CPA TCP key terms

A below-the-line deduction allowing eligible owners of pass-through entities and sole proprietors to deduct up to 20% of qualified business income, subject to wage, property, and taxable income limitations.

A business in health, law, accounting, consulting, financial services, brokerage, investing, or similar fields where the QBI deduction phases out at higher income; performing arts and athletics also qualify.

The cap on the QBI deduction equal to the greater of 50% of W-2 wages paid by the business or 25% of wages plus 2.5% of qualified property basis.

The taxable income level ($191,950 single / $383,900 joint for 2024, indexed) below which the QBI deduction is not limited by wages, property, or SSTB status.

Depreciable tangible property held by the business that is still within its recovery period and used in the production of qualified business income.

A deduction subtracted from gross income to arrive at adjusted gross income, available whether or not the taxpayer itemizes; examples include self-employed health insurance and HSA contributions.

Gross income minus above-the-line deductions; it is the reference point for many phaseouts, contribution limits, and eligibility rules throughout the individual tax system.

AGI with certain items added back, such as tax-exempt interest or excluded foreign earned income; each Code section defines its own additions, so the figure varies by provision.

Social Security and Medicare tax on net earnings from self-employment, computed on Schedule SE; the Social Security portion applies only up to the annual wage base.

A 3.8% surtax on the lesser of net investment income or MAGI exceeding $200,000 single / $250,000 joint; it applies to interest, dividends, rents, and capital gains.

A 0.9% surtax on wages and self-employment income above $200,000 single / $250,000 joint; employers withhold it without regard to filing status.

Moving funds from a traditional IRA or employer plan to a Roth IRA; the converted amount is taxable in the year of conversion, and the conversion can be recharacterized only in limited circumstances.

A strategy in which a taxpayer makes a nondeductible traditional IRA contribution and converts it to a Roth IRA, bypassing the income limit on direct Roth contributions.

The rule that conversion taxation is based on the ratio of pre-tax to total IRA balances across all traditional, SEP, and SIMPLE IRAs, not on the account actually converted.

The minimum amount that must be withdrawn annually from traditional IRAs and most employer plans beginning at age 73 (75 for those born in 1960 or later), with penalties for shortfalls.

A direct transfer from an IRA to a charity, allowed after age 70½, that counts toward RMDs but is excluded from gross income rather than treated as a deduction.

An itemized deduction for gifts to qualified organizations, generally limited to a percentage of AGI depending on the donee and property type; substantiation rules are strict.

A public charity account where a donor takes an immediate deduction for contributed cash or appreciated property while recommending grants over time; no RMD interaction applies.

An irrevocable split-interest trust paying an income stream to the donor or others for a term or life, with the remainder passing to charity; the donor receives a partial deduction.

A split-interest trust that pays an annuity or unitrust amount to charity for a term, with the remainder passing to family beneficiaries, often with reduced gift or estate tax.

An irrevocable trust where the grantor retains an annuity for a set term; appreciation above the IRS assumed rate passes to beneficiaries with minimal gift tax.

A trust designed so the grantor pays its income tax while assets are excluded from the grantor's estate, letting the trust grow free of tax erosion.

Sections 671 through 679, which treat a trust's income as the grantor's own when the grantor retains specified powers or interests, causing the trust to be disregarded for income tax.

The rule that property acquired from a decedent takes a basis equal to fair market value at death, eliminating built-in gain on assets held until death.

A transferee's basis in property equals the transferor's adjusted basis, used for lifetime gifts and certain exchanges, preserving built-in gain for future taxation.

Deferral of gain when real property held for business or investment is exchanged for other real property, subject to identification and receipt deadlines and basis carryover.

Cash or non-qualifying property received in an exchange; boot triggers recognized gain to the extent of realized gain, and cannot be avoided by routing cash to a related party.

An independent party that holds proceeds in a Section 1031 exchange so the taxpayer never has actual or constructive receipt of funds, preserving deferral.

Reporting gain on a sale as payments are received, using the gross profit ratio; it is unavailable for dealer dispositions and for publicly traded property.

Rules that recharacterize part of a low-interest or no-interest deferred payment as interest, preventing sellers from converting ordinary interest income into capital gain.

Section 469 limits losses from passive trades or businesses to passive income, with exceptions such as the $25,000 rental real estate allowance phased out at higher AGI.

One of seven tests (including 500 hours, substantially all participation, or 100 hours with no one else doing more) that determines whether a taxpayer's activity is non-passive.

A taxpayer who performs more than 750 hours and over half of personal services in real property trades or businesses may treat rental activities as non-passive.

Excludes up to $250,000 ($500,000 joint) of gain on the sale of a principal residence if ownership and use tests are met; partial exclusion may apply for unforeseen circumstances.

Taxation of previously claimed depreciation on real property at up to 25% upon sale, with remaining gain taxed at capital gain rates.

The portion of gain on depreciable real property attributable to straight-line depreciation, taxed at a maximum rate of 25% rather than the usual 20% capital gain rate.

Salary that must be paid to shareholder-employees before distributions, ensuring employment taxes are paid; unreasonably low salaries risk reclassification by the IRS.

Requirements including domestic corporation status, no more than 100 eligible shareholders, and only individuals, estates, and certain trusts as shareholders; one class of stock.

A corporate-level tax on an S corporation that disposes of appreciated assets within five years after converting from C corporation status, reflecting pre-conversion appreciation.

A 20% penalty tax on C corporations retaining earnings beyond reasonable business needs, designed to prevent avoidance of shareholder dividend taxation.

A payment or benefit from a corporation to a shareholder treated as a dividend even without formal declaration, such as excess rent, loans, or personal expenses paid by the company.

The distinction between salary (subject to payroll tax and reported on W-2) and profit distributions (not subject to payroll tax) for owners of pass-through entities.

The excess of a debt instrument's stated redemption price at maturity over its issue price, accrued and included as interest income by the holder over the instrument's life.

The excess of a bond's stated redemption price at maturity over its purchase price; ordinary income on disposition or redemption, or as payments are received.