Tax Compliance and Planning for Individuals
Domain 1: Tax Compliance and Planning for Individuals
Individual questions on the TCP exam reward candidates who can move from a client's facts to the specific Code provision that changes the number. Expect the computation chain from gross income to taxable income, the phase-ins that quietly raise a client's marginal rate, and planning moves that shift income or deductions between years.
The computation chain
- Gross income under §61 includes wages, interest, rents, and gains; exclusions such as municipal interest and the §121 home-sale gain come out first.
- Above-the-line deductions - HSA contributions, traditional IRA, half of self-employment tax, self-employed health insurance, student loan interest (phased out) - reduce gross income to AGI.
- Below-the-line, take the greater of the standard deduction ($15,000 single / $30,000 MFJ for 2025) or itemized deductions. The SALT cap is $10,000 under TCJA, with a higher, phased-down cap enacted for 2025–2029; acquisition-debt interest, charitable gifts, and medical expenses above 7.5% of AGI complete the schedule.
- §199A allows 20% of qualified business income, limited by the greater of 50% of W-2 wages or 25% of wages plus 2.5% of UBIA once taxable income exceeds $197,300 single / $394,600 MFJ (2025) for a specified service trade or business.
Surtaxes and rate stacking
- Long-term capital gain and qualified dividends stack on top of ordinary income: 15% begins at $48,350 single / $96,700 MFJ and 20% at $533,400 / $600,050 for 2025.
- Net investment income tax: 3.8% of the lesser of net investment income or MAGI over $200,000 single / $250,000 MFJ - thresholds are not indexed and there is no withholding.
- Additional Medicare tax: 0.9% on wages and self-employment income above those same thresholds.
Worked example
A single taxpayer has $220,000 of wages and a $40,000 long-term gain. MAGI is $260,000, so NIIT is 3.8% × min($40,000, $60,000) = $1,520. Additional Medicare tax is 0.9% × $20,000 = $180. Against the $15,000 standard deduction, ordinary taxable income is $205,000, already above $48,350, so the entire gain falls in the 15% bracket: $6,000.
Traps that cost marks
- Assuming NIIT starts where the 15% capital gain bracket starts; the two thresholds are unrelated.
- Ignoring that depreciation, carryovers, and the standard deduction change which layer of gain is taxed at 0%, 15%, or 20%.
- Forgetting the estimated-payment safe harbors: 90% of current-year tax or 100% of prior-year tax, raised to 110% when prior-year AGI exceeded $150,000.
- Treating a retirement plan distribution as net investment income when it is not.