Here are 12 steps you can take now to reduce your tax bill and pay the IRS only what you need for 2021.

1. Maximize contributions to your retirement plan

The money you put into your retirement fund isn’t taxable and, therefore, a great way to lower your tax bill. As of 2020, you can place up to $19,500 per year into your retirement account; same for 2021. Employers generally contribute a certain percentage to this money, and those who are self-employed can always open their own retirement account.

2. Avoid early withdrawals from your 401(k)

If you take money out of your 401(k) before the age of 59 1/2, you will be charged an extra 10 percent above your income tax. Taking loans against your retirement fund also leads to charges and penalties. To lower your tax bill, leave your 401(k) untouched until retirement.

3. Take advantage of the gift-tax exemption

You can give up to $15,000 in gifts to as many people as you want. The money you give as gifts isn’t taxable and can potentially lower your tax bill. The Lifetime Gift Tax Exemption lets you give up to $11.7 million in gifts in your lifetime without being taxed.

4. Boost 529 education savings contributions

If you have money saved in a 529 plan for higher education purposes, it’s not taxable. You can use the money for a variety of investments, and withdrawals are tax-free up to $10,000 per year.

5. Take required minimum distributions, or RMDs

You must start taking distributions from your tax-deferred retirement plan ideally before you turn 70, or else the IRS can charge you a 50 percent penalty on the amount of your RMD. Distributions must be made each year before Dec. 31, but charitable contributions of up to $100,000 are tax-exempt.

6. Bundle contributions

If you make charitable contributions regularly, bundling them could push you above the standard deduction and lower your taxable income. Not all charitable donations have to be in cash. Whether you donate clothes, food or any other items — as long as you have a receipt for those from a recognized non-profit — those donations can lower your tax bill.

7. Sell losing investments

Selling off losing stocks can get you a tax deduction of up to $3,000. However, you should sell a stock only if you need to and not to avoid taxes. If you buy back the stock you sold within 30 days, your deduction will be withdrawn by the IRS.

8. Defer income

If you are making more money this year than you did last year, you may be able to reduce your tax bill by deferring certain payments until the following year. You can defer earnings from your regular salary as well as bonuses and capital gains, just make sure you don’t raise your taxes higher next year.

9. Sign up for a flexible spending account (FSA)

An FSA lets you make tax-free contributions from your gross salary to pay for medical expenses and dependent care. All contributions, however, must be spent during the tax year or you could lose the money.

10. Convert to a Roth IRA

Unlike a traditional IRA, withdrawals from a Roth IRA aren’t counted as income for federal (and usually state) income tax purposes. A Roth IRA also doesn’t have required minimum distributions every year, so the money can remain in the account and continue to grow tax-free.

11. Open a health savings account (HSA)

Whether your employer offers it or you open your own, an HSA can lower your tax bill if you have a high-deductible healthcare plan. Both contributions and withdrawals are exempt from taxes, and as of 2021, the contribution limit is $3,600 for individuals and $7,200 for family coverage.

12. Make early payments

If you have impending expenses that could get you a tax deduction, consider making them before Dec. 31 rather than the following year. This could be anything from a mortgage payment (which could get you a mortgage interest deduction), a charitable donation or a dentist appointment (which counts as a medical expenses deduction).