EA common mistakes
EA · Understand the traps and how to avoid them.
In a community-property state, reports all of the earning spouse's wages and all account interest on that spouse's separate return without splitting community income.
The candidate defaults to the federal rule that income belongs to the person who earned it and overlooks state marital-property law.
What to do instead
Identify domicile, classify separate versus community property, allocate community income and withholding under the state rules, and document the allocation.
Computes the IRA deduction, student-loan interest deduction, education credits, child tax credit, and Saver's credit from AGI without recomputing each provision's MAGI after earlier adjustments.
The candidate treats MAGI as one fixed number and does not account for add-backs or for deductions and credits changing later phaseout calculations.
What to do instead
Build a provision-by-provision MAGI worksheet, apply each phaseout in the correct order, and recalculate later credits after earlier deductions or exclusions are determined.
Applies the home-sale gain exclusion without reducing basis for post-May-6-1997 depreciation or checking ownership-and-use tests when the home was rented or inherited.
The candidate memorizes the dollar exclusion and misses depreciation recapture, nonqualified use, and basis reconstruction.
What to do instead
Reconstruct basis, identify depreciation allowed or allowable, verify ownership and use periods, and allocate gain between excluded and taxable portions.
Allows a partnership or S corporation loss from the K-1 without first applying stock/partner basis, at-risk, and passive activity loss limits.
The candidate sees a loss on the K-1 and assumes the full amount is deductible on the individual return.
What to do instead
Compute basis first, then apply the at-risk rules, then apply the passive activity loss rules; only the allowed amount flows to the return and carryforwards are tracked.
Uses book depreciation or applies §179 or bonus depreciation without testing business-use percentage, taxable income limitation, and asset eligibility.
The candidate memorizes annual dollar caps but ignores ordering rules, placed-in-service dates, class life, and income limits.
What to do instead
Determine placed-in-service date, recovery period, business-use percentage, asset eligibility, and taxable income limitation before electing §179 or bonus depreciation; reconcile book and tax depreciation.
Treats an S-corporation shareholder-employee's distributions as wages, or pays no wages, instead of determining reasonable compensation.
The candidate focuses on payroll-tax savings and confuses S-corporation distributions with partnership guaranteed payments.
What to do instead
Document the shareholder-employee's duties, compare compensation for similar services, pay reasonable wages through payroll before making distributions, and keep the analysis in the file.
Responds informally to a collection notice without classifying it and calendaring the 30-day CDP, 90-day Tax Court, or appeal deadline.
The candidate treats all IRS notices as routine bills and does not connect the notice type to a statutory response period.
What to do instead
Classify the notice, calendar the statutory date from the notice, choose the correct forum such as CDP hearing or Tax Court, and retain proof of timely mailing.
Files Form 2848 when only information authorization is intended, or uses a power of attorney to sign a return, endorse a refund check, or consent to extend the limitations period without specific authorization.
The candidate conflates access to tax information with authority to act for the taxpayer.
What to do instead
Choose Form 2848 versus Form 8821 based on the authority actually needed, specify the tax matters and years, and obtain separate written authorization for acts beyond the form's scope.
Prepares a return with unreconciled income or unsupported credits based only on client oral statements and without follow-up inquiry.
Deadline pressure and the assumption that client-provided numbers are complete lead the candidate to skip verification.
What to do instead
Apply due diligence, reconcile information documents, ask follow-up questions, document the inquiry, retain records, and evaluate substantial authority or reasonable basis before filing.
Transmits an e-filed return without a signed e-file authorization or fails to retain a copy of the return and authorization records.
The candidate assumes the software handles authorization and record retention automatically.
What to do instead
Obtain the signed e-file authorization before transmission, retain the return and authorization records, keep acceptance and rejection notices, and correct rejected returns promptly.