Tax Reduction & Planning Strategies to Potentially Maximize Savings and Generous Giving

December 19, 2022

One of the best tax strategies is also the simplest: start planning early. Many people don’t think about their tax returns until it’s too late to plan. By integrating tax planning into your year-round financial decisions, you make proactive decisions to potentially maximize your savings and generous giving

We are now including tax return preparation as one of our services! Contact us today to schedule a consultation. 

As we prepare to close out another year, here are several tax reduction and tax planning strategies to consider. 

Tax Reduction Strategies

The first 3 strategies are tax reduction strategies. Each of these strategies depends on personal situations. Ask your advisor if you have any questions! 

Charitable Giving to a Donor Advised Fund

If you had a significant spike in your income this year (ex. Selling property for a huge gain), Donor Advised Funds allow you to pre-fund your giving for the upcoming years. 

By making a donation to one of these funds, you can potentially reduce your taxable income for a tax deduction this year, and have control over a bank of money you can give to charities in the future. This can possibly fund your yearly charitable donations for several years!  

Stock Donations

You can also donate appreciated stock that has been held for at least 1 year directly to a charity. Most Donor Advised Funds, large charities, and churches can accept stock! 

When you donate the appreciated stock, your tax deduction is the fair market value, and you or the recipient do not pay taxes on the gain. 

Roth IRA Conversions

If you received less income this year and have shifted into a lower tax bracket, you can convert a traditional IRA to a Roth IRA. This can potentially increase your income, and you won’t be taxed on the distributions from the account in the future. 

Why do you need a financial advisor for tax planning?

1031 Exchanges

If you sold or are planning to sell one of your properties this year, a 1031 exchange allows you to reinvest the proceeds directly into another property to avoid paying taxes on the profit from the sale. 

Have questions about any of these tax strategies? Reach out to an advisor! 

Tax Planning Strategies

These next 5 strategies are tax planning strategies centered around generous giving. If your personal situations allow, these strategies are a great way to impact your community through your tax planning strategy. Talk to an advisor if you have any questions! 

Support Students through Scholarship Funds

Many states have scholarship tax credit programs allowing individuals to donate their owed state taxes to provide educational scholarships to K-12 students. In Alabama, this is done through the Alabama Opportunity Scholarship Fund. Find a scholarship tax credit program in your state! 

You can donate your owed taxes to these organizations as a tax credit. Your tax liability is reduced by whatever amount you give. This isn’t the same as a charitable contribution, but allows you to allocate your money for low-income students instead of to the government. 

If you give through your business, this can be listed as a business expense and can potentially lower your taxable income! 

529 Plans for Children and Grandchildren

Each year you can receive a tax credit on your state return for contributing to a qualified 529 plan. Remember, you can establish a 529 plan for your children AND grandchildren! By investing in these plans, you can fund higher-education expenses with the money in these accounts tax-free. 

If one of your children receives a scholarship, you can easily change the beneficiary to another child or allow them to hold onto it for their own children! 

HSAs and FSAs

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are other great ways to invest your pre-tax money into accounts that can be used throughout the year for various medical expenses. 

Taking Advantage of ETFs

Exchange-traded funds (ETFs) and mutual funds work very similarly, but an ETF has the potential to have more tax advantages for the individual. Mutual funds often distribute capital gains to investors (which can be taxed), whereas ETFs do not. 

OneAscent Investment Solutions has launched several ETFs to provide additional investment strategies to our clients. Talk to an advisor to learn more! 

Reach out to us today to learn more about tax return preparation and integrating tax planning into your financial strategy.

Download our End of the Year Tax Strategy Checklist here.



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