@davidrachelgray1 wrote:
To decrease tax owed, do I need to do additional tax withholding or increase 401k contributions.
You have to understand the difference between your tax liability and your tax due with your tax return.
Your tax liability is what you owe the government, based on your income, deductions and credits.
You make payments during the year via paycheck withholding, and possibly by making extra payments directly to the IRS. At the end of the year, your tax return calculates your tax liability. If your payments are less than your liability, then you owe an additional tax payment to the IRS. If your payments are more than your liability, you get a tax refund.
Now we consider, if you owe tax for 2020, what can you do? The only way to lower your tax liability is have less income or more deductions. It's too late to change your income, and the only deduction you can take now is to make a contribution to an IRA or HSA, if you are eligible. The money you contribute will reduce your taxable income, and depending on your tax bracket, will reduce your tax by 15%-24% of the amount you contributed (for most people).
To owe less tax for 2021, you can change your liability or your withholding or make additional payments. But if you change your tax liability (such as by contributing more money to a pre-tax retirement account) that will also reduce your withholding (unless you also adjust your W-4) so you may end up with the same tax payment due at the end of the year.
