If you earn income in Virginia, you know you’ll lose something to taxes. But how much? It’s important to understand your state’s income tax and how it will impact your financial future, not least because that knowledge will empower you to take action to reduce your tax bill today.

In this article, we’ll explain what the income tax is and how income is taxed in Virginia. We’ll also show you different tax-planning strategies that can significantly reduce your income tax liability:

• Buying into renewable energy projects that make you eligible for significant government tax incentives that lower your income tax bill. 
• Investing in oil and gas wells that offer significant tax savings for high-bracket taxpayers.
• Reducing your taxable income with charitable deduction tax strategies such as Charitable Lead Annuity Trusts and conservation easements.

What is the Income Tax? 

We’ll explore the specifics of Virginia’s income tax shortly. But first, the basics. Income taxes are taxes imposed on individuals or entities that earn income. For purposes of this article, we’ll be focusing on “ordinary income,” which is the income that you earn from work or from your small business, as well as rental income, interest, royalties, and retirement income. Think of ordinary income as the money you earn day in and day out. Unlike other types of income such as long-term capital gains or qualified dividends, which can get preferential tax treatment, your ordinary income gets no special tax perks and typically is taxed at a relatively high tax rate.

The amount of income tax a person or entity pays depends on their income level. The federal income tax and most state versions are “progressive,” which means that the share of your income that you will pay in taxes goes up as you earn more, though some states levy a fixed percentage, or “flat,” income tax.

What is the Federal Income Tax?

The federal income tax is a tax that the United States government levies on the annual earnings of individuals, corporations, trusts, and other legal entities. This tax is progressive, which means the tax rate you pay — the percentage of each additional dollar that goes to the government — increases as your income increases. For individuals, the income tax rates on ordinary income (as distinguished from capital gains) start at 10% and increase up to 37% as your income tax bracket increases.

The amount of tax you owe each year is calculated based on your gross income, which includes wages, interest, dividends, and other earnings.

Federal Ordinary Income Tax Rates for 2025

What is Virginia state income tax?

The Virginia income tax is a state-level tax imposed on the income of individuals, businesses, or other legal entities. Like the federal income tax, the Virginia income tax is progressive, meaning the rate of taxation increases as taxable income increases.

In 2025, the Virginia state income tax rates range from 2.00% to 5.75%.

Moreover, Virginia also has a standard deduction that is $8,000for single filers, and $16,000 for married filing jointly.

Virginia Income Tax Brackets for 2025

Let’s consider an individual who has a taxable income of $350,000 in Virginia. This individual qualifies for an $8,000 standard deduction, reducing their taxable income to $342,000, putting them in the 5.75% tax bracket. However, Virginia, like the federal government, uses a progressive tax system, which means that different portions of the individual’s income are taxed at the different rates corresponding to the brackets they fall into.

Here’s how it breaks down for this individual:

• The first $3,000 of income is taxed at 2.00% ($60.00).
• The next portion of income from $3,000 to $5,000 is taxed at 3.00% ($60.00).
• The income from $5,000 to $17,000 is taxed at 5.00% ($600.00).
• The remaining income from $17,000 to $342,000 is taxed at 5.75% ($18,626.25).

Adding these amounts together, the individual would pay a total of $19,346.25 in Virginia state income taxes for 2025.

What is tax planning?

Income tax is the biggest tax many individuals face. Accordingly, it’s critical to identify strategies that can reduce this tax. Tax planning is a strategic approach designed to reduce a person’s (or a company’s) tax liability by leveraging various tax benefits and allowances. It’s about understanding the tax implications of your financial decisions so you can minimize your taxes and, ultimately, keep more of your hard-earned money. That might involve making investments that offer tax benefits, choosing the right type of retirement account, taking advantage of deductions and credits, or investing in a tax-advantaged account.

5 tax planning ideas to reduce Virginia income taxes

Several different tax planning strategies can help you reduce your income tax liability in Virginia. Here are the five we consider most advantageous:

• Buying renewable energy projects: Purchasing renewable energy projects can make you eligible for significant government tax incentives — tax credits and depreciation — to lower your income taxes. Taking into account tax savings and income from the solar business, this strategy can return 5.85x on your purchase price compared to choosing to pay your taxes directly. Learn more about renewable energy tax savings here or set up a call with us here to learn more.
• Oil & gas oil well investments: These structures allow investors to put their money into the production and development of oil and gas wells. Oil and gas well investments offer substantial tax benefits, including the ability to deduct drilling costs upfront against other W-2 income, potentially recouping up to 50% of the investment in tax savings in the first year. Investors often realize 20%+ cash yields annually for the first five years. You can read more about investing in oil and gas wells here.
• Maximize retirement contributions: Both federal and state tax laws allow deductions for contributions to certain retirement accounts like a 401(k) or an IRA. Maxing out these contributions can lower your taxes, including ordinary income and capital gains taxes.
• Charitable Lead Annuity Trust: If you are charitably inclined, a Charitable Lead Annuity Trust (CLAT) is an option. Like a donor advised fund, a gift to a CLAT can generate a 100% upfront income tax deduction. But unlike a donor advised fund or a typical charity, with a CLAT you can actually get a portion of your charitable gift back in the future in the form of a “remainder interest.”
• Conservation easements: Conservation easements are a popular tax-reduction strategy that has come under IRS scrutiny in recent years. The idea is that people buy into a real estate project, and then the project developer puts an “easement” on the property (preventing it from being developed in the future). When the easement is placed on the property, the donors receive a charitable deduction based on the property’s valuation at that time. Because donors tend to use high valuations, the tax savings can often be substantial, perhaps in excess of the purchase price. You can learn more about conservation easements here. Note that due to the risks associated with conservation easements, Valur does not offer them.

You can also compare the quantitative returns and tax savings of these different strategies using our ordinary income tax savings calculator and customize it to your own situation.

Conclusion

Federal and state income taxes can significantly reduce the wealth your family keeps every year. Fortunately, there are several strategies available to minimize these taxes. Read more here and check out our Guided Planner tool, where we’ll point you toward the strategies that might apply to you.

About Valur

We’ve built a platform to give everyone access to the tax and wealth-building tools typically reserved for wealthy individuals with a team of accountants and lawyers. We make it simple and seamless for our customers to take advantage of these hard-to-access tax-advantaged structures. With Valur, you can build your wealth more efficiently at less than half the cost of competitors. 

From picking the best strategy to taking care of all the setup and ongoing overhead, we make things simple. The results are real: We have helped create more than $3 billion in additional wealth for our customers. If you would like to learn more, please feel free to explore our Learning Center. You can also see your potential tax savings with our online calculators or schedule a time to chat with us!