EA Part 2 cheat sheet

Sole proprietorship files Schedule C; net profit is subject to SECA tax at 15.3% on 92.35% of earnings up to the Social Security wage base.

Single-member LLC is disregarded by default; check-the-box via Form 8832 elects corporate treatment, and Form 2553 elects S corporation status.

Partnership files Form 1065 and issues Schedule K-1; partners are taxed on distributive shares regardless of actual distributions, subject to basis limits.

S corporation requirements: domestic, fewer than 100 shareholders, only eligible individuals/estates/trusts, one class of stock; files Form 1120-S.

C corporation pays 21% flat federal rate; dividends to shareholders are taxed again, creating double taxation absent a distribution deduction.

Partnership outside basis increases with contributions, income, and liabilities assumed; decreases with distributions, losses, and liability relief.

S corporation shareholder basis increases with contributions, income, and direct loans to the corporation; not with corporate-level borrowings.

Reasonable compensation to S corporation shareholder-employees is wages subject to payroll tax; remaining pass-through profit is not.

A trust or estate that owns S corporation stock uses a grantor, testamentary, or qualified subchapter S trust to preserve eligibility.

Calendar-year partnership and S corporation returns are due March 15; C corporation returns are due the 15th day of the fourth month after year-end.

Form 7004 extends the return but not the payment; extension generally adds 6 months to the original due date.

Form 1065 requires Schedule K-1 for each partner and Schedule M-1 or M-2 reconciliation of book to tax income or partner capital.

Form 1120-S requires Schedule K-1 and Schedule M-2 for accumulated adjustments account (AAA) and shareholder equity.

Form 1120-W estimates: corporations owing $500 or more must pay quarterly estimated tax.

Schedule M-1 reconciles net income per books to income per return; Schedule M-3 is required for corporations with total assets of $10 million or more.

E-file mandates apply to partnerships and corporations filing 10 or more returns; Form 8508 requests a waiver.

Penalties: failure-to-file is 5% per month up to 25%; failure-to-pay is 0.5% per month, with combined limits and reduced rates after an extension.

Trusts and estates file Form 1041; the entity deducts distributions, and beneficiaries report income on Schedule K-1 (Form 1041).

Form 1041 estimated tax is required when the entity's tax liability is $1,000 or more; due dates follow calendar-year individual quarters.

Exempt organizations file Form 990, 990-EZ, or 990-N depending on gross receipts and asset thresholds; Form 990-T reports unrelated business income.

Unrelated business taxable income (UBTI) is gross income from a regularly carried on trade or business not substantially related to exempt purpose, less deductions.

Private foundations file Form 990-PF and are subject to excise tax on net investment income and minimum distribution requirements.

Form 5227 is used by split-interest trusts such as charitable remainder trusts to report financial activities.

Farmers may use the cash method and special income averaging; Form 1040 Schedule F reports farm income and expenses.

Estate tax return Form 706 is due 9 months after death; portability election transfers the deceased spousal unused exclusion (DSUE).

Cash method recognizes income when actually or constructively received and expenses when paid, subject to economic performance and capitalization rules.

Accrual method recognizes income when all events fixing the right to receive occur and the amount is determinable with reasonable accuracy; expenses when all events establish the liability.

Section 448 limits C corporations and partnerships with C corporation partners to accrual method unless average annual gross receipts are $31 million or less (indexed).

Section 471 requires inventories for taxpayers producing, purchasing, or selling merchandise; small business taxpayers may use cash method and treat inventory as non-incidental materials and supplies.

UNICAP (Section 263A) capitalizes direct and allocable indirect costs to inventory; small business exemption exists under Section 263A(i).

Inventory costing methods include FIFO, specific identification, and LIFO; LIFO requires Form 970 and conformity with financial reporting.

Section 481(a) adjustment spreads the effect of a change in accounting method; Form 3115 requests automatic or advance consent.

Uniform capitalization excludes interest under simplified methods and uses the historic absorption ratio for certain taxpayers.

Section 162 allows ordinary and necessary business expenses paid or incurred in carrying on a trade or business; personal and capital expenditures are excluded.

Section 179 expensing limit for 2024 is $1,220,000 with a $3,050,000 phase-out threshold, indexed; applies to tangible personal property and qualified real property.

Bonus depreciation is 60% for property placed in service in 2024, 40% in 2025, and 20% in 2026 under current phase-down.

Section 199A qualified business income deduction is up to 20% of QBI, limited by W-2 wages and UBIA of qualified property above the threshold ($191,950 single / $383,900 MFJ for 2024).

Meals are 50% deductible when business-related; entertainment is 0% deductible; employee fringe meals may be 100% in limited cases.

Section 163(j) limits business interest deduction to 30% of adjusted taxable income plus business interest income, subject to the small business gross receipts test.

Net operating losses arising after 2017 carry forward indefinitely and offset up to 80% of taxable income; no carryback except farming and insurance.

Research credit under Section 41 may offset payroll tax for qualified small businesses up to $500,000; Form 6765 claims it.

Work Opportunity Tax Credit is claimed on Form 5884 and requires Form 8850 pre-screening within 28 days of hire.

A partnership interest received for services is taxed under Section 83 or Section 721 depending on whether it is a capital interest or profits interest.

C corporation charitable contributions are limited to 10% of taxable income computed with adjustments; excess carries forward 5 years.

S corporation distributions in excess of AAA and basis are taxable capital gain; AAA tracks cumulative undistributed S earnings.

Section 754 election allows a partnership to adjust inside basis on transfer or distribution, avoiding mismatch with outside basis.

Form 1120 Schedule L balance sheet is required for corporations with gross receipts over $250,000 and total assets over $250,000.

Form 1120-S is not required to include Schedule L for small corporations meeting the same thresholds excepted.

Form 1099-NEC reports nonemployee compensation of $600 or more; due January 31 to recipients and IRS.

Form W-2 and Form 941 reconcile wages; Form 940 reports FUTA at 6.0% on the first $7,000 per employee, with credit reduction possible.

Form 1041 distributable net income (DNI) caps the distribution deduction and the amount taxable to beneficiaries.

Grantor trusts are disregarded; the grantor reports income on Form 1040 using the trust's tax ID.

Form 990 Schedule A reports public support test; Section 509(a) classification determines public charity status.

Form 5500 series reports employee benefit plan information annually under ERISA.

Advance payments for goods are generally deferred under the deferral method if recognized in revenue for financial accounting within two years.

Section 460 percentage-of-completion applies to long-term contracts; small contractors may use exempt-contract percentage-of-completion.

The recurring item exception permits accrual of certain liabilities before economic performance if recurring and matched with income.

Installment method under Section 453 defers gain; dealers in real or personal property may be barred from non-dealer treatment.

Section 1245 recaptures depreciation on sale of personal property as ordinary income; Section 1250 recaptures real property depreciation at 25% max rate.

Section 1231 gains and losses are netted; net gain is capital, net loss is ordinary.

Startup costs under Section 195 may be deducted up to $5,000, reduced by amounts over $50,000, with the remainder amortized over 180 months.

Organizational costs under Section 248 (corporations) or 709 (partnerships) follow the same $5,000/180-month rule.

Domestic production activities deduction was repealed by TCJA for tax years after 2017.

The general business credit is limited to tax liability plus certain amounts; excess carries back 1 year and forward 20 years.