Free CPA REG (Taxation & Regulation) Formula and Limits Sheet (2026)
Every CPA REG formula you need on the test, grouped by topic, rendered with full math notation. 197 formulas across 5 topics, calibrated to the 2026 syllabus. Free forever, no signup required.
All CPA REG Formulas
Ethics, Professional Responsibilities and Federal Tax Procedures
6 items
Estimated tax safe harbor (underpayment penalty avoidance)
No penalty if tax paid via withholding + estimated payments the lesser of:
90% of current year tax, OR
100% of prior year tax (110% if prior year AGI > $150,000).
Payments due: April 15, June 15, Sept 15, Jan 15.
Taxpayer accuracy-related penalty
§6662: 1) 20% of underpayment for negligence, substantial understatement, or substantial valuation misstatement. 2) 40% for gross valuation misstatement. Substantial understatement = greater of 10% of tax or $5,000 (ind) / $10,000 (corp). Reasonable cause + good faith exception.
Statute of limitations on tax assessment
Assessment SOL: 1) 3 yrs from later of due date or filing date 2) 6 yrs if gross income understatement > 25% 3) Unlimited if fraud or no return filed. Refund claim: later of 3 yrs from filing or 2 yrs from payment.
Trust fund recovery penalty (TFRP, §6672)
. Applies to responsible persons (officers, directors, bookkeepers w/ disbursement authority) who willfully fail to collect/remit. Excludes employer FICA share.
Tax preparer Circular 230 + §6694 penalties
§6694(a) unreasonable position: max($1,000, 50% of fee). §6694(b) willful/reckless: max($5,000, 75% of fee). Circular 230: reasonable reliance on client facts; must investigate red flags / inconsistencies.
AICPA Statements on Standards for Tax Services (SSTSs)
SSTS 1: realistic possibility of success (else disclose). 2: reasonable effort on questions. 3: may rely on client info, inquire if suspect. 4: estimates OK if reasonable. 5: depart from prior treatment if justified. 6: advise on errors. 7: clear tax advice.
Business Law
8 items
Bankruptcy — Chapter 7 vs 11 vs 13
Ch 7: liquidation — trustee sells non-exempt assets, unsecured debts discharged. Ch 11: reorganization — debtor-in-possession, court-approved plan. Ch 13: wage-earner repayment — debt limits apply, 3-5 yr plan from disposable income.
Contract formation — essential elements
Six elements: 1) Offer 2) Acceptance 3) Consideration 4) Capacity 5) Legality 6) Mutual assent. Common law: mirror-image rule (acceptance must match offer exactly). UCC §2-207: relaxed for sale of goods — additional terms may bind.
Negotiable instruments — HDC requirements
HDC = holder who takes: 1) for value, 2) in good faith, 3) without notice of defects/dishonor/claims. Takes free of personal defenses (lack of consideration, fraud in inducement); subject to real defenses (fraud in factum, infancy, illegality, duress, bankruptcy discharge).
UCC Article 9 — secured transactions: attachment + perfection
Attachment (3): 1) value given, 2) debtor has rights in collateral, 3) authenticated security agreement. Perfection (priority): file UCC-1, possession, control (deposit accts), or automatic (PMSI in consumer goods).
Federal employment law thresholds
ADEA: 20+ EEs (protects 40+). ADA & Title VII: 15+ EEs. FMLA: 50+ EEs (12 wks unpaid). FLSA: min wage $7.25, OT 1.5× after 40 hrs. ERISA: pensions (no EE min).
Statute of Frauds — contracts requiring writing (MY LEGS)
MY LEGS: 1) Marriage consideration 2) Year — cannot be performed within 1 year 3) Land/real estate interests 4) Executor pays decedent's debts personally 5) Goods ≥ $500 (UCC §2-201) 6) Surety — promise to pay another's debt. Must be written and signed by party to be charged.
Agency — types of authority
Authority types: 1) Express — explicitly stated by principal. 2) Implied — incidental/customary to express. 3) Apparent — principal's conduct leads 3rd party to reasonably believe agent has authority. 4) Ratification — principal accepts unauthorized act after the fact.
Federal securities — Securities Act 1933 vs 1934
1933 Act (issuance): register new securities via S-1/prospectus. §11 = registration misstatements; §12 = unregistered sale or misleading prospectus. 1934 Act (trading): §10(b)/Rule 10b-5 fraud + insider trading; periodic 10-K, 10-Q, 8-K.
Federal Taxation of Property Transactions
13 items
§1231, §1245, and §1250 recapture
§1231: net gains → LTCG; net losses → ordinary.
§1245: all depreciation on personal property recaptured as ordinary.
§1250: only depreciation above SL on realty recaptured (25% rate for unrecaptured §1250 gain).
Like-kind exchange: gain recognized and new basis
Real property only post-TCJA (§1031).
Gift basis and inherited basis
Gift: donee takes donor's adjusted basis (carryover basis) + gift tax attributable to appreciation.
If FMV < donor's basis at gift date: basis for loss is FMV; basis for gain is donor's basis.
Inherited: basis = FMV at date of death (stepped-up or stepped-down).
Home sale exclusion §121
Exclude up to $250,000 ($500,000 MFJ) of gain on sale of principal residence.
Requirements: owned and used as principal residence 2 of last 5 years (ownership and use tests).
Cannot use exclusion more than once every 2 years.
§1231 lookback rule
Net §1231 gains treated as ordinary income (not capital gain) to the extent of unrecaptured net §1231 losses from the prior 5 years.
Lookback period: 5 years. Prevents taxpayers from converting ordinary losses into capital gains.
§179 expense election (2026)
— Qualifying = property placed in service; phase-out $-for-$ above $3.13M; limited to active business TI.
Gifted property basis — §1015 carryover with split rule
If FMV ≥ donor basis at gift: basis = donor basis (carryover); HP tacks. If FMV < donor basis: gain basis = donor basis, loss basis = FMV; sale between = no gain/loss; HP for loss basis starts at gift.
§121 home sale exclusion — partial-use rules
Partial . MaxExcl = $250K Single / $500K MFJ. Triggers: job change, health, unforeseen circumstances. Requires own+use ≥2 of last 5 yrs; no use within 2 yrs of prior §121.
§1031 like-kind exchange — post-TCJA (real property only)
Rules: 1) Real property only (held for trade/investment). 2) Personal property excluded post-TCJA. 3) Gain recognized = min(realized gain, boot received). 4) New basis = FMV new − deferred gain + deferred loss. 5) 45-day ID / 180-day close.
§1033 involuntary conversion
Recognized gain = min(realized gain, proceeds not reinvested). New basis = old basis + recognized gain (or = replacement cost - deferred gain). Reinvest within 2 yrs (3 yrs federal condemnation) in qualifying replacement property.
Bonus depreciation phase-down schedule
§168(k) post-TCJA: 2024=60%, 2025=40%, 2026=20%, 2027+=0%. Qualified property = new/used, recovery ≤20 yrs (incl. off-the-shelf software). Order: §179 first → bonus on remaining basis → MACRS on residual.
§168 MACRS depreciation periods
Class lives: 3-yr (tractors, racehorses); 5-yr (autos, computers, R&D equip); 7-yr (furniture, fixtures, ag machinery); 15-yr (qualified leasehold/restaurant); 27.5-yr (residential rental); 39-yr (nonresidential). Half-year default; mid-quarter if >40% personal property placed in Q4.
Inherited property basis — §1014 step-up
Basis = FMV at date of death (step-up OR step-down). Alternate valuation date = 6 months after death, elective only if it (1) lowers gross estate AND (2) lowers estate tax. Holding period = automatically long-term.
Federal Taxation of Individuals
14 items
Individual income tax formula
Gross Income
= Adjusted Gross Income (AGI)
= Taxable Income
= Tax Liability
2026 standard deductions
Single: $16,100
Married Filing Jointly (MFJ): $32,200
Head of Household (HoH): $24,150
Married Filing Separately (MFS): $16,100
Additional for age or blind: $1,650 (MFJ/MFS); $2,050 (Single/HoH).
Long-term capital gain rates (2026)
0% rate: taxable income (Single) / $98,900 (MFJ)
15% rate: up to $545,500 (Single) / $613,700 (MFJ)
20% rate: above thresholds.
NIIT (3.8%) added for high earners on net investment income.
AMT formula (individual) and exemptions (2026)
Regular TI + preferences/adjustments = AMTI
Exemption = AMT base
($244,500) or (above) = TMT
2026 exemptions: Single $90,100 (PO $500k); MFJ $140,200 (PO $1M). OBBBA flat thresholds.
Net investment income tax (NIIT)
Thresholds: Single $200,000; MFJ $250,000; MFS $125,000.
NII includes dividends, interest, rents, royalties, passive activity income, capital gains.
HSA contribution limits + qualifications
2026: $4,400 self-only / $8,750 family; +$1,000 catch-up if 55+. Must be in HDHP (min deductible $1,650 self / $3,300 family). Triple tax benefit: pre-tax in, tax-free growth, tax-free out for qualified medical.
Education credits — AOTC vs LLC
AOTC: max $2,500 = 100%×first $2,000 + 25%×next $2,000; 40% refundable; 4 yrs undergrad; phase-out $80–90K S / $160–180K MFJ. LLC: max $2,000 per RETURN = 20%×first $10,000; nonrefundable; unlimited yrs; same phase-out.
Child Tax Credit (CTC) and ODC (2026 OBBBA)
; refundable portion (ACTC) up to $1,700/child. ODC = $500 nonrefundable per other dependent (incl. children ≥17). Phaseout: −$50 per $1,000 (or fraction) of AGI over $400K MFJ / $200K others.
Itemized deductions — Schedule A categories (post-OBBBA)
Schedule A: 1) Medical >7.5% AGI floor; 2) SALT cap $40K MFJ (OBBBA); 3) Mortgage int — acq debt ≤$750K (post-2017), ≤$1M grandfathered; 4) Charitable — 60% AGI cash/public, 30% private, 30% LTCG property; 5) Investment int ≤ net inv income.
Kiddie tax (post-TCJA, 2026)
Child <19 (<24 if FT student) unearned income: first $1,400 tax-free, next $1,400 at child rate, excess at PARENT'S marginal rate. Form 8615; election Form 8814 if unearned <$13,000.
Retirement contribution limits (2026)
401(k): $24,500 + $8,000 catch-up (50+). 415(c) total: $72,000 ($80,000 w/ catch-up). IRA: $7,500 + $1,100 catch-up. Roth phase-out: $150K–$165K Single, $236K–$246K MFJ.
Above-the-line deductions (adjustments to income)
Gross Income − Adjustments = AGI. Common: educator exp ($300), HSA, ½ SE tax, SE retirement, SE health ins, student loan int ($2,500 cap, AGI phase-out), pre-2019 alimony. Std/itemized are BELOW-the-line.
Standard deduction (2026 OBBBA values)
Base SD: Single $16,100 / MFJ $32,200 / HoH $24,150. Add'l (65+ or blind): $1,650 single/HoH, $1,300 MFJ each. Dependent SD: greater of $1,350 or earned income + $450, capped at regular SD.
AGI vs Taxable Income computation flow
; ; — GI=gross income, AdjAL=above-the-line adjustments, SD=standard ded, ID=itemized, QBI=§199A. AGI gates medical/charitable limits.
Federal Taxation of Entities
13 items
Qualified business income (QBI) deduction §199A
High earners capped at or . SSTBs lose deduction above thresholds.
Partnership: outside basis calculation
Cannot go below zero.
S-corporation shareholder basis
Beginning Basis
+ Separately/non-separately stated income
Distributions (tax-free up to basis)
Losses/deductions (limited to basis)
Basis 0; excess losses suspended.
Corporate tax rate and dividends-received deduction (DRD)
Flat 21% corporate income tax rate (TCJA, permanent post-OBBBA).
DRD: 50% if < 20% ownership; 65% if 20% but < 80%; 100% if 80% (affiliated group).
DRD limited to applicable % of taxable income (before DRD) unless creates/increases NOL.
Self-employment tax
(12.4% Social Security on earnings + 2.9% Medicare on all earnings + 0.9% Additional Medicare on earnings > $200k/$250k)
Deduct 50% of SE tax as above-the-line adjustment.
§721 partnership formation — no gain recognition
§721: NO gain/loss to partnership or partners on property contribution for partnership interest. No control test (unlike §351). ; .
Partnership distributions — current vs liquidating
Current: nontaxable up to outside basis; cash > basis = capital gain; property takes carryover basis (≤ remaining basis). Liquidating: allocate basis (cash → ordinary → capital); leftover basis = loss (if cash/ordinary only) else absorbed into property.
Accumulated Earnings Tax (AET, §531)
AET = 20% × Accumulated Taxable Income (ATI). ATI = Taxable Income − Federal Tax − Dividends Paid − Accumulated Earnings Credit. Credit: $250K lifetime ($150K personal service corp). C-corps only; IRS bears burden of proof.
Corporate Alternative Minimum Tax (CAMT, post-IRA 2022)
. Applies if avg AFSI > $1B over prior 3 yrs. Tax = greater of regular tax or CAMT. Effective for tax yrs beginning after 12/31/2022.
Personal Holding Company (PHC) tax (§541)
. Two tests (both required): 1) Stock — 5 or fewer own >50% in last half of year. 2) Income — PHC income (div/int/rents/royalties) ≥60% of AOGI. Avoid: distribute or fail a test.
§351 corporate formation — control test + boot
1) No gain if property transferors own ≥80% voting + ≥80% each other class after exchange (services don't count). 2) Gain recognized = min(Realized gain, Boot FMV). 3) Shareholder stock basis = Adj basis transferred − Boot + Gain recognized. 4) Corp basis = Transferor basis + Gain recognized.
S-corp distributions — AAA + AEP rules
No AEP: distrib reduces basis; excess = cap gain. With AEP tiers: 1) AAA tax-free to basis 2) AEP = dividend 3) remaining AAA tax-free to basis 4) basis recovery 5) cap gain. AAA tracked at corp level.
Schedule M-1 / M-3 reconciliation
Taxable Income = Book NI + Fed tax expense + Book>Tax depreciation + 50% meals/entertainment + Key-person life premiums + Fines/penalties − Tax-exempt interest − Life insurance proceeds − Tax>Book depreciation − DRD. M-3 required if assets ≥ $10M.
CPA REG Limits and Thresholds
Ethics, Professional Responsibilities and Federal Tax Procedures
29 items
Under §10.29, a practitioner may represent conflicting interests only with each client's informed written consent, retained for at least 36 months.
Under §10.34, signing a return position needs reasonable basis (≈20%), substantial authority (≈40%) if undisclosed, and more likely than not (>50%) for tax shelters.
Under §10.27, contingent fees are permitted on amended returns or refund claims filed within 120 days of an IRS examination notice, but never on original returns.
For a §7430 fee award the corporate net-worth cap is $7 million, and after a refund denial the taxpayer has 2 years to file suit.
The IRS assessment statute is 3 years from filing or due date, 6 years if over 25% of gross income is omitted, and unlimited for fraud or non-filing.
Tax Court judges serve 15-year terms, and Small Tax Case procedure applies to disputes of $50,000 or less per year but the decision cannot be appealed.
A 90-day letter gives 90 days (150 days if addressed outside the U.S.) from the notice date to petition the U.S. Tax Court.
The civil companion to §7216, IRC §6713, imposes $250 per violation capped at $10,000 per year.
The §7525 FATP privilege was enacted in 1998, with the tax-shelter carve-out added in 2004.
IRC §7216 makes unauthorized disclosure or use of return information a misdemeanor of up to $1,000 and 1 year in prison per violation.
The three E's for CPA licensure are Education (150 semester hours), Examination (4 sections), and Experience (1-2 years supervised).
There are 55 U.S. licensing jurisdictions (50 states plus D.C. and 4 territories), each with its own state board of accountancy.
The UAA recommends 120 CPE hours over a three-year period with a 20-hour annual minimum, plus 2-4 hours of dedicated ethics per cycle.
The §6707A failure-to-disclose penalty is 75% of the tax decrease, capped at $100,000/$200,000 for listed transactions (individual/other).
The §6662 accuracy penalty is 20% of the underpayment, applying when the understatement exceeds the greater of $5,000 or 10% of tax shown.
FBAR (FinCEN Form 114) is required when aggregate foreign accounts exceed $10,000 at any point during the year, due April 15 with extension to October 15.
Temporary regulations carry the force of law for 3 years, whereas proposed regulations have no binding force and are merely persuasive.
Filing Form 8275 converts the §6662 standard from substantial authority (~40%) to reasonable basis (~20%).
The Internal Revenue Code is codified at Title 26 of the USC while Treasury Regulations are codified at 26 CFR.
There are 13 U.S. Circuit Courts of Appeals (11 numbered plus the D.C. and Federal Circuits).
Contributory negligence is the minority rule barring all recovery for any client fault, followed in Maryland, Virginia, Alabama, North Carolina, and D.C.
The Ultramares privity rule comes from Ultramares Corp. v. Touche (NY 1931), while the majority foreseen-user rule is Restatement (Second) of Torts § 552.
Typical CPA statutes of limitations are 4-6 years for breach of contract, 2-3 years from discovery for negligence, and 6 years for fraud.
The §6662 accuracy-related penalty is 20% of the underpayment, while §6663 civil fraud is 75%, and the two are mutually exclusive.
Failure to file (§6651(a)(1)) is 5% of net unpaid tax per month and failure to pay (§6651(a)(2)) is 0.5% per month, each capped at 25%.
The §6702 frivolous return penalty is a flat $5,000, and the 2026 §6721/§6722 info-return penalty is $340 per form, rising to $680 for intentional disregard.
Under §6695 (2026), failure to sign or furnish a copy is $60 per return, while §6695(g) EITC/CTC/AOTC/HOH due-diligence failure is $635 per credit per return.
SSTS No. 1 requires a realistic possibility of about 33%, versus IRC reasonable basis ~20% and substantial authority ~40%.
The §6694(a) unreasonable-position penalty is the greater of $1,000 or 50% of the fee, while §6694(b) willful/reckless conduct is the greater of $5,000 or 75%.
Business Law
36 items
An agent acting beyond scope with no doctrine binding the principal is personally liable to the third party for breach of warranty of authority.
Apparent authority arises only from the principal's conduct toward the third party; the agent's own statements can never create it.
Ratification requires full knowledge of material facts, capacity at the original act, and acceptance of the entire transaction.
A corporation cannot ratify a pre-incorporation contract because it lacked capacity at signing; it instead requires fresh adoption, not ratification.
An involuntary Chapter 7 needs 3 creditors with unsecured claims totaling $18,600+ when there are 12+ creditors, or 1 such creditor if fewer than 12.
Preferential transfers are clawed back if made within 90 days before filing, extended to 1 year for insiders, while fraudulent transfers reach back 2 years federally.
In Chapter 11 the debtor has an exclusive 120-day period to propose a plan, and a class accepts if holders of two-thirds in dollar amount and more than one-half in number approve.
A PMSI in non-inventory goods gets super-priority only if perfected within 20 days of the debtor's possession, while a UCC-1 financing statement is effective for 5 years.
A novation requires three-party consent and releases the original obligor, whereas delegation transfers a duty but leaves the delegator liable.
Commercial impracticability under UCC §2-615 typically requires about a 10x cost increase, while merely doubling does not qualify.
Under substantial performance a good-faith minor non-willful deviation recovers the contract price minus the lesser of cost to cure or diminution in value.
Common-law contract modifications require new consideration, but UCC §2-209 sale-of-goods modifications are enforceable on good faith alone.
S-corp eligibility requires US-individual shareholders, a domestic corporation, and one class of stock outstanding (voting differences allowed).
Default profit allocation when the agreement is silent is per partner for a GP under RUPA but per capital for an LP/LLC under RULPA/RULLCA.
RUPA §807 winding-up priority pays creditors first, then return of capital contributions, then remaining surplus per profit-sharing ratio.
Under the statute of frauds, a sale of goods priced at $500 or more must be in writing per UCC 2-201.
A merchant's written confirmation binds the recipient under the statute of frauds unless objected to in writing within 10 days.
An S-corp election is made by filing Form 2553 within 75 days of the start of the tax year and caps shareholders at 100.
A UCC 2-205 firm offer is irrevocable without consideration only on a merchant's signed writing and is capped at 3 months.
A valid contract requires five elements: offer, acceptance, consideration, capacity, and legality.
An ALE averages 50+ FTEs, and the §4980H(a) penalty applies on all full-time employees minus 30 when fewer than 95% are offered coverage.
FICA Social Security is 6.2% on each half while Medicare is 1.45% with no wage cap, plus a 0.9% additional Medicare on employee wages over $200,000.
FUTA is employer-only at 6.0% on the first $7,000 of wages, with up to a 5.4% credit dropping the effective rate to 0.6%.
COBRA continues group health for 18 months after termination/hours reduction and 36 months for divorce, death, or Medicare, at up to 102% of premium.
With a disclosed principal the agent drops off the contract, but with a partially disclosed or undisclosed principal both agent and principal are liable.
An agent owes the principal five duties under LOCAN: loyalty, obedience, care, accounting, and notification.
Three exceptions revive employer liability for an independent contractor's torts: inherently dangerous activities, nondelegable duties, and negligent hiring.
A principal owes the agent four duties: compensation, reimbursement, indemnification, and cooperation.
A liquidated damages clause is enforceable only if actual damages were difficult to estimate at signing and the amount is a reasonable forecast; otherwise it is an unenforceable penalty.
Under UCC 2-609 a worried party may demand adequate assurance in writing, and failure to provide it within 30 days is itself a repudiation.
Specific performance is available only for unique goods and real property, never for personal services contracts.
Consequential damages are recoverable under Hadley v. Baxendale only if the loss was foreseeable at the time of contracting.
The minimum shares to elect one director under cumulative voting is N = S/(D+1) + 1, where S = shares voting and D = directors to be elected.
RULPA §303 safe harbors let a limited partner consult, act as surety, vote on fundamental changes, or bring a derivative suit without losing the liability shield, but the 2001 ULPA grants a full shield.
Under RUPA §404(c) a partner's duty of care requires only avoiding gross negligence, while a director's duty of care is ordinary care.
A self-dealing transaction is voidable unless one of three MBCA §8.61 safe harbors applies: disinterested-director approval, shareholder approval, or entire fairness.
Federal Taxation of Property Transactions
8 items
Inherited property takes a basis of FMV at the date of death under §1014, and its holding period is automatically long-term.
Post-TCJA, §1031 like-kind exchanges apply only to real property, with personal-property exchanges eliminated after December 31, 2017.
Under the dual-basis rule, when gift-date FMV is below the donor's basis, the donee uses donor's basis for gain and FMV at gift date for loss.
Under §2032, the executor may elect to value the estate six months after death only if it decreases both gross estate value and estate tax liability.
Section 197 acquired intangibles amortize over 15 years (180 months) straight-line regardless of useful life or contract term.
The mid-quarter convention is mandatory when more than 40% of total depreciable personal property is placed in service in the fourth quarter, excluding real property from the test.
Bonus depreciation under §168(k) is 20% for property placed in service in 2026, phasing down to 0% in 2027.
For 2026, Section 179 has a maximum deduction of $1,250,000 with a dollar-for-dollar phaseout beginning at $3,130,000 of qualifying property placed in service.
Federal Taxation of Individuals
24 items
NIIT is a 3.8% surtax on the lesser of net investment income or MAGI over $200,000 single and $250,000 MFJ.
The estimated-tax safe harbor is the lesser of 90% of current-year tax or 100% of prior-year tax, rising to 110% if prior-year AGI exceeds $150,000.
The 2025 AMT exemption is $87,350 single and $135,950 MFJ, taxed at 26% up to $232,600 of AMT base and 28% above.
Additional Medicare Tax is 0.9% on wages and SE income above $200,000 single and $250,000 MFJ, employee-only on Form 8959.
The §199A QBI deduction equals 20% of qualified business income, with the full deduction available below $197,300 single / $394,600 MFJ taxable income.
The 2026 HSA contribution limits are $4,400 self-only and $8,750 family, plus a $1,000 catch-up at age 55+.
The combined SE tax rate is 15.3% (12.4% Social Security up to a $184,500 wage base plus 2.9% Medicare), and the adjustment is 50% of SE tax.
The 2026 traditional IRA contribution limit is $7,500 plus a $1,100 catch-up at age 50+, for a total of $8,600.
Excludable employer fringes cap dependent care assistance at $5,000/year under §129 and educational assistance at $5,250/year under §127.
Group-term life insurance is excluded under §79 only on the first $50,000 of coverage, with the IRS Table I cost on the excess included in gross income.
The §121 principal-residence gain exclusion is $250,000 single and $500,000 MFJ after owning and using the home 2 of the last 5 years.
Social Security benefits are up to 50% taxable in the MFJ provisional-income band of $32,000–$44,000 and up to 85% above it, never 100%.
The active rental real estate exception allows up to $25,000 of losses against non-passive income, phasing out 50¢ per dollar from $100,000 to $150,000 MAGI.
Individual net capital losses are deductible against ordinary income up to $3,000 per year ($1,500 MFS), with indefinite carryforward and character preserved.
Individual losses must clear four gates in order: basis, at-risk under §465, passive activity under §469, and excess business loss under §461(l).
Real estate professional status requires 750+ hours and more than 50% of personal services in real property trades or businesses.
The §199A QBI deduction is up to 20% of qualified business income, reported on Form 8995 below the income threshold and Form 8995-A above it.
Box 1 on a Form 1065 or 1120-S K-1 is ordinary business income, but Box 1 on a Form 1041 K-1 is interest income.
The §199A SSTB phase-out begins at $241,950 single / $483,900 MFJ taxable income.
Above the threshold the §199A deduction is capped at the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of UBIA.
A qualifying relative must have gross income under $5,200 (2026), with Social Security benefits excluded, while the taxpayer pays over 50% of support.
A married taxpayer is "considered unmarried" for HoH only if living apart from the spouse for the last 6 months of the year and paying over 50% of household costs.
QSS uses MFJ brackets and a $32,200 standard deduction for the 2 years after a spouse's death, but only with a dependent child in the home.
A qualifying child must be under 19 at year-end, or under 24 if a full-time student for at least 5 months.
Federal Taxation of Entities
46 items
The 2026 401(k) elective deferral limit is $24,500; total §415(c) additions are capped at $72,000.
§1366(d) caps an S corp shareholder's deductible loss at total stock plus debt basis, suspending excess loss indefinitely until basis is restored.
Under §722, initial outside basis = cash + adjusted basis of property + §752(a) liabilities assumed − §752(b) liabilities relieved + gain if relief exceeds basis.
Debt basis exists only for direct shareholder-to-corporation loans, so a personally guaranteed bank loan gives $0 debt basis until the shareholder actually pays.
The four-step annual stock-basis adjustment order is income, then distributions, then nondeductible expenses, then losses.
On a §731 nonliquidating distribution, distributed property takes the lesser of its inside (carryover) basis or the partner's remaining outside basis after cash, and never triggers gain.
Under §707(a)(2)(B), contributing appreciated property paired with a cash distribution within two years is presumed a disguised sale, with the burden flipping to the IRS outside that period.
For §751(a) sales of an interest only substantially appreciated inventory counts, meaning FMV exceeds 120% of inside basis, while for distributions all inventory counts.
Losses reduce S corp basis stock first, then debt, while future income restores it debt first, then stock, capped at outstanding loan principal.
Every California LLC owes an annual franchise tax of $800 regardless of income, separate from its federal check-the-box classification.
A managing LLC member is treated as a general partner subject to SE tax while a passive member uses the limited-partner exception under Section 1402(a)(13).
An LLC files Form 8832 to elect C corp status and Form 2553 for S corp status, and the election is irrevocable for 60 months.
A single-member LLC defaults to a disregarded entity while a multi-member LLC defaults to a partnership filing Form 1065.
The Child Tax Credit is $2,200 per qualifying child, with $1,700 refundable as the ACTC.
An S corp with AE&P distributes in this order: AAA (tax-free to basis), AE&P (dividend, no basis reduction), PTI, return of basis, then capital gain.
The §1375 excess net passive income tax is 21%, applying only when AE&P exists and passive income exceeds 25% of gross receipts, with three consecutive such years terminating the election.
The §1374 built-in gains tax is 21% on net recognized built-in gain during the 5-year recognition period after C-to-S conversion, capped at the NUBIG at conversion.
LIFO recapture (FIFO minus LIFO value) is included in income on the final C-corp return and paid in four annual installments of 25%.
After any termination, a corporation must wait 5 tax years to re-elect S status unless the IRS consents under §1362(g).
A Form 2553 filed by the 15th day of the 3rd month (March 15 for calendar years) is retroactive to January 1; filed later it is effective the next tax year.
Voluntary revocation of an S election requires shareholders owning more than 50% of voting and nonvoting stock combined, while electing requires unanimous consent.
For the ≤100-shareholder cap, family members sharing a common ancestor count as one shareholder going back no more than six generations.
The 2026 unified lifetime estate and gift exemption is $15M per individual, with a top rate of 40%.
The corporate DRD is 50% for under 20% ownership, 65% for 20–80%, and 100% for 80%+ affiliated corporations.
Both the AET (§531) and PHC tax (§541) impose 20%, with the accumulated earnings credit at $250,000 ($150,000 for personal service corporations).
Corporate charitable contributions are capped at 10% of modified taxable income with a 5-year carryforward and no carryback.
Partnership ordinary business income is reported on Form 1065 line 22 and flows to each partner's K-1 line 1.
Technical termination under Section 708(b)(1)(B), triggered by a 50% interest change within 12 months, was repealed by the TCJA.
A partner with $0 outside basis who receives a $40,000 guaranteed payment reports the full amount as ordinary income subject to self-employment tax, regardless of basis.
Post-TCJA corporate NOLs have no carryback, carry forward indefinitely, and are capped at 80% of taxable income per year.
Section 163(j) caps net business interest at 30% of ATI, with the disallowed excess passing through as EBIE on K-1 line 13K.
A private foundation pays 1.39% on net investment income and must distribute at least 5% of net investment assets annually for charitable purposes.
UBIT applies to income that is a trade or business, regularly carried on, and not substantially related, taxed at 21% on Form 990-T after a $1,000 specific deduction.
Under §4958, an excess benefit transaction triggers intermediate sanctions of 25% on the disqualified person, escalating to 200% if uncorrected, plus 10% on knowing managers.
Form 990 thresholds are 990-N for gross receipts ≤$50,000, 990-EZ for $50,000-$200,000 and assets <$500,000, and full 990 for >$200,000 receipts or ≥$500,000 assets.
A Qualified Charitable Distribution from an IRA is capped at $111,000 per year once the owner is at least age 70½.
Post-OBBBA, the SALT itemized deduction cap is $40,000 for MFJ, phasing down above $500,000 MAGI.
For tax year 2026, the standard deduction is $32,200 MFJ, $24,150 HOH, and $16,100 single.
Schedule M-1 reconciles book to taxable income for corporations under $10 million total assets, while Schedule M-3 is required at $10 million or more of total assets.
The traditional three-factor apportionment formula equally weights sales, payroll, and property, then divides the sum by 3.
The IRS blessed the PTET SALT-cap workaround in Notice 2020-75, now enacted by roughly 36 states.
Municipal bond interest is excluded under §103 and key-employee life insurance proceeds under §101, both permanent M-1 subtractions.
Permanent differences explain why the effective rate differs from the 21% statutory corporate rate, and a temporary difference creates a deferred tax equal to the gap times 21%.
South Dakota v. Wayfair (2018) overturned Quill (1992), setting sales tax economic nexus at over $100,000 of sales or 200 transactions.
Under §274(n), only 50% of business meals is deductible, and the disallowed half is a permanent difference creating no deferred tax.
P.L. 86-272 shields only net income tax for sellers of tangible personal property whose in-state activity is limited to solicitation.