EA Part 1 common mistakes
EA Part 1 · Understand the traps and how to avoid them.
Preparing the current-year return from the client's oral summary and current-year information returns without first obtaining IRS transcripts, the prior-year return, and a carryforward schedule.
Candidates treat each tax year as a standalone exercise, so they miss prior-year basis, net operating losses, suspended passive losses, capital loss carryforwards, estimated tax payments, and depreciation schedules embedded in the facts.
What to do instead
Before answering any fact pattern, complete a prior-year tie-out: obtain transcripts and the prior return, list carryforwards and basis, reconcile estimated payments and withholding, and note filing status and dependent history.
Applying filing-status and dependency tests as a single remembered checklist, such as assuming a child qualifies because the child lived with the taxpayer, without separately testing relationship, age, residency, support, joint-return, and citizenship rules.
The tests overlap and the exam uses near-miss facts, so candidates substitute general impressions for the statutory sequence and miss head-of-household or qualifying-relative distinctions.
What to do instead
Write out each test in order for every claimed person, document the facts that satisfy or fail each element, and separately verify the more-than-half cost-of-keeping-up-a-home requirement for head of household.
Reporting brokerage Form 1099-B gross proceeds as taxable gain without reconstructing basis and without adjusting for wash sales, inherited basis, return of capital, or short-term versus long-term classification.
Candidates match the form to the return instead of reconciling transactions, and covered versus noncovered basis reporting creates a false sense that the form already supplies the correct gain.
What to do instead
Build a transaction-by-transaction basis schedule, classify holding periods, apply wash-sale and inherited-basis rules, and reconcile the broker report to Form 8949 and Schedule D.
Treating every retirement distribution as fully taxable, or every distribution as nontaxable, without reading the Form 1099-R distribution code, determining after-tax basis, or checking rollover and qualified charitable distribution rules.
Candidates focus on the gross distribution and ignore Box 7 codes, Box 2a/2b, Form 8606 basis, and the timing and substantiation rules that change the taxable amount.
What to do instead
For each 1099-R, identify the code, determine whether basis exists, compute the taxable amount, verify rollover or qualified charitable distribution treatment, and confirm required minimum distribution status.
Claiming partnership, S corporation, or rental losses from a K-1 or Schedule E at the amount shown without first applying basis, at-risk, and passive activity limitations.
Candidates stop at the income or loss box on the K-1 and forget that loss deductibility depends on stock or debt basis, amounts at risk, and passive activity status.
What to do instead
Compute outside basis and at-risk amount before claiming any loss, classify the activity as passive or nonpassive, and carry forward suspended losses only after the limitations are applied.
Confusing deductions with credits or placing an item in the wrong category, such as deducting unreimbursed employee expenses, treating a credit as a subtraction from income, or ignoring the state and local tax cap and charitable substantiation rules.
Everyday language blurs the distinction between above-the-line deductions, itemized deductions, and credits, and candidates rely on familiarity rather than the mechanical effect on taxable income or tax liability.
What to do instead
Classify each item explicitly as an adjustment, itemized deduction, or credit; apply the applicable cap, floor, phaseout, and substantiation rule; then place it on the correct schedule or form.
Claiming credits without completing the eligibility and phaseout analysis, such as claiming the child tax credit, earned income tax credit, education credits, dependent care credit, or premium tax credit without checking age, relationship, income limits, coordination, and refundable versus nonrefundable character.
Credits have layered eligibility rules and similar-sounding names, so candidates memorize a headline amount and skip the ordering and coordination rules.
What to do instead
Use an eligibility tree for each credit: confirm the qualifying person, income measure and phaseout, interaction with other credits, and refundable portion before entering any amount.
Computing regular tax by applying a single marginal rate to all taxable income and failing to separately handle preferential rates, net investment income tax, additional Medicare tax, self-employment tax, alternative minimum tax, and underpayment penalties.
Candidates remember a bracket rate but not the bracket structure and the surtaxes or separate computations that sit outside the ordinary tax table.
What to do instead
Use the bracket or tax table computation, apply the qualified dividends and capital gain worksheet, and separately test net investment income tax, additional Medicare tax, self-employment tax, alternative minimum tax, and estimated tax safe harbors.
Giving current-year advice without asking about life events and cross-year effects, such as marriage, dependents, retirement, education, home sales, estimated payments, state residency, or expected changes in income.
Candidates focus on completing the current return and treat advice as a summary of the current numbers rather than a projection of consequences across years and jurisdictions.
What to do instead
Use a discovery checklist covering life events, multiyear income expectations, estimated payments, retirement and education goals, and state residency; document assumptions and show the effect on more than one year.
Handling specialized returns and taxpayers with 1040 habits, such as treating an extension as an extension to pay, missing entity or trust filing deadlines, or overlooking gift, estate, foreign, or community-property reporting.
Candidates generalize from individual Form 1040 rules and do not switch to the separate deadline, payment, classification, and reporting frameworks that apply to specialized returns and taxpayers.
What to do instead
Use a return-type checklist that identifies the correct form, due date, extension rules, payment obligations, entity or residency classification, and specialized information returns before preparing or advising.