The Spike Year: How to Plan When One Big Income Year Sits Between Two Average Ones

Key Takeaways

• A spike year rewards its own plan. A dollar of deduction is worth more in your highest-rate year, so the goal is pulling deductions in and pushing income out.
• The PTET election works regardless of your itemizing status. It operates at the entity level, so it helps even if you rent or take the standard deduction.
• Retirement plans can shelter far more than a 401(k) alone. A cash balance or defined benefit plan, sized to your age and income, is often the single largest lever available.
• Charitable bunching still works, but the math is closer than before. OBBBA’s 2026 floor and cap on itemized giving shrink the benefit without eliminating it.
• Georgia adds its own wrinkle. The state doesn’t conform to federal bonus depreciation, so a federal-only deduction still needs a state addback built into the plan.

Planning an for an Income Spike

Most tax planning assumes your income is roughly the same year to year. A lot of business owners’ income is not. You can have a breakout year (maybe a strong contract or a hot stretch in the market) between two ordinary ones. When that happens, the smoothest total tax bill over the three years usually comes from planning that year on purpose. That means deciding in advance which deductions to pull forward into it and which income to push into the years around it.

We see this situation often with business owners whose income jumps sharply for one year, then settles back down. A common version: a founder expects one year to run well above both the year before and the year after. They want to compress as much tax as reasonably possible into that single strong year.

The usual advice to itemize mortgage interest and bunch state and local tax (SALT) deductions doesn’t always apply. That’s because someone who rents rather than owns has no mortgage interest to itemize in the first place. And at higher income levels, the expanded SALT deduction works against you differently. The cap phases back down toward the original $10,000 limit as income rises, so even someone paying well over $40,000 in state and local tax each year can still end up capped at just $10,000. Piling more state tax into one year, or bunching it with the next, doesn’t change that ceiling. More on exactly how that cap works in a moment. When the standard moves are off the table, the ones that remain are the ones worth knowing.

Why Is a One-Time High Year Worth Planning Around?

Federal tax is progressive, so the same deduction is not worth the same amount every year. A $50,000 deduction in a year when your top dollars are taxed at 37% is worth roughly $18,500. The same deduction in a year when your top rate is 24% is worth about $12,000. Move deductions into the high-rate year, and push income into the low-rate years. You lower the total tax across all three years without changing what you actually earn or give.

That is the whole game in a spike year: rate arbitrage, or lining your deductions up with the year they’re worth the most. The levers below are just different ways to execute it.

View our Tax Planning Life Cycle, our team gives you at least two tax planning sessions a year, including year-end planning, before preparing your return in January. Book a Call with our us.

Are You Having an ‘Ordinary Income’ or a ‘Capital Gain’ Spike?

Before picking a strategy, name the kind of income. An ordinary-income spike comes from the business operating well: profit, wages, distributions taxed at ordinary rates. A capital-gain spike comes from selling something: a business, a block of stock, real estate, or a large equity-comp vesting event.

They call for different playbooks. This article covers the ordinary-income version. If your surge is a capital gain instead, the priority shifts to managing that gain directly. Continuous capital loss harvesting across a portfolio is often the main lever there, rather than the deductions covered in this piece. We cover related strategies in our guide to tax-loss harvesting; the two approaches can also be combined when a year has both.

Can You Beat the SALT Cap if You Are a High Earner Who Rents?

Yes, and this is usually the first place to look, because it works regardless of whether you itemize. Under the One Big Beautiful Bill Act (OBBBA), the SALT deduction cap rose to $40,000 for 2025 and $40,400 for 2026. But it phases down by 30 cents for every dollar of modified adjusted gross income (MAGI) above roughly $505,000 in 2026, and it cannot fall below $10,000. In practice, once 2026 MAGI reaches around $606,000, a high earner is back to the $10,000 floor.

For a profitable owner, that floor is the constraint. The pass-through entity tax (PTET) election is the way around it. If your business is an S-corporation or partnership, the entity can elect to pay your state income tax at the entity level. It then deducts that payment as an ordinary business expense on the federal return. That deduction reduces the income that flows through to you, so it never touches your personal SALT cap at all. OBBBA left this workaround intact; it did not change SALT deductibility for pass-through businesses. Because it operates at the entity level, it doesn’t matter whether you rent or take the standard deduction. Most income-tax states now offer some form of PTET. The mechanics, rates, and election deadlines vary by state, so this is worth confirming for your specific state well before year-end. For a fuller walkthrough of how PTET elections work across states, see our comprehensive PTET guide.

How Much Can a Retirement Plan Shelter in a Single High Year?

For a known one-year surge, a cash balance or defined benefit plan is often the heaviest deduction available. Layered on top of a 401(k) and profit-sharing plan, these plans let older owners contribute a lot more. That’s because the contribution formula is age-weighted, or built around how many years you have left until retirement. The fewer years left, the more the plan lets you put in each year to catch up. So an older owner with strong cash flow can frequently deduct well into six figures in a single year, far more than a 401(k) alone allows.

Two cautions. These plans carry setup and funding deadlines that can fall before or shortly after year-end, so a high-year contribution has to be planned in advance rather than decided in April. And a defined benefit plan is a multi-year commitment with actuarial funding requirements, not a one-and-done deduction, so it fits owners whose income is likely to stay high enough to keep funding it, or who plan the wind-down deliberately. How much can actually be contributed depends on age, compensation, and the plan design, and is worth modeling with an advisor before committing.

What if You Do Not Itemize? Bunch Your Charitable Giving Into the Big Year.

An owner who rents and has little else to itemize normally takes the standard deduction. A spike year, or the year your income runs well above normal, is the moment to itemize on purpose. Why? Because the standard deduction is a flat amount, but itemizing lets you claim exactly what you gave, and that gap is worth the most in the one year your rate is highest. Bunching means moving several years of intended charitable giving into that single high year. You fund it once through a donor-advised fund (DAF), take the large deduction in the high-rate year, and then go back to the standard deduction in the ordinary years. Funding the gift with appreciated securities rather than cash adds a second benefit, because you generally avoid the embedded capital gain on the donated shares. For more on how this works outside a spike year, see our piece on bunching deductions to exceed the standard deduction.

Two OBBBA changes, both effective in 2026, temper this and should be modeled rather than ignored. Itemized charitable deductions are now allowed only to the extent they exceed 0.5% of adjusted gross income (AGI). So in a high-income year, the non-deductible slice off the top is larger. And for taxpayers in the top bracket, the tax benefit of itemized deductions is capped at 35 cents per dollar rather than the full 37%. Neither change eliminates the value of bunching into a high-rate year, but both shrink it, and the 0.5% floor bites hardest precisely when AGI is highest. Whether bunching into the spike year still beats spreading gifts across the cycle depends on your numbers, and it is a calculation worth running rather than assuming.

Should You Buy Business Assets in the High Year?

If the business needs equipment, vehicles, technology, or a build-out anyway, timing that spending into the spike year can convert it into a large first-year deduction. OBBBA permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. This covers most new or used tangible business property with a recovery period of 20 years or less. Placed in service is the operative phrase: the asset has to be in use by year-end, not merely ordered. For more on how this fits into a broader tax strategy, see our guide to bonus depreciation.

A caution here is Georgia. It differs from federal rules by not conforming to bonus depreciation. That means the full first-year deduction only applies on your federal return. On your Georgia return, the same asset gets depreciated the normal way, spread out over several years instead of written off at once. That means the amount you expensed federally has to be added back and recovered gradually on the state side. You still get the full deduction eventually on both returns, but the state won’t hand you the same year-one savings the federal return does. Build that gap into the projection so the plan is not oversold.

Can You Just Push Income Into Next Year?

Sometimes the cleanest move is the simplest one: keep income out of the high year by shifting when it is taxed in a compliant manner. A cash-basis business can slow year-end invoicing or collections so more revenue lands in the following January. Owner bonuses can be timed into the lower year. The 12-month prepaid rule lets you deduct certain business expenses, like rent or insurance, in the year you pay them. The only requirement is that the benefit they cover can’t extend more than 12 months past that payment. And it is worth checking whether the spike pushes you through a qualified business income (QBI) deduction phaseout that thoughtful timing could manage. None of this changes what the business earns over two years; it changes which year the tax lands in. 

If You Are Going to Invest in a Company Anyway, Screen It for QSBS.

Owners with a strong year often want to put money into another business, and they usually ask whether the investment itself is deductible. It is not. Money you put in to buy equity is capital; it builds your basis in the investment, it is not a write-off. There’s no version where “I invested $X” is by itself a deduction.

The valuable tax attribute of a good investment is usually not a deduction now. What matters more is how the gain gets taxed when you eventually sell. Qualified small business stock (QSBS) under Internal Revenue Code Section 1202 is the one to know. OBBBA expanded it substantially for stock acquired after July 4, 2025. Gain on a qualifying investment can now be excluded 50% after a three-year hold, 75% after four years, and 100% after five. The per-issuer exclusion cap also rose, from $10 million to $15 million, and the issuing company can now have up to $75 million in gross assets and still qualify.

The stock generally has to be in a domestic C-corporation running an actual operating business, not just holding investments or sitting on cash. That’s what the “active-business” requirement is checking for. So if your real goal is to back a solid company, screen candidates for QSBS eligibility before you invest. Over the hold, that’s often worth far more than any deduction you could engineer in the spike year. Our guide to QSBS for C corporations covers qualification in more detail.

How Much Could You Actually Save?

There’s no single number that applies to every business owner; it depends on your entity, age, cash flow, and state. But here’s one way it could play out. Suppose an owner projects $600,000 of ordinary business income in 2026, against roughly $300,000 in each of 2025 and 2027. Stacking a PTET election, a cash balance plan, charitable bunching through a DAF, and a pulled-forward equipment purchase (the four levers in the table below) can move a meaningful share of that $600,000 into lower-taxed treatment. None of it changes what the business actually earns.

Ordinary-Income Spike: Which Lever Fits?

How Does Georgia Treat These Moves?

Two Georgia specifics matter for an owner planning a spike year in the state, both mentioned above:

• PTET runs at Georgia’s flat rate. 4.99% for 2026, down from 5.19% under House Bill 463.
• Georgia doesn’t conform to federal bonus depreciation. Anything expensed federally gets added back and recovered gradually on the state return.
• The PTET election is made annually, by the return due date, with estimated payments adjusted so the deduction lands in the right year.

Both points are covered in our Georgia PTET guide. (Georgia treatment as of August 2026; conformity is revisited annually, so verify for your filing year.)

What Working With Fusion CPA on a Spike Year Looks Like 

A spike year rewards planning before the return is filed, not after. Fusion CPA provides tax preparation, tax planning, outsourced accounting, and CFO advisory for business owners and high-achieving individuals, with offices in Atlanta, GA; Tampa, FL; San Juan, Puerto Rico; and Park City, Utah. That applies whether the spike comes from a strong contract, a buyout, or a hot stretch in the market. The work usually starts by separating ordinary-income levers from capital-gain levers. From there, we model a PTET election, retirement plan design, charitable bunching, and asset-purchase timing against your actual projection, with state conformity built in so nothing is oversold. Where an owner is also investing, Fusion CPA screens targets for QSBS eligibility so the exit is positioned, not just the entry. Schedule a Discovery Call to build your plan while there’s still time to act on it. 

Frequently Asked Questions

How do I lower taxes in a year my income spikes? 

The general approach is to pull deductions into the high year and push income into lower years, since a deduction is worth the most at your highest rate. Common ordinary-income levers include a PTET election, a cash balance or defined benefit plan, bunching charitable gifts through a DAF, 100% bonus depreciation on business assets, and deferring income. The right mix depends on your facts. Fusion CPA models this for owners; call 404-955-7338. 

Can I get around the $10,000 SALT cap if I own a business? 

Often yes, through a PTET election. Your S-corporation or partnership pays the state income tax at the entity level and deducts it federally, so it never hits your personal SALT cap. This works even for high earners who are phased down to the $10,000 floor and even if you take the standard deduction. Most income-tax states offer some version, with different rules and deadlines. 

Can I deduct money I invest in another company?

No. Buying equity is a capital investment that builds your basis, not a deductible expense. The valuable tax feature of a good investment is usually the exit: QSBS under Section 1202 can make gain on a qualifying C-corporation investment partly or fully tax-free after a holding period. Screening an investment for QSBS eligibility before you invest is often worth more than any current deduction.

About the author

Trevor McCandless, CPA, MTax is the founder and CEO of Fusion CPA, a tax, outsourced accounting, and advisory firm serving business owners and high-achieving individuals across 40+ states from offices in Atlanta GA, Tampa FL, San Juan Puerto Rico, and Park City Utah. He works with owners on entity structure, owner compensation, and the multi-state exposure that arrives quietly with a growing team.

This article is reviewed by Steven Sumners, CPA, MAcc, Senior Tax and Accounting Manager at Fusion CPA.

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