Free EA Exam Flashcards

Five options: Single, Married Filing Jointly, Married Filing Separately, Head of Household, Qualifying Surviving Spouse. Filing status affects tax rates, standard deduction, and eligibility for credits.

All income from whatever source derived unless specifically excluded by law. Includes wages, interest, dividends, business income, capital gains, rental income, alimony (pre-2019), and other income.

Gross income minus above-the-line deductions (adjustments). Above-the-line deductions include IRA contributions, student loan interest, self-employment tax, HSA contributions, and educator expenses.

Fixed deduction reducing taxable income: Single $14,600, MFJ $29,200, HOH $21,900. Additional amounts for age 65+ or blind: $1,550 (married) or $1,950 (single). Alternative to itemizing.

Must be unmarried (or considered unmarried), pay more than half the cost of keeping up a home, and have a qualifying person live with you for more than half the year (exception for dependent parent).

Five tests: Relationship, Age (under 19, or 24 if student), Residency (more than half year), Support (child doesn't provide more than half), and Joint Return (child doesn't file joint return).

Form used to report profit or loss from a business operated as a sole proprietor. Net profit subject to both income tax and self-employment tax (15.3%). Business expenses deducted directly.

Social Security (12.4% up to wage base) and Medicare (2.9%) tax on self-employment income. Rate is 15.3% (combined). Half is deductible as above-the-line adjustment. Additional 0.9% Medicare on high earners.

Election to expense qualifying business property in the year placed in service rather than depreciating. 2024 limit: $1,220,000. Phases out dollar-for-dollar when property exceeds $3,050,000. Cannot create a loss.

Modified Accelerated Cost Recovery System: IRS-required method for depreciating business assets. Recovery periods: 5 years (vehicles, computers), 7 years (furniture, equipment), 27.5 years (residential), 39 years (commercial).

Section 199A allows eligible taxpayers to deduct up to 20% of QBI from pass-through entities. Subject to W-2 wage and capital limitations for high-income taxpayers. Specified service businesses have additional restrictions.

Generally 50% deductible when directly related to active conduct of business. Must not be lavish or extravagant. Entertainment expenses are no longer deductible after TCJA.

Treasury Department regulations governing practice before the IRS. Establishes who may practice, duties and restrictions, sanctions for violations, and rules for written advice.

Federally-authorized tax practitioner with unlimited rights to represent taxpayers before the IRS. Must pass three-part SEE exam or have IRS experience. Requires 72 hours of CE every three years.

Authorizes a representative to act on taxpayer's behalf before the IRS. Specifies tax matters, years, and authorized acts. Must be signed by taxpayer and include representative's CAF number.

Allows a designated party to receive and inspect confidential tax information but NOT represent the taxpayer. Used when representation authority is not needed.

Administrative review before litigation. Taxpayer has 30 days to request appeals after examination. Appeals considers hazards of litigation in settlement negotiations. Independent from examination function.

Agreement to settle tax debt for less than full amount owed. Three bases: Doubt as to Liability, Doubt as to Collectibility, Effective Tax Administration. Requires Form 656 and application fee.

Generally 3 years from filing date to assess additional tax. Extended to 6 years if gross income understated by 25%+. No limit for fraud or failure to file. Period can be extended by agreement.

IRS has 10 years from assessment date to collect taxes owed. Period can be suspended by bankruptcy, OIC, CDP hearing, or installment agreement request. Can be extended by written agreement.

Taxpayer right to hearing before IRS levy or after federal tax lien filed. Request within 30 days of notice. Can appeal to Tax Court. Provides opportunity to propose collection alternatives.

Relief from joint liability when spouse or former spouse improperly reported income/deductions without your knowledge. Three types: Innocent Spouse Relief, Separation of Liability, Equitable Relief.

CP notices: computer-generated, typically math errors or payment issues. LT notices: collection notices. Letter: examination or appeals correspondence. Notice numbers indicate purpose and required response.

Payment plan for taxes owed. Guaranteed acceptance if debt ≤$10,000 and other requirements met. Streamlined if ≤$50,000. User fees and interest apply. Prevents aggressive collection action.

Practitioners must exercise due diligence in preparing returns and determining correctness of positions. Must not ignore implications of information furnished or actual knowledge of errors.

Circular 230 prohibits representation if conflict exists unless full disclosure to all parties and written consent obtained. Must consider whether representation will be prejudiced.

Section 6694: penalties for understating tax. Unreasonable positions: greater of $1,000 or 50% of income. Willful/reckless: greater of $5,000 or 75% of income. Good faith reliance is defense.

Preparer Tax Identification Number required for anyone who prepares federal tax returns for compensation. Must be renewed annually. Used in place of SSN on returns to protect preparer identity.

Circular 230 sanctions include censure, suspension, disbarment, and monetary penalties. OPR (Office of Professional Responsibility) investigates and initiates disciplinary proceedings.

Refundable credit for low-to-moderate income workers. Amount based on income, filing status, and qualifying children. Due diligence requirements for preparers (Form 8867). Subject to audit if claimed improperly.

Up to $2,000 per qualifying child under 17. $1,700 refundable in 2024 (Additional Child Tax Credit). Phases out at $200,000 single/$400,000 MFJ. Must have SSN for child.

Refundable credit helping eligible individuals pay for health insurance through the Marketplace. Based on household income relative to poverty line. Reconciled on return using Form 8962.

Nonrefundable credit for retirement contributions by low-to-moderate income taxpayers. Up to $1,000 ($2,000 MFJ) based on 10%, 20%, or 50% of contribution depending on AGI.

Credit for taxes paid to foreign governments on foreign-source income. Prevents double taxation. Generally limited to U.S. tax on foreign-source income. Excess credit can be carried back 1 year, forward 10 years.

Deductions in lieu of standard deduction: medical expenses (exceeding 7.5% AGI), state/local taxes (capped $10,000), mortgage interest, charitable contributions, casualty losses (federally declared disasters only).

Cash to public charities: up to 60% of AGI. Appreciated property: up to 30% of AGI. Private foundations: up to 30% (cash) or 20% (property). Five-year carryforward for excess contributions.

Interest on acquisition debt up to $750,000 ($1 million if acquired before 12/15/2017) is deductible. Home equity loan interest no longer deductible unless used for home improvement.

Unreimbursed medical expenses exceeding 7.5% of AGI are deductible. Includes doctor visits, prescriptions, insurance premiums (if not pre-tax), dental, vision, and certain travel for medical care.

Available for self-employed using part of home regularly and exclusively for business. Calculate using regular method (actual expenses x business %) or simplified method ($5/sq ft, max 300 sq ft).

Pass-through entity with limited liability. Must meet requirements: domestic corporation, ≤100 shareholders, one class of stock, eligible shareholders only. Income/loss passes to shareholders on K-1.

Pass-through entity; partnership files Form 1065 but pays no tax. Partners report their share of income/deductions on personal returns via K-1. Subject to self-employment tax rules.

Separate taxable entity paying corporate income tax (21% flat rate). Dividends to shareholders taxed again (double taxation). No pass-through of losses. Offers flexibility in ownership and benefits.

State law entity providing liability protection. Default tax classification: single-member as sole proprietor, multi-member as partnership. Can elect S-corp or C-corp taxation.

S-corp shareholder-employees must receive reasonable compensation for services before taking distributions. IRS scrutinizes to prevent avoidance of employment taxes. Based on comparable wages for similar work.

Quarterly payments required if expecting to owe $1,000+ ($500 for corporations). Due 4/15, 6/15, 9/15, 1/15. Safe harbor: pay 100% of prior year tax (110% if AGI >$150,000) or 90% of current year.

Methods to postpone tax: retirement account contributions, installment sales, like-kind exchanges (real property), Opportunity Zone investments. Deferral allows more money to grow tax-free longer.

Exchange of real property held for business or investment for similar property while deferring capital gains. Must identify replacement property within 45 days, close within 180 days. Qualified intermediary required.

Business losses exceeding income. Can be carried forward indefinitely to offset 80% of taxable income. Farming losses can be carried back 2 years. No carryback for most taxpayers after TCJA.

Activity not engaged in for profit: deductions limited to income from activity. Nine factors determine profit motive. Presumption of profit motive if profitable 3 of 5 years (2 of 7 for horse activities).

Losses from passive activities (rentals, businesses without material participation) can only offset passive income. Excess losses suspended and carried forward. Real estate professionals may qualify for exception.