CPA Regulation (REG) – CPA Exam Prep Material Comprehensive Summary and
Practice
Individual income tax formula - answersGross income
- adjustments
=adj gross income
- Standard or itemized deductions
- exemptions
=taxable income
*tax rate
=federal income tax (reg or amt)
- tax credits
Other taxes
- payments
= tax due or refund
Gross income - answersWages
Interest
Dividends
State tax refunds
Alimony received
Business income (schedule C)
Capital gain/loss (schedule D)
IRA income
Pension annuity
Rental income/loss
K-1 income/loss
Unemployment compensation
Social security benefits
,Other income
Social security tax base is - answersa self-employed person's net profit from self-employment
for employees, it is based on gross wages, employers also pay the tax
Adjustments - answers"deductions to arrive at adjusted gross income"
Educator expenses
IRA
Student loan interest expenses
Tuition and fee deduction
Health savings account
Moving expenses
One half self employment taxes
Self employed insurance
Self employed retirement
Interest withdrawal penalty
Alimony paid
Attorney fees in rare cases
Domestic production activities deduction
Filing Status - answersDetermined by end of year status
Exceptions:
Divorced must not be joint.
Death of spouse can still be filed jointly
Qualifying widower - answersMust have had dependent with you the whole year to qualify
Birth or death during the year - answersStill get the full exemption.
head of household - answersMust have a dependent for more than half the year.
Dependent can be:
Qualifying child
Mother or father(nursing home is fine)
,Dependent relatives (must live with you)
Personal exemption - answersParents use your exemption then you lose it
Phase out of personal exemptions - answersExemptions reduced by 2% for every 2,500 over a certain
limit
Can a pet be a dependent - answersNEVER
Qualifying child (CARES) - answersClose relative
Age limit (19 or 24+ college)
Residency and filing requirement (1/2 year)
Eliminate gross income test
Support test changes (not more than one half of their own support)
Qualifying relative (SUPORT) - answersSupport (tax payer supplied over 50%) test
Under exemption amount of taxable (gross) income test
Precludes dependent filing a joint tax return test
Only citizens (resident of US/Canada or Mexico) test
Relative test or Taxpayer lives with individual for the whole year test
Multiple support agreement - answers1 supporter gets full exemption but contribute more than 10% of
persons support
-all must be qualifying relatives that contribute cumulative more than 50% of the support of the
defendant
Increased standard deduction - answersAge 65 or older
Blind
Does not get an extra exemption
Computation of income - answersTaxable =fmv income and fmv basis
Non taxable = no income and nbv basis
2 taxes on net business income - answers1.Income Tax
2. Federal self-employment (SE) tax
as employee and employer you pay both
, No deductible expenses on Schedule C - answersSalary to sole proprietor
Federal income tax
Personal portion of any expenses
Bad debt expense of cash basis
Charitable contributions
Schedule C deductions - answerslegal commissions
travel
supplies
office and phone
(penalties and illegal commissions are not deductible)
Net taxable loss - answers2 year carryback
20 year carryforward
Uniform Capitalization Rules (inventory) - answersProduced for use
Produced for sale
Acquired for resale
Schedule E - answersRental income or loss (passive activity)
Tax planning - answersDefer taxable income
Accelerate tax deductions
3 factors limiting losses - answersTax basis (carried forward)
At-risk basis (carried forward until more at risk generated)
Passive loss limitations (deduct on to extent of income from passive activities)
No net rental loss allowed - answersCarry forward
Offset future passive income
Deduct in year property sold
Exception to passive activity loss rules - answersMom and pop exception
Real estate professional (not passive activity)
Mom and pop exception - answers(25,000) and active
Carry-forward
Practice
Individual income tax formula - answersGross income
- adjustments
=adj gross income
- Standard or itemized deductions
- exemptions
=taxable income
*tax rate
=federal income tax (reg or amt)
- tax credits
Other taxes
- payments
= tax due or refund
Gross income - answersWages
Interest
Dividends
State tax refunds
Alimony received
Business income (schedule C)
Capital gain/loss (schedule D)
IRA income
Pension annuity
Rental income/loss
K-1 income/loss
Unemployment compensation
Social security benefits
,Other income
Social security tax base is - answersa self-employed person's net profit from self-employment
for employees, it is based on gross wages, employers also pay the tax
Adjustments - answers"deductions to arrive at adjusted gross income"
Educator expenses
IRA
Student loan interest expenses
Tuition and fee deduction
Health savings account
Moving expenses
One half self employment taxes
Self employed insurance
Self employed retirement
Interest withdrawal penalty
Alimony paid
Attorney fees in rare cases
Domestic production activities deduction
Filing Status - answersDetermined by end of year status
Exceptions:
Divorced must not be joint.
Death of spouse can still be filed jointly
Qualifying widower - answersMust have had dependent with you the whole year to qualify
Birth or death during the year - answersStill get the full exemption.
head of household - answersMust have a dependent for more than half the year.
Dependent can be:
Qualifying child
Mother or father(nursing home is fine)
,Dependent relatives (must live with you)
Personal exemption - answersParents use your exemption then you lose it
Phase out of personal exemptions - answersExemptions reduced by 2% for every 2,500 over a certain
limit
Can a pet be a dependent - answersNEVER
Qualifying child (CARES) - answersClose relative
Age limit (19 or 24+ college)
Residency and filing requirement (1/2 year)
Eliminate gross income test
Support test changes (not more than one half of their own support)
Qualifying relative (SUPORT) - answersSupport (tax payer supplied over 50%) test
Under exemption amount of taxable (gross) income test
Precludes dependent filing a joint tax return test
Only citizens (resident of US/Canada or Mexico) test
Relative test or Taxpayer lives with individual for the whole year test
Multiple support agreement - answers1 supporter gets full exemption but contribute more than 10% of
persons support
-all must be qualifying relatives that contribute cumulative more than 50% of the support of the
defendant
Increased standard deduction - answersAge 65 or older
Blind
Does not get an extra exemption
Computation of income - answersTaxable =fmv income and fmv basis
Non taxable = no income and nbv basis
2 taxes on net business income - answers1.Income Tax
2. Federal self-employment (SE) tax
as employee and employer you pay both
, No deductible expenses on Schedule C - answersSalary to sole proprietor
Federal income tax
Personal portion of any expenses
Bad debt expense of cash basis
Charitable contributions
Schedule C deductions - answerslegal commissions
travel
supplies
office and phone
(penalties and illegal commissions are not deductible)
Net taxable loss - answers2 year carryback
20 year carryforward
Uniform Capitalization Rules (inventory) - answersProduced for use
Produced for sale
Acquired for resale
Schedule E - answersRental income or loss (passive activity)
Tax planning - answersDefer taxable income
Accelerate tax deductions
3 factors limiting losses - answersTax basis (carried forward)
At-risk basis (carried forward until more at risk generated)
Passive loss limitations (deduct on to extent of income from passive activities)
No net rental loss allowed - answersCarry forward
Offset future passive income
Deduct in year property sold
Exception to passive activity loss rules - answersMom and pop exception
Real estate professional (not passive activity)
Mom and pop exception - answers(25,000) and active
Carry-forward
