7 Legal Ways to Reduce Your State Income Tax in 2026

1. Maximize Retirement Contributions

Contributions to 401(k)s and traditional IRAs reduce your state taxable income in most states.

2. Use Health Savings Accounts

HSA contributions are deductible on both federal and most state returns.

3. Time Capital Gains

Delay selling assets until you're in a lower bracket or live in a no-tax state.

4. Claim All Available Deductions

State deductions differ from federal — research your state's specific allowances.

5. Consider a Move

Relocating to a no-income-tax state can save thousands annually.

6. Business Structure Matters

LLCs, S-corps, and sole proprietorships are taxed differently by state.

7. Harvest Tax Losses

Offset capital gains with losses to reduce state taxable income.