Smart Ways to Lower Your 2025 Tax Bill with Holiday Bonuses

It’s that time of the year again! The joy of receiving a holiday bonus can send your dreams soaring. While it's tempting to splurge on gifts or plan a luxurious vacation, consider this: using your bonus wisely now can help lower your tax bill in 2025. Here are some strategic ways to make your holiday bonus work for you.

Invest in Education with a 529 Plan

If education savings are on your radar, contributing to a 529 plan is a smart choice. While there aren't federal tax deductions, many states offer tax benefits for contributions. Plus, the earnings grow tax-free when used for qualified education expenses, making it a tax-efficient way to save for future educational costs.

Fund Your Health Savings Account

If you have a high-deductible health plan, consider boosting your Health Savings Account (HSA). Contributions to an HSA provide a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualifying medical expenses are tax-free. Plus, the funds roll over each year, adding to your peace of mind.

Boost Your Retirement Savings

Increasing your 401(k) or IRA contributions, even with a small year-end amount, can reduce your taxable income. Over time, these contributions can compound significantly, bolstering your retirement savings and providing you a financial cushion when you need it most.

Prepay Mortgage or Property Taxes

Consider jumping ahead by paying January’s mortgage interest or property taxes in December. This can increase your deductible expenses for the year and possibly keep you above the standard deduction threshold. It’s a smart tactic if you're nearing that line.

Give Back and Save

Philanthropy feels good and can also benefit your tax situation. By making a charitable donation before the year ends, you can reduce your taxable income—provided you itemize deductions. Choose causes close to your heart and remember to keep your documentation for tax time.

By making intentional financial decisions with your holiday bonus, you can set yourself up for more than just fleeting joy. These strategies not only help reduce your tax bill but also support your long-term financial health. If you're unsure about how to implement these steps, consulting with a financial advisor can be a valuable next step. Start planning now before the year ends, because a small decision today could lead to a brighter financial future in 2025.