You work hard for your money. So why shouldn't you try to keep as much of it for yourself as you can? Here are some ways to pay less tax and keep more of your hard-earned dollars every month.

Tax Deferrals Rule
Take advantage of tax-deferred retirement account such as a 401(k) plan offered by your employer. They all allow you to make pretax contributions of up to $15,500 in 2008 ($20,500 if you're age 50 or older). The tax savings can be significant. For example, if your marginal tax rate is 28% and you defer $15,500, you'll save $4,340 in current taxes. Your $15,500 contribution will generate tax-deferred earnings for you until you withdraw the funds from the plan, when you may be in a lower tax bracket. And, if your employer matches your contributions, the deal is even sweeter.

Another common way to use tax deferrals to save more of what you earn is by setting up a health-care flexible spending account (FSA) at work. Your contributions reduce your taxable income (and current taxes), and the funds you set aside can be withdrawn tax free to pay a wide variety of health-related expenses that aren't covered by your health plan.

And don't forget the Traditional IRA. If neither you nor your spouse is covered by a retirement plan at work, and you're not yet 70½, you can make a deductible contribution of up to $5,000 to an IRA in 2008 ($6,000 if you're age 50 or older). Even if you or your spouse is covered by a plan, all or part of your contribution may be deductible, depending on your income.

Tax Free is Even Better
Another way you can generate tax-free income is by contributing to a Roth IRA or Roth 401(k) plan. Unlike pretax deferrals, Roth contributions don't reduce your income, so there's no current tax savings. Because you've already paid tax on your contributions, they won't be taxed again when you withdraw them from the plan. But what really sets Roth contributions apart, and makes them so appealing, is that all earnings are also tax free if you satisfy a five-year holding period and certain other requirements are met.

If you have children, don't pass up the tax incentives offered by Section 529 plans and Coverdell education savings accounts (ESAs). Again, your contributions to these plans aren't tax deductible, but your savings grow tax deferred and withdrawals are tax free at the federal level (and typically at the state level too) when used to pay qualifying educational expenses. You can contribute up to $2,000 to a child's Coverdell ESA in 2008, and most 529 plans let you contribute more than $300,000 over the life of the plan.

Think Long-Term--for Capital Gains
Long-term capital gains tax rates are currently very attractive--a maximum of 15% through 2010. Short-term capital gains, on the other hand, are generally taxed at ordinary income tax rates--currently as high as 35%. To qualify for long-term capital gains treatment, make sure you hold your securities and other capital assets for more than one year before selling them.