Smart Ways to Use Your Holiday Bonus to Lower 2025 Taxes
Ryan Bourlier

Receiving a holiday bonus is certainly exciting! While it's tempting to spend it all on gifts or a well-deserved trip, there are smarter, strategic ways to use that bonus to help reduce your tax burden for the coming year. If you're unsure how to allocate your bonus wisely, here are some practical, long-term strategies to consider.

Boost Your Retirement Savings

Consider increasing your 401(k) or IRA contributions. Even a small year-end contribution can reduce your taxable income and benefit you over time thanks to compounding growth. It's a great way to secure your financial future and lower your tax bill now.

Fund Your Health Savings Account

Contributing to an HSA offers a triple tax advantage, although it's only available for those with high-deductible health plans. The funds roll over each year, providing ongoing benefits and peace of mind as you build your healthcare nest egg.

Give Back and Save

Making a charitable donation before year-end can not only reduce your taxable income if you itemize but also support a cause that matters to you. Remember to keep documentation of your donations to ensure you receive the proper tax benefits.

Prepay Mortgage or Property Taxes

By paying January's mortgage interest or property taxes in December, you can increase your deductible expenses for the current year. This strategy is especially helpful if you're close to the standard deduction threshold.

Invest in Education with a 529 Plan

While federal tax benefits don’t apply, many states offer deductions or credits for 529 plans. It’s a tax-efficient way to save for education, with earnings growing tax-free if used for qualified expenses, ensuring a solid educational foundation for the future.

Making thoughtful choices with your holiday bonus can offer so much more than short-term joy—it can have a lasting financial impact. Be intentional, plan wisely, and reach out to a financial advisor if you’re unsure. Start planning before the end of the year, and remember that a small decision now could lead to a better financial outcome in 2025.