New York (CNN/Money) - With tax season fast approaching, many of us are no doubt wishing we could keep more of our hard-earned income. In fact, plenty of us can - if we stop squandering tax savings during the year.

Why are we so quick to toss away good money? "People have heard about [various tax breaks] and don't truly understand how they work in terms of dollars," said Evan Snapper, senior manager of personal financial consulting at Ernst & Young.

If you could reduce the amount of your salary that's taxed, it'd be a no-brainer, right? Er, not necessarily. Some 22 percent of employees who qualify to participate in a 401(k) plan don't do it, according to the Profit Sharing/401k Council of America. (Remember, with a 401(k) you're putting a portion of your paycheck into retirement savings before its taxed.)

Moreover, those who do participate don't come close to putting away the maximum allowed by the IRS. At last count, 401(k) plan participants put $3,512 away on average, according to the Profit Sharing Council. The current savings limit 2003 is $12,000 -- or $14,000 for individuals over 50.

Council President David Wray says many employees - particularly those under age 35 - don't participate in plans, or put a minimal amount away, because they don't feel they can afford to.

"Younger, lower-paid employees are in their household forming years. They're buying homes, cars, cribs for their children," he said. "There's also this expectation that when you're young, you have forever to catch up on retirement savings."

But before you walk away from a 401(k) consider how much you could save. This year, individuals in the 27 percent federal tax bracket who put away the maximum $12,000 would save $3,240 in taxes. A married couple filing a joint return would save twice as much if they each maxed out their plans.

Moreover, by putting money into a 401(k), tax filers reduce their adjusted gross income (AGI). That's important because it may render them eligible for additional tax-friendly savings tools that require incomes to fall below a certain level. Those include contributions to IRAs and Coverdell education savings accounts, and student loan interest deductions.

For more on the benefits of 401(k) plans, click here. And to find out how much you'll need to save for your retirement, use our retirement savings calculator.

If you're not claiming itemized deductions because they don't exceed the standard deduction limit, then it may be time to start strategizing.

For the 2002 filing season, the standard deduction for individuals is $4,700, for married couples filing jointly it's $7,850 and for heads of households it's $6,900.

But you may instead be able to itemize deductions on Schedule A if they exceed your standard deduction. If it's tough to exceed that limit, try bunching your tax breaks every other year so you can claim the standard deduction one year but then itemize the next, said Mark Luscombe, principal federal tax analyst at tax law publisher CCH.

Instead of writing a $500 check every December to your favorite charity, for example, write one $1,000 check every other year. (If you can't afford the $1000 in one pop, write a $500 check in January and another $500 check in December that year to spread your giving.)

These days, many employers allow workers to put pretax earnings in a flexible spending plan to help pay for unreimbursed medical and childcare costs, but too few take advantage of it, said Snapper.

According to the Employers Counsel on Flexible Compensation in Washington, just 20 percent to 25 percent of eligible employees stash dollars away in an FSA. When you enroll in such a plan, you determine how much of your income you'd like to contribute. But it can be a bit of a gamble since any money in the account not used to offset expenses gets forfeited at the end of the year.

"People get very nervous they won't spend the money," Snapper said, explaining why many employees choose not to participate.

Still, most individuals - even those who end up leaving unspent cash in an FSA - come out ahead. Consider: someone in the 30 percent tax bracket who stashes $1,000 in a flexible account will save $300 in federal taxes. If they only spent $750 of the FSA - and "lost" the $250 unused balance - they'd still save $50.

For more on ways to use your FSA see Five ways to drain your FSA.

It's understandable if you want to ignore the fact that your investments have been losing money. But why not make the most of them? According to tax law, you can offset gains with losses. You'll first have to match long-term losses with long-term gains and short-term losses with short-term gains. Anything leftover, however, up to $3,000 per year can be deducted against ordinary income.

That's a $900 savings for someone in the 30 percent tax bracket. Remaining losses that are not offset by gains and exceed $3,000 can be carried forward, and used in future years.

Not a bad deal. But according to Snapper at Ernst & Young, investors don't always take advantage of losses because it's tough to keep track of the original tax basis on their shares being sold. "People just don't do it. They're not keeping track of what they're doing and you have to keep track of it."

Many lower-income workers also qualify for the earned income credit (EIC), but many fail to do so because they don't know it exists. Those who are aware of it often find it tough to figure out, said Luscombe. The EIC is meant to give some financial assistance to the working poor who fall below certain income threshholds and who may or may not have children.

The credit is worth as much as $4,140 for a tax filer with two or more children and income up to $33,187. Filers who don't have kids and who's income does not exceed $11,060 can claim a potential credit up to $376.