better your tax benefits.
“Don’t sell stock to give cash to charity,” advised Powell. “Instead, transfer the appreciated stock to a Donor Advised Fund and then sell the appreciated stock to donate. This way you avoid the capital gains tax.”
Batch Your Charitable Donations
Another strategy to save on taxes involves making many years’ worth of your charitable donations in the same tax year. “This allows you to exceed the standard deduction threshold, enabling you to itemize and claim larger tax deductions,” explained Eid.
Start a Business
If you do any self-employment work, whether full- or part-time, you could multiply your tax benefits by forming a business.
“This can qualify you for many business-related deductions without having to itemize your personal deductions,” explained Luscombe. “You can even deduct part of your home expenses if you have a qualifying home office.”
That goes beyond your rent or mortgage payment. You can also potentially deduct your home internet, phone, utilities and other expenses.
Move to a Lower-Tax State
Sure, the average American pays around half a million dollars in lifetime taxes, but residents in some states pay far more than others. For example, New Jersey residents pay nearly $1 million ($987,117) in taxes over their lifetimes, according to the Self Inc. study. Meanwhile, residents of West Virginia pay an average of $358,407.
You don’t necessarily need to stick around and pay high federal taxes either. Having lived abroad for a decade, I’ve personally paid little in taxes. The foreign earned income exclusion, for instance, makes my first $130,000 in income in 2025 tax-free.
You can’t avoid taxes entirely — but you can reduce them. Get strategic about reducing your lifetime tax burden to keep more of your hard-earned money for yourself and your family.
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