The law is complex and filled with provisions that most people never discover. While we're not suggesting any questionable practices, there are perfectly legal strategies—often overlooked by the general public—that could save you substantial money. These aren't shortcuts or schemes but rather legitimate provisions within existing laws that you might not be utilizing.
1. Medical Debt Settlement: The 50% Rule Many Hospitals Won't Tell You About
Many hospitals and medical providers have financial assistance policies that they don't advertise widely. Under the Affordable Care Act, nonprofit hospitals (which make up about 60% of U.S. hospitals) must offer financial assistance programs to qualify for their tax-exempt status.
The Little-Known Strategy:
Request an itemized bill and then ask specifically about the hospital's "financial assistance policy" or "charity care policy." Many facilities will reduce bills by 50% or more if your income falls below 300-400% of the federal poverty level—which is higher than many people realize. For example, a family of four earning up to $111,000 might qualify for significant reductions at many hospitals.
Additionally, medical billing errors are surprisingly common. One study found that up to 80% of medical bills contain at least one error. Requesting a line-by-line itemized bill and questioning unfamiliar charges can often lead to significant reductions.
Potential Savings:
For a $10,000 hospital bill, this approach could save $5,000 or more through financial assistance programs, and potentially more by identifying and removing erroneous charges.
2. The Post-Death Tax Return Most Executors Miss
When a loved one passes away, their final tax return isn't necessarily the last tax document you should file. Many executors and families are unaware of a special tax form that can generate substantial refunds.
The Little-Known Strategy:
IRS Form 1310, "Statement of a Person Claiming Refund Due a Deceased Taxpayer," allows you to claim deductions for medical expenses paid before death. The IRS allows deduction of medical expenses that exceed 7.5% of adjusted gross income, but many final-year medical expenses go unclaimed.
Additionally, filing IRS Form 706 (even if no estate tax is owed) can establish a stepped-up basis for inherited assets, potentially saving heirs thousands in capital gains taxes when they eventually sell inherited property or investments.
Potential Savings:
For someone with significant medical expenses in their final year and/or substantial appreciated assets, these filings could save heirs $10,000 or more in taxes.
3. The Student Loan Forgiveness Program That Actually Works
While many student loan forgiveness programs receive criticism for their low approval rates, one program consistently delivers for borrowers—yet fewer than 15% of eligible individuals take advantage of it.
The Little-Known Strategy:
The Public Service Loan Forgiveness (PSLF) program's Temporary Expanded Public Service Loan Forgiveness (TEPSLF) option has much more lenient requirements than many borrowers realize. Following the PSLF waiver and program adjustments, borrowers can now count payments made under any repayment plan, including previously ineligible payment plans.
Additionally, many employees don't realize they work for qualifying employers. Government agencies at all levels qualify, as do most non-profits with 501(c)(3) status, and even some healthcare organizations, public service organizations, and educational institutions.
Potential Savings:
The average borrower who receives forgiveness under PSLF eliminates about $87,400 in student loan debt. For those with professional degrees, the savings can exceed $200,000.
4. The Property Tax Appeal Almost No Homeowners File
Property taxes are typically based on your home's assessed value, but these assessments are often inaccurate. Most jurisdictions have an appeals process, yet fewer than 5% of homeowners appeal their assessments despite studies showing that 30-60% of properties are over-assessed.
The Little-Known Strategy:
Most counties allow informal appeals where you can present evidence of comparable sales (comps) showing your home is worth less than its assessed value. Local assessors rely on mass appraisal techniques that don't account for specific property issues or neighborhood variations.
Even more overlooked is the "uniformity appeal," where you can argue that your property is assessed at a higher percentage of market value than other comparable properties in your area—even if your assessment is technically accurate.
Potential Savings:
A successful appeal on a $300,000 home could reduce the assessed value by $30,000 or more, saving $600-$900 annually in property taxes. Over a ten-year period, that's $6,000-$9,000 in savings.
5. The Backdoor Roth IRA: Legal Workaround to Income Limits
Roth IRAs offer tax-free growth and withdrawals in retirement, but income limits prevent many higher earners from contributing directly. However, there's a completely legal workaround that the IRS has explicitly acknowledged.
The Little-Known Strategy:
The "backdoor Roth IRA" involves making a non-deductible contribution to a traditional IRA (which has no income limits), then immediately converting that amount to a Roth IRA. Since you've already paid tax on the contribution, you only pay taxes on any earnings—which should be minimal or zero if you convert quickly.
This strategy works best if you don't have existing pre-tax IRA balances, due to the "pro-rata rule" that can create unexpected tax consequences. However, those with existing IRAs might be able to roll those funds into an employer 401(k) first to avoid pro-rata complications.
Potential Savings:
For a high-income earner contributing $6,000 annually through this method for 20 years, the tax savings in retirement could exceed $100,000, assuming typical investment growth and tax rates.
6. The Health Savings Account Triple Tax Advantage
While not exactly a "loophole," Health Savings Accounts (HSAs) offer tax advantages superior to virtually any other investment vehicle, yet they remain surprisingly underutilized.
The Little-Known Strategy:
HSAs offer a unique triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. What many people don't realize is that you can pay current medical expenses out-of-pocket while keeping receipts, then reimburse yourself from the HSA years or even decades later—allowing your HSA to grow tax-free in the meantime.
Additionally, after age 65, HSA funds can be withdrawn for any purpose (not just medical expenses) with only regular income tax applying—similar to a traditional IRA but with more flexibility.
Potential Savings:
A family contributing the maximum ($7,300 in 2022) annually for 20 years could accumulate over $250,000 (assuming 7% returns), all of which could be withdrawn tax-free for accumulated medical expenses or future healthcare needs.
Important Considerations
While these strategies are legal, tax laws and regulations change regularly. Always consult with qualified tax and legal professionals before implementing financial strategies based on specific provisions of tax or other laws.
Remember that the most valuable "loopholes" aren't aggressive tax avoidance schemes but rather legitimate provisions that lawmakers intentionally created to benefit specific situations—situations you might find yourself in but simply weren't aware of the available benefits.
