If your business owner client just received their 2025 tax bill and you are already in 2026, the planning window is not closed. The retirement system built into the tax code allows certain qualified plans to create deductions tied to last year's income even when funded this year. That distinction creates a meaningful planning opportunity for CPAs who know how to use it.

Many business owners and their advisors assume deductions have to happen in real time, that every dollar saved has to leave the account before December 31st. In reality, the tax code operates differently for business owners, and that difference is exactly where proactive planning lives.

This article explains how deductions in arrears work, which retirement plans make it possible, and how CPAs can use this strategy to add real value to their business owner client relationships right now.

The December 31st Trap

The biggest misconception your business owner clients carry into tax season is that deductions are limited to January 1 through December 31st. That thinking comes from the W2 world. Employees live in a real-time tax system where income comes in, withholding goes out, and options are limited.

Your business owner clients do not have to operate that way. The tax code allows deductions based on annual income and plan design, not just the timing of the payment. That is the foundation of deductions in arrears, and it is a distinction that changes what is still possible for your clients even after the calendar flips.

What Deductions in Arrears Actually Mean

Deductions in arrears means committing to a qualified retirement plan tied to your client's prior year's compensation and funding it during the current year.

This is not a workaround. It is fully built into the retirement system. The deduction is tied to your client's 2025 compensation, even if the actual funding happens in 2026. So instead of scrambling to spend money before year-end just to create a write-off, the timing is intentional and designed around your client's actual income.

Here is how it works in practice:

► Commit to a qualified retirement plan based on 2025 income

► Lock in the deduction for the 2025 tax year

► Fund the plan in 2026, in some cases as late as June

The Retirement Plans That Make This Possible

This strategy works because qualified retirement plans are calculated off full year compensation. Your client does not know their final income number until the year is over, and the tax code accounts for that with a look-back provision.

The plans that support this include:

► Solo 401(k)

► SEP IRA

► Cash Balance Plans

► Defined Benefit Plans

For higher-earning clients, cash balance plans are where this becomes especially powerful. These plans can support six-figure deductions based on actuarial calculations tied to 2025 income. The plan is established, the required contribution is determined, and the deduction is tied to that plan obligation. For eligible clients, this can be done as late as June 2026 and still apply to the 2025 tax year.

This is one of the most underutilized planning opportunities available to CPAs serving business owners today.

Earning Interest While Uncle Sam Waits

When funding is delayed, the money does not disappear from your client's hands. It stays with them and can continue working.

While the plan funding timeline plays out, your client's capital can sit in:

► High-yield savings accounts

► Short-term treasuries

► Other conservative vehicles

That means instead of prepaying the IRS, your client's liquidity stays productive. This is not tax avoidance. It is liquidity management, and it is a conversation worth having with any business owner client who files on extension.

Who This Strategy Works Best For

Deductions in arrears work best for clients with consistent, predictable income. As you evaluate which clients are a good fit, consider the following:

Good fit for your clients:

► Consistent six-figure earners

► Business owners and 1099 professionals

.► Partners and founders with predictable annual income

Not the right fit:

► Early-stage businesses

► Clients with episodic or highly variable income

If your client's retirement account does not reflect the success they have built in their business a cash balance plan or defined benefit structure may be the most important conversation you have with them this year.

Common Mistakes to Avoid

► Waiting until March or April to ask what is still possible for the prior year

► Assuming your client will bring this up without being prompted

► Setting up a plan without your client fully understanding the annual funding commitment

These strategies work best when tax planning, cash flow, and long-term wealth strategy are aligned. When all three are working together, there is a real opportunity to create a deduction today, build wealth for your client over time, and potentially eliminate taxes on the back end entirely.

The Opportunity for CPAs

Taxes do not have to be reactive for your business owner clients. In 2026, there are still powerful ways to control timing, deductions, cash flow, and liquidity tied to 2025 income. When you understand how the retirement system actually works for business owners, you stop guessing and start designing a better outcome for the people you serve.

At The Owner's Asset, we work alongside CPAs to implement these strategies correctly and efficiently. We are not here to replace your relationship with your client. We are here to complement it with specialized expertise and help you bring more value to the conversations you are already having.

If you have a client you think could benefit from a deduction in arrears review, we would be glad to take a look together.