Tax Accountant Examination cheat sheet

Gross income includes all income from whatever source derived unless specifically excluded by statute (IRC §61); exclusions include gifts, inheritances, life insurance proceeds, and qualified municipal bond interest.

Capital gains: short-term (held one year or less) taxed at ordinary rates; long-term (held more than one year) taxed at 0%, 15%, or 20% depending on taxable income thresholds, plus 3.8% net investment income tax above MAGI thresholds ($200k single / $250k MFJ).

Above-the-line deductions (adjustments) reduce AGI: HSA contributions, IRA contributions, self-employment tax half, student loan interest (phase-out), alimony paid under pre-2019 instruments only.

Standard deduction for 2024: $14,600 single, $29,200 MFJ, $21,900 head of household; additional amounts for age 65+ and blindness.

QBI deduction (IRC §199A): 20% of qualified business income, limited by 50% of W-2 wages or 25% of wages plus 2.5% of UBIA for specified service trades or businesses above threshold income.

Child tax credit: $2,000 per qualifying child under 17, phase-out at $200,000 single / $400,000 MFJ; $500 credit for other dependents.

AMT: add back preference items (private activity bond interest, ISO bargain element, certain depletion) to taxable income, subtract exemption, apply 26%/28% rates and compare to regular tax.

Filing status determination controls brackets, standard deduction, and credit phase-outs; head of household requires unmarried plus qualifying person and >50% household cost maintenance.

Kiddie tax: unearned income of a child under 19 (or under 24 if full-time student) above $2,600 (2024) is taxed at the parents' marginal rate.

C corporations: graduated 21% flat rate post-TCJA; dividends to shareholders taxed again (double taxation); no deduction for dividends paid.

S corporation eligibility: no more than 100 shareholders, only individuals (with limited exceptions for estates, trusts, ESBTs), no nonresident alien shareholders, one class of stock.

Partnership taxation: pass-through; partner's outside basis increased by contributions and distributive share of income, decreased by distributions and losses; loss limited to basis plus at-risk amount plus passive activity rules.

S corporation shareholder basis: increased by capital contributions and pass-through income, decreased by distributions and losses; distributions in excess of basis are capital gain.

Built-in gains tax: C corporation converting to S status pays corporate tax on appreciation existing at conversion if sold within 5 years (post-TCJA recognition period).

§754 election permits partnership to step up inside basis of assets on transfer of partnership interest or distribution, avoiding mismatch between inside and outside basis.

Liquidating distributions: corporation recognizes gain (not loss) on distributed property; shareholder recognizes gain to extent distribution exceeds stock basis.

Reasonable compensation: S corporation shareholder-employees must receive W-2 wages for services; distributions are not wages and cannot substitute for reasonable salary.

Consolidated return: affiliated group (80% vote and value) may file one return; intercompany dividends eliminated; deferred intercompany gains under §267(f).

Basis of purchased property = cost; basis of inherited property = FMV at date of death (or alternate valuation date if elected); basis of gifted property = carryover donor basis (with dual basis rule for loss property).

Adjusted basis = original basis + capital improvements + assessments − depreciation allowed or allowable − casualty losses claimed.

Realization vs recognition: gain realized = amount realized − adjusted basis; recognition may be deferred under like-kind exchange (real property only), involuntary conversion, or installment sale rules.

Cash method: income when actually or constructively received; expenses when paid. Accrual method: income when all events fixing the right to receive occur and amount is determinable with reasonable accuracy; expenses when all events establishing liability occur and economic performance test is met.

§481(a) adjustment required when changing accounting method; spread over four years (positive adjustment) or taken in year of change (negative adjustment) unless otherwise provided.

Installment method: gain recognized as payments received, gross profit ratio = gross profit ÷ contract price; not available for inventory sold in ordinary course (with exceptions for farming and certain small business).

Depreciation: MACRS half-year convention, 200% DB for 3-, 5-, 7-, 10-year property; 150% DB for 15- and 20-year; straight-line for residential (27.5 yr) and nonresidential (39 yr) realty.

§179 expensing: up to $1,160,000 (2024) with phase-out above $2,890,000 of qualifying property placed in service; limited to taxable income from active trades or businesses.

Bonus depreciation: 60% for property placed in service in 2024 (phase-down from 100% under TCJA); 80% in 2023, 40% in 2025.

Authority hierarchy: IRC > Treasury Regulations (final, temporary, proposed) > IRS rulings and procedures > IRS publications and instructions (not binding authority).

Judicial precedent: Supreme Court > Circuit Court of Appeals (binding within circuit) > District Court and Tax Court (persuasive only, except Golsen rule applies within circuit).

Tax Court: regular and small case division (≤$50,000 per year in dispute); taxpayer need not pay deficiency before litigating; appeals to circuit of residence.

Circular 230 governs practice before the IRS: §10.21 requires notification of client errors; §10.22 requires submitting documents; §10.34 requires reasonable basis and no frivolous positions; §10.51 covers incompetent and disreputable conduct.

§6694 preparer penalties: $1,000 (or 50% of fees) for understatement due to unreasonable position; $5,000 (or 75% of fees) for willful or reckless conduct.

§6662 accuracy-related penalty: 20% of underpayment for negligence, substantial understatement (>10% of tax or $10,000), or valuation misstatement; 40% for gross valuation misstatement.

AICPA SSTS and Circular 230 both require independence of judgment; conflicts of interest must be disclosed and consented to in writing under Circular 230 §10.29.

Tax research process: identify facts, formulate issue, locate authority, evaluate weight (primary vs secondary), apply to facts, document conclusion (file memo).

Timing strategies: defer income to later years, accelerate deductions into current year when marginal rates are expected to fall; reverse when rates rise.

Income shifting: shift income to lower-bracket family members or entities; must respect assignment of income doctrine (income taxed to earner) and kiddie tax limits.

Entity selection: sole proprietorship (simple, self-employment tax), partnership (flexible allocations, no double tax), S corp (reasonable salary, payroll tax savings), C corp (21% rate, fringe benefits, retained earnings).

Charitable planning: donate appreciated long-term capital gain property to avoid gain; donate loss property only after selling to claim loss; QCDs from IRA at age 70½ up to $105,000 (2024).

Retirement planning: maximize deductible contributions (401(k) $23,000 in 2024, IRA $7,000), Roth conversions when rates are low, backdoor Roth for high earners.

Estate and gift planning: annual exclusion $18,000 (2024); lifetime exemption $13.61 million (2024); portability election on Form 706; step-up in basis at death favors holding appreciated assets.

Like-kind exchanges (§1031): real property held for productive use or investment; deferral only, not exclusion; boot recognized as gain.

Qualified small business stock (§1202): 100% exclusion for stock acquired after Sept 27, 2010, held 5+ years; limited to $50 million gross assets at issuance.

Passive activity rules: losses from passive activities deductible only against passive income; $25,000 rental real estate exception phases out at $100k–$150k MAGI.

Filing deadlines: Form 1040 due April 15 (or next business day); automatic 6-month extension via Form 4868 extends filing, not payment; corporate Form 1120 due 15th day of 4th month after year-end.

Estimated tax: required if tax liability ≥ $1,000; safe harbor: pay 90% of current year tax or 100% of prior year (110% if prior AGI > $150,000).

Information returns: Form 1099-NEC for nonemployee compensation ≥ $600; Form 1099-MISC for rents and other payments; Form W-2 for wages; Form 1098 for mortgage interest.

E-file and payment: IRS e-file mandatory for preparers filing 10+ returns; electronic payment via EFTPS, Direct Pay, or card.

Recordkeeping: retain supporting records for 3 years (6 years if underreporting >25% of gross income; indefinitely if fraud or no return filed).

Penalties: failure to file 5% per month up to 25%; failure to pay 0.5% per month up to 25%; combined maximum 47.5% when both apply.

Amended returns: Form 1040-X for individuals, Form 1120-X for corporations; generally must be filed within 3 years of original filing or 2 years after tax paid.

Employment tax: Form 941 quarterly, Form 940 annually (FUTA 6.0% on first $7,000, credit up to 5.4%); deposits based on lookback period.

Information reporting for foreign accounts: FBAR (FinCEN 114) if aggregate foreign accounts exceed $10,000; Form 8938 under FATCA if thresholds met.

Filing statuses: single, married filing jointly, married filing separately, head of household, qualifying surviving spouse (with dependent child, for two years after death).

Above-the-line deduction for self-employed health insurance premiums and 50% of self-employment tax; SE tax = 15.3% on first $168,600 (2024) of net SE earnings, 2.9% above.

Educator expense deduction up to $300 (2024) per eligible educator; qualified tips and overtime deductions under OBBBA may apply in 2025+.

Itemized deductions: SALT capped at $10,000 ($5,000 MFS); mortgage interest on acquisition debt up to $750,000 ($375,000 MFS) for post-2017 loans.

Medical expense deduction: excess over 7.5% of AGI; charitable contributions limited to 60% of AGI for cash to public charities; 30% for appreciated capital gain property.

Corporate formation under §351: no gain or loss if transferors control corporation immediately after exchange (80% vote and value) and receive only stock.

Dividends: qualified dividends taxed at long-term capital gain rates; ordinary dividends at ordinary rates; return of capital reduces basis first, then capital gain.

Partnership distributions: current distributions reduce basis but generally not below zero; excess is gain. Liquidating distributions: gain if cash exceeds basis; loss only after final distribution.

S corporation election: Form 2553; must be filed by 15th day of 3rd month of tax year or by 2 months and 15 days after tax year begins (for late election relief under Rev. Proc. 2013-30).

Accumulated earnings tax: 20% on unreasonable accumulation beyond reasonable business needs; safe harbor $250,000 ($150,000 for personal service corporations).

Constructive receipt: income is taxable when made available without substantial restriction, even if not physically received.

Claim of right doctrine: income received under a claim of right without restriction is taxable when received even if later repaid (deduction in year of repayment if >$3,000, §1341).

At-risk rules: losses limited to amount economically at risk (cash plus adjusted basis of property contributed plus recourse debt); disallowed losses carry forward.

Net operating loss (NOL): post-2017 NOLs carry forward indefinitely (no carryback except farming and insurance); limited to 80% of taxable income.

Related-party transactions under §267: losses disallowed on sales between related parties; gain recognized but basis carries over; matching rule for accrual-basis payor to cash-basis payee.

Substantial authority standard: ~40% likelihood of prevailing; required for return positions to avoid §6662 penalty; more likely than not (>50%) required for tax shelters.

Circular 230 §10.37: written advice must not be based on unreasonable factual or legal assumptions, must relate law to facts, and must consider relevant facts.

Preparer due diligence: Form 8867 required for EITC, CTC, AOTC, and HOH claims; $635 penalty per failure (2024).

Client confidentiality: §7216 prohibits disclosure of tax return information without consent; §6713 penalty for unauthorized disclosure.

Taxpayer Bill of Rights (IRC §7803(a)(3)): 10 rights including right to be informed, quality service, pay no more than correct amount, challenge IRS position, appeal, and privacy.

Deferred compensation: §409A governs nonqualified deferred comp; §401(k) and qualified plans subject to nondiscrimination testing and contribution limits.

Stock options: ISOs (no regular tax at grant/exercise, AMT preference on bargain element, qualifying disposition taxed as LTCG); NSOs (ordinary income at exercise on spread).

Sale of principal residence: §121 exclusion up to $250,000 ($500,000 MFJ) if owned and used 2 of prior 5 years.

Gift splitting: spouses may split gifts to double annual exclusion; gift tax returns (Form 709) required if gifts exceed annual exclusion or split.

Business succession: installment sale, ESOP, or grantor trust sale for valuation freeze; §2701 and §2703 anti-abuse rules apply.

Form 1099-K: payment card and third-party network payments; threshold $20,000 and 200 transactions for 2024 (postponed from $600).

Form W-4: revised for TCJA; employees may adjust withholding; lock-in letter from IRS overrides employee elections.

Penalty abatement: first-time abatement for failure to file, pay, or deposit if clean compliance history for prior 3 years.

Statute of limitations: assessment generally 3 years from filing; 6 years if >25% gross income omitted; unlimited if fraudulent or no return.

Offer in compromise, installment agreement, and currently not collectible status are collection alternatives; Form 656 for OIC.

Earned income tax credit: refundable credit based on earned income and number of qualifying children; phase-out thresholds vary by filing status and child count.

American Opportunity Credit: up to $2,500 per student for first 4 years; 40% refundable; phase-out $80k–$90k single / $160k–$180k MFJ.

Lifetime Learning Credit: up to $2,000 per return; no year limit; phase-out same as AOTC.

Social Security taxation: up to 85% taxable if provisional income exceeds $34,000 single / $44,000 MFJ; 50% tier at $25,000/$32,000.

Foreign earned income exclusion (2024): $126,500; requires bona fide residence or physical presence test (330 days in 12-month period).

Corporate charitable contributions: limited to 10% of taxable income (before contributions, DRD, and NOL carryback); excess carried forward 5 years.

Dividends received deduction: 50% if <20% ownership; 65% if 20%–80%; 100% if ≥80% (affiliated group).

Personal holding company tax: 20% on undistributed PHC income; five or fewer shareholders owning >50% and 60% passive income test.

S corporation termination: election terminates if fails eligibility for more than 3 consecutive years or revokes with consent; 5-year waiting period to reelect (with exceptions).

Partnership audit rules (BBA 2015): partnership representative designated; entity-level assessment unless push-out election under §6226.

Uniform capitalization (§263A): direct and indirect costs allocable to real or tangible personal property produced or acquired for resale must be capitalized; small business exemption under $30 million gross receipts (2024).

Economic performance: for services and property, occurs as services/property provided; for tort liabilities, as payments made.

Original issue discount: accrues over life of debt instrument using constant yield method; holder includes in income annually.

Market discount: ordinary income on disposition to extent of accrued market discount; election to include currently available.

Wash sale rule (§1091): loss disallowed if substantially identical stock purchased within 30 days before or after sale; basis adjusted.

Revenue rulings and revenue procedures: published IRS positions binding on IRS but not courts; letter rulings binding only on taxpayer addressed.

Golsen rule: Tax Court follows precedent of Court of Appeals to which decision would be appealed.

Frivolous return penalty (§6702): $5,000 per return; positions including tax protester arguments.

Circular 230 §10.27: contingent fees prohibited except for qualified amended returns, refund claims, and judicial proceedings.

Written tax advice reliance: taxpayer may rely on professional advice if full disclosure of facts; reasonable cause and good faith defense to penalties.

Section 1031 exchange: real property only post-TCJA; 45-day identification and 180-day closing deadlines; qualified intermediary required.

Opportunity Zones: defer gain invested in QOF; 10% basis step-up if held 5 years (pre-2027 investments); 15% if 7 years; exclusion of post-investment appreciation after 10 years.

Estate freeze techniques: grantor retained annuity trust (GRAT), family limited partnership, installment sale to intentionally defective grantor trust.

Charitable remainder trust: income tax deduction for present value of remainder; income stream to donor; remainder to charity.

Qualified plan distribution planning: required minimum distributions begin at age 73 (SECURE 2.0); Roth accounts exempt during owner's lifetime.

Form 941 due April 30, July 31, October 31, and January 31; e-file threshold 10+ returns.

Form W-2 due to employees January 31; paper Form 1099 due February 28, e-file March 31; Form 1099-NEC due January 31.

S corporation and partnership returns due March 15 (2.5 months after year-end); extension via Form 7004 for 6 months.

Form 990 series for exempt organizations: due 15th day of 5th month after year-end; e-file required.

Automatic extension for individuals: Form 4868; for corporations: Form 7004; extension does not extend payment deadline.

Standard deduction additional amounts (2024): $1,950 single/HOH age 65+ or blind; $1,550 per spouse MFJ; $3,100 if both conditions apply.

IRA deduction phase-out: active participant MFJ $123,000–$143,000 (2024); single $77,000–$87,000; spousal IRA separate thresholds.

Roth IRA contribution phase-out (2024): $146,000–$161,000 single; $230,000–$240,000 MFJ.

Net investment income tax: 3.8% on lesser of net investment income or MAGI over $200k/$250k/$125k MFS.

Adoption credit (2024): up to $16,810; phase-out $252,150–$292,150 MAGI.

S corporation AAA account tracks undistributed earnings; distributions from AAA tax-free to extent of basis.

Partnership capital account: book basis for §704(b) allocations vs tax basis for §704(c) built-in gain allocations.

Corporate reorganization types: A (statutory merger), B (stock acquisition), C (asset acquisition), D (divisive), E (recapitalization), F (reincorporation), G (bankruptcy).

§338 election: deemed asset sale on qualified stock purchase; §338(h)(10) joint election for S corp targets.

Affiliated group: 80% vote and value; consolidated return regulations under §1502.

Gift basis: carryover donor basis; if FMV at gift < donor basis, dual basis (FMV for loss, donor basis for gain); holding period tacks.

Inherited property: basis = FMV at date of death or alternate valuation (6 months later if elected); holding period automatically long-term.

Involuntary conversion: defer gain if reinvested in similar property within 2 years (3 years for presidentially declared disasters); basis reduced by deferred gain.

Section 1033 and 1031 deferral: basis of replacement property = FMV − deferred gain.

Accounting method change: Form 3115 filed with timely return; automatic change procedures under Rev. Proc. 2015-13 (as updated).

Taxpayer Advocate Service: assists taxpayers experiencing economic harm or systemic issues; Form 911.

Freedom of Information Act: taxpayer may request IRS records; exemptions for trade secrets and personal privacy.

Circular 230 §10.30: solicitation of business; §10.35: procedures for protests to IRS Appeals.

§7216 consent requirements: written consent for disclosure; specific use restrictions apply.

Taxpayer confidentiality: IRS may not disclose return information except as authorized by IRC §6103.

Entity conversion: C to S election via Form 2553; built-in gains tax applies to appreciated assets sold within 5 years.

Family partnership: valid under §704(e) if capital is a material income-producing factor and donor gives real interest.

Charitable lead trust: income to charity for term; remainder to family; estate/gift tax deduction for present value of lead interest.

Section 83(b) election: include restricted stock value at grant in income within 30 days; starts holding period and avoids future ordinary income.

Deferred sale: installment sale under §453; interest charge under §453A for deferred tax >$5 million.

Form 1040 schedules: Schedule 1 additional income/adjustments; Schedule 2 additional taxes; Schedule 3 additional credits/payments; Schedule A itemized; Schedule B interest/dividends; Schedule C business; Schedule D capital gains; Schedule E rental/partnership/S corp.

Form 1120 schedules: Schedule K (other info), Schedule L (balance sheet), Schedule M-1 (book-tax reconciliation), Schedule M-2 (retained earnings).

Form 1065: Schedule K-1 to partners; Schedule M-1; Schedule B-1 for entities with >100 partners.

Form 1120-S: Schedule K-1 to shareholders; Schedule M-2 for AAA; Schedule B-1 for >100 shareholders.

Electronic filing mandate: tax return preparers filing 10+ returns must e-file; Form 8948 exemption.

Casualty loss deduction: only federally declared disaster losses deductible (TCJA); limited to excess over 10% AGI plus $100 floor per event.

Gambling losses: deductible only to extent of gambling winnings; reported as itemized deduction (not subject to 2% floor post-TCJA).

Hobby loss rules (§183): deductions limited to hobby income; factors include profit motive, expertise, time devoted.

Alimony: pre-2019 agreements deductible by payor/includible by payee; post-2018 agreements neither deductible nor includible.

Child support: never deductible or includible; not alimony.

S corporation shareholder health insurance: >2% shareholder includes premiums in W-2 wages; deduction on 1040.

Partnership guaranteed payments: ordinary income to partner; deductible by partnership; not self-employment tax exempt.

Corporate estimated tax: required if tax ≥ $500; safe harbor based on prior year tax.

S corporation estimated tax: entity-level tax may apply in some states; federal level generally no entity tax.

Partnership §754 election: made on timely filed return; irrevocable without consent.

Depreciation conventions: half-year, mid-quarter (if >40% of personal property placed in service in Q4), mid-month for realty.

Section 179 vs bonus: §179 limited to taxable income; bonus depreciation not limited to taxable income.

Amortization: §197 intangibles (goodwill, customer lists) over 15 years; organizational costs up to $5,000 immediately (phase-out above $50,000).

Start-up costs: up to $5,000 deductible in year business begins; excess amortized over 15 years.

Research credit: 20% of qualified research expenses over base; or 14% of incremental under ASC method; §174 capitalization rules changed for 2022+.

Preparer identification: PTIN required; Circular 230 §10.34 requires signing returns and providing copy to taxpayer.

Tax return preparer definition: any person who prepares for compensation all or substantial portion of a return.

§6695 penalties: failure to furnish copy ($60), failure to sign ($60), failure to retain records ($60), failure to e-file.

Circular 230 §10.36: procedures to ensure compliance; firm must have procedures.

Conflicts of interest: written consent required; must be in writing and signed by client.

Buy-sell agreements: cross-purchase vs redemption; funded with life insurance; valuation formula must be arm's length.

Key person insurance: premiums not deductible; proceeds generally tax-free.

Section 6166: estate tax deferral for closely held business interests exceeding 35% of adjusted gross estate.

Special use valuation (§2032A): reduce estate value of farm/real property up to $1,390,000 (2024).

Annual exclusion gifts: $18,000 per donee (2024); no gift tax return required unless exceeding exclusion or splitting.

Form 1099-R: distributions from retirement plans; Form 5498: contributions to IRAs.

Form 8606: nondeductible IRA contributions and Roth conversions.

Form 5329: additional tax on early distributions or excess contributions.

Form 6251: alternative minimum tax for individuals.

Form 8960: net investment income tax.

Standard deduction vs itemized: choose greater; itemized deductions include medical (7.5% AGI floor), SALT ($10k cap), mortgage interest, charitable, casualty (disaster only).

Marginal vs effective rate: marginal applies to next dollar; effective = total tax ÷ total income.

Tax brackets (2024 MFJ): 10% to $23,200; 12% to $94,300; 22% to $201,050; 24% to $383,900; 32% to $487,450; 35% to $731,200; 37% above.

Filing requirement: gross income exceeds standard deduction plus additional amounts; self-employment income ≥ $400 requires filing.

Estimated tax penalty: §6654; calculated on Form 2210; safe harbors apply.

Corporate tax rate: flat 21% post-TCJA; no graduated brackets.

S corporation pass-through: income taxed at shareholder level; no entity-level federal income tax (except BIG tax and certain state taxes).

Partnership pass-through: income taxed at partner level; no entity-level tax; §704(b) substantial economic effect for allocations.

LLC classification: disregarded entity (single member) or partnership (multi-member) unless elects corporate treatment via Form 8832.

Check-the-box election: Form 8832; entity classification election.

Cash vs accrual: cash method simpler; accrual required for C corporations with average annual gross receipts >$29 million (2024) and tax shelters (with exceptions for small business).

Inventory: accrual and capitalization rules; small business exception under $29 million (2024) allows cash method and treating inventory as non-incidental materials and supplies.

Section 263A small business exemption: gross receipts ≤ $30 million (2024) for 3 prior years.

Uniform capitalization: direct materials, direct labor, and allocable indirect costs.

Section 460: percentage-of-completion for long-term contracts; small business exception under $29 million.

Tax research sources: primary (IRC, regulations, rulings, court cases) and secondary (treatises, articles, IRS publications).

Citator: Shepard's or KeyCite for validating cases; revenue rulings in Cumulative Bulletin.

Weight of authority: Supreme Court binding; Circuit Court binding within circuit; Tax Court persuasive except Golsen rule.

Written determination: private letter rulings, technical advice memoranda, chief counsel advice - not precedential.

Circular 230 §10.33: best practices for tax advisors; §10.38: establishing procedures.

Tax planning vs tax evasion: planning is legal avoidance; evasion is fraud (§7201).

Substance over form: economic substance doctrine (§7701(o)) requires meaningful change in economic position and non-tax business purpose.

Step transaction doctrine: integrated steps collapsed if interdependent.

Assignment of income: income taxed to earner; cannot assign without transferring income-producing property.

Constructive dividend: shareholder benefit from corporation taxed as dividend.

Form 1040-ES: quarterly estimated tax payments for individuals; due April 15, June 15, September 15, January 15.

Form 1120-W: corporate estimated tax worksheet; deposits via EFTPS.

Form 941-X: adjusted employment tax return for corrections.

Form SS-4: EIN application; Form W-9: request for taxpayer ID.

Form 8822: change of address.