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All CPA TCP Formulas
Tax Compliance and Planning for Individuals
14 items
Individual AMT formula (TCP emphasis)
TI + Preferences + Adjustments = AMTI
Exemption = AMT Base
($220,700) or = TMT
At-risk basis (§465)
At-risk = cash + property basis + recourse debt.
Losses deductible only to extent of at-risk basis; excess suspended.
Non-recourse debt does NOT increase at-risk (except qualified non-recourse RE).
Passive activity loss (PAL) rules
Passive losses offset only passive income; suspended losses carry forward.
Full disposition releases them.
Active rental: $25k (PO $100k–$150k AGI).
Material participation: 500+ hrs.
Estimated tax penalty safe harbor (TCP)
Tax paid lesser of:
90% current year, OR
100% prior year (110% if prior AGI > $150k).
Corps: 100% prior or 100% current (no 110%).
Self-employment (SE) tax calculation
up to SS base + excess.
+0.9% Medicare >$200k ($250k MFJ). Deduct 50%.
Investment interest expense limit
NetInvInc = taxable int + nonqual div + ST gains − inv expenses; LTCG/qual div only if elected ordinary.
Excess carries forward indefinitely.
Self-employment tax components (2026)
Net SE = SE earnings × 92.35%. SS: 12.4% × min(Net SE, $184,500). Medicare: 2.9% × Net SE + 0.9% × (Net SE > $200K S / $250K MFJ). Deduct ½ SS+Medicare (not Add'l) above-the-line.
Filing status determination
Single: unmarried 12/31.
MFJ: married, joint.
MFS: married, separate.
HoH: unmarried + paid >50% household + qualifying person >½ yr.
QSS: widow(er) w/ dep child, 2 yrs post-death, MFJ brackets.
Schedule A medical/dental floor
QualMed = unreimbursed medical/dental + Rx + age-capped LTC premiums + most health insurance (excl. cosmetic); HSA/Roth-funded expenses excluded. 7.5% floor is permanent.
Charitable contribution AGI limits
Individual ceilings: 1) Cash to public charity: 60% AGI 2) Cash to private non-op foundation: 30% AGI 3) LTCG property to public (FMV): 30% AGI 4) LTCG to private foundation (FMV): 20% AGI 5) Ordinary/non-LTCG (basis): 50% AGI. 5-yr carryover. Less 0.5% AGI floor (2026). C-corp: 10% TI ceiling, 1% floor.
§199A QBI deduction — phase-in mechanics
. 2026 thresholds: $201,750 S / $403,500 MFJ; full phase-in over $75K S / $150K MFJ. SSTBs fully phased out above upper; non-SSTB then limited to greater of 50% W-2 or 25% W-2 + 2.5% UBIA.
Retirement contribution limits (2026, TCP focus)
401(k): $24,500 + $8,000 catch-up (50+); 415(c) total cap $72,000. IRA (Trad/Roth): $7,500 + $1,100 catch-up. SIMPLE: $17,000 + $4,000 catch-up ($18,100 + $3,850 if 25 or fewer employees). SEP: min(25% comp, $72,000). QCD (IRA, age 70½+): $111,000.
Dependency tests — qualifying child (CARES) vs qualifying relative (SUPORT)
CARES: Citizen (US/Can/Mex), Age (<19, <24 student, or disabled), Relative (descendant/sibling), Economic (self-support ≤½), Same home >½ yr. SUPORT: Support >50%, Under $5,300 GI (2026), Precluded as QC, Only US/Can/Mex, Relative/Resident, Taxpayer not MFJ.
Foreign Earned Income Exclusion (FEIE, §911)
Exclude up to $132,900 (2026) foreign earned income if bona fide resident a full tax year OR physically present 330 full days in any 12-mo period. Foreign tax home. No FTC on excluded amount.
Entity Tax Compliance
19 items
Partnership inside vs. outside basis
Outside: partner's basis in interest.
Inside: partnership's basis in its assets.
Contribution: both = contributor's carryover basis.
§754 election: inside step-up on transfer/death.
S-corporation accumulated adjustments account (AAA)
AAA: cumulative post-S-election income (net of losses).
Order: 1. AAA → tax-free (basis reduction)
2. AEP → taxable dividend
3. Remaining basis → return of basis
4. Excess → capital gain
C-corporation earnings and profits (E&P)
Start with TI:
+ Tax-exempt income
+ Depr. difference (E&P uses ADS)
Federal taxes, non-deductible expenses.
Distributions reduce E&P; excess → basis → capital gain.
Built-in gains (BIG) tax for S-corp conversion
C→S conversion; assets sold within 5-yr recognition period.
Net BIG = FMV at conversion basis at conversion.
CFC Subpart F income
CFC: U.S. shareholders own > 50% voting/value.
Subpart F (passive/tax-haven) income taxed currently to 10% U.S. shareholders.
Net CFC tested income (formerly GILTI, tax years after 2025): current inclusion of active CFC earnings outside Subpart F.
Partnership liquidating distribution
Allocate outside basis: 1) Cash 2) Ordinary property at carryover 3) Other property absorbs remainder. , recognized only if just cash + ordinary. HP tacks.
§721 — partnership formation
§721: no gain/loss; no control test.
Outside basis = transferor's basis + share of liabilities.
Inside basis = transferor's basis.
Disguised sale if cash returned within 2 years.
§1244 small business stock loss
Ordinary loss ; excess = capital loss ($3K/yr limit).
Original-issue C-corp stock for cash/property; ≤$1M capital at issuance; 5-yr active business.
Net unrealized built-in gain (NUBIG) — S-corp
at S-election date.
BIG tax = 21% × lesser of recognized BIG in 5-yr recognition period or taxable income as C-corp.
S-corp distribution with AEP — AAA + AEP layering
Order: 1) AAA tax-free to basis 2) AEP as dividend 3) remaining AAA tax-free to basis 4) basis recovery 5) capital gain. AAA tracked at corp level. Bypass election: distribute AEP first.
S-corp distribution flowchart (no AEP)
No prior C-corp E&P: 1) Tax-free to extent of stock basis (reduces basis) 2) Excess over basis = capital gain 3) Basis floor = $0 (no negative).
§351 — control test + boot recognition
§351: no gain if property transferors own ≥80% voting + ≥80% other classes after.
Stock basis: carryover.
Boot: .
Liab = boot only if tax avoidance or > basis.
§163(j) business interest expense limit
. Excess carries fwd indefinitely. Small biz exception: avg gross receipts ≤ $30M (2025) over prior 3 yrs. ATI ≈ EBIT post-2022.
Partnership current distribution rules
Nontaxable to extent of outside basis.
Order: 1) Cash reduces basis first; 2) Property = lesser of inside basis or remaining outside basis.
Cash > basis = capital gain. No loss.
C-corp E&P calculation (start with taxable income)
TI plus: muni int, life ins proceeds, NOL carryback, DRD, fed tax refund, dividends-paid ded.
Minus: fed income tax, nondeductible exp (50% meals, fines, life ins premiums), capital loss carryover.
§965 transition tax (one-time, post-TCJA)
on accumulated post-1986 E&P of CFCs as of 11/9/17 or 12/31/17 (greater). Mandatory deemed repatriation; 8-yr installment election available.
§1202 qualified small business stock (QSBS) exclusion
Issued after 7/4/25: excluded = pct × min(gain, max($15M cumulative, 10× basis)); pct = 50/75/100% at 3/4/5 yrs; ≤$75M gross assets. Issued on or before 7/4/25: $10M cap, $50M test, >5 yrs. Both: original-issue C-corp stock, 80% active business.
§754 election — basis adjustments
§754 aligns inside to outside basis.
§734(b): distributions exceeding outside basis.
§743(b): sale/transfer of interest.
Mandatory if substantial built-in loss > $250K. Binding once elected.
§250 Foreign-Derived Intangible Income (FDII) deduction
; effective rates 13.125% (FDII) / 10.5% (GILTI). Combined deduction limited to taxable income, cannot create or increase an NOL.
Entity Tax Planning
9 items
Entity selection: tax comparison
Sole prop/partnership/S-corp: pass-through, SE tax applies.
C-corp: 21% flat, double tax on dividends.
S-corp: salary (SE tax) vs. distribution (no SE).
QBI 20%: pass-throughs only.
Dividends-received deduction (DRD) — corporate
ownership: 50% DRD.
but : 65% DRD.
(affiliated): 100% DRD.
Limited to that % of TI before DRD unless full DRD creates/increases an NOL.
§338(h)(10) election — stock acquisition treated as asset acquisition
Joint election: stock purchase treated as asset sale at FMV.
Buyer: stepped-up asset basis.
Seller: gain on deemed asset sale.
Eligible: S-corp or 80%-owned C-corp sub. Form 8023.
Like-kind exchange post-TCJA — tax planning
§1031: real property only (investment/business). Identify ≤45 days, close ≤180 days. Qualified intermediary (no constructive receipt). Related party: 2-yr hold. Gain recognized up to boot.
Choice of entity — pass-through vs C-corp comparison
Pass-through ATCF = Income × (1 - (OrdRate + NIIT) × (1 - QBI%))
C-corp ATCF = Income × (1 - 21%) × (1 - DivRate)
Weigh QBI 20%, S-corp wage FICA, double tax on distribution/exit.
§382 NOL limitation after ownership change
Trigger: >50pp shift by 5%+ holders over 3 yrs. Caps pre-change NOLs, credits, capital losses.
Estate freeze techniques (GRAT, IDGT)
GRAT:
IDGT: grantor pays income tax (tax-free gift to trust); assets outside estate.
Appreciation > §7520 escapes transfer tax.
Reorganization types (A, B, C, D, E, F)
A=statutory merger/consolidation; B=stock-for-stock (solely voting, ≥80% control after); C=voting stock for substantially all assets; D=divisive §355; E=recapitalization; F=change in form/identity.
§355 spin-off / split-off / split-up
Tax-free if ALL: active trade/business ≥5 yrs (parent + sub); ≥80% control distributed (vote + value); COI; COBE; business purpose; not an E&P-bailout device. Fail = dividend to extent of E&P.
Property Transactions
7 items
Installment sale gross profit ratio
Contract price = selling price qualifying debt assumed.
Like-kind exchange: boot and gain recognition
Deferred gain reduces replacement basis.
§1031 boot rules — gain recognition order
Recognized gain = min(Realized gain, Boot received). Boot = cash + net liab. relief + non-LK property. Loss never recognized. New basis = Old basis + Boot given − Boot received + Gain recognized.
Installment sale — gross profit ratio + allocation
; = × GP Ratio. Interest = ordinary (impute if absent). §1245/1250 recapture = 100% in year of sale, even with no cash.
Charitable contribution of appreciated long-term property
Public charity: FMV, 30% AGI (then the 2026 0.5% AGI floor), 5-yr CF; no gain.
Private foundation (non-publicly-traded): basis only, 20% AGI.
Estate basis vs gift basis comparison
ESTATE §1014: basis = FMV at death (or AVD +6mo if elected); HP auto-LT. GIFT §1015: gain basis = donor's carryover (HP tacks); loss basis = min(donor's, FMV at gift).
§1245 vs §1250 recapture mechanics
§1245 personalty: ordinary = min(Gain, AccumDep); rest §1231.
§1250 realty: ordinary = min(Gain, ExcessDep over SL), rare post-1986; other depr = unrecaptured §1250 gain (25% max); rest §1231.
CPA TCP Limits and Thresholds
Tax Compliance and Planning for Individuals
16 items
Kiddie tax taxes net unearned income above $2,500 (2025) at the parent's marginal rate for children under 19 (or under 24 if full-time students).
The estimated tax safe harbor requires paying 90% of current-year tax or 100% of prior-year tax (110% if prior-year AGI exceeded $150,000).
For 2025, the §911 foreign earned income exclusion ceiling is $130,000, requiring the bona fide residence test or 330 days physical presence.
2025 AMT exemption amounts are $88,100 (single) and $137,000 (MFJ), phasing out above $626,350 single AMTI.
A SEP-IRA allows up to 25% of compensation capped at $72,000, while the 2026 SIMPLE IRA limit is $17,000 ($21,000 age 50+).
Qualified long-term care benefits are tax-free up to a per diem limit of $420/day for 2025, with premiums deductible as medical expenses subject to the 7.5% AGI floor.
For 2025 the 401(k) elective deferral limit is $23,500 ($31,000 with catch-up for age 50+) and the IRA limit is $7,000 ($8,000 age 50+).
529 plans allow tax-free K-12 tuition up to $10,000 annually and five-year gift averaging of up to $95,000 ($190,000 for married couples) in 2025.
A real estate professional must perform more than 50% of personal services in real property trades and more than 750 hours of such services.
To actively participate in rental real estate a taxpayer must own at least 10% of the activity and participate in management decisions.
Active participation in rental real estate allows up to a $25,000 loss deduction, phasing out between $100,000 and $150,000 modified AGI.
The $25,000 rental allowance phases out by $0.50 for every $1.00 of modified AGI exceeding $100,000.
Gift splitting under IRC §2513 doubles the annual exclusion to $38,000 per donee for married couples (2025).
The unlimited marital deduction applies only to U.S. citizen spouses; non-citizen spouses get an enhanced annual exclusion of $190,000 (2025).
The 2026 unified lifetime gift and estate exemption is $15 million, with a top transfer tax rate of 40%.
The 2025 federal gift tax annual exclusion is $19,000 per donee and applies only to gifts of a present interest.
Entity Tax Compliance
55 items
The §743(b) adjustment equals the transferee's outside basis minus their proportionate share of the partnership's inside basis.
Under §706(d) the proration method allocates annual income by days held ÷ 365, while interim closing closes the books on the transfer date.
Section 755 allocates the §743(b) adjustment first to ordinary income property then to capital gain property by built-in gain or loss.
The closing-the-books election under IRC §1377(a)(2) requires unanimous consent of affected shareholders to allocate actual income before and after the sale date.
A shareholder's basis in property distributed by an S corporation equals its FMV at the distribution date, not the corporation's carryover basis.
The default per-day allocation gives the selling shareholder annual income times days owned divided by 365.
The built-in gains (BIG) tax recognition period is five years from the S election date, but §351 contributions made during S status carry no C corporation taint.
In a §351 exchange, recognized gain equals the lesser of realized gain or boot received.
Section 351 defers gain when transferors collectively own at least 80% of the corporation's voting stock and other classes immediately after the exchange.
Under §336(d), a corporation cannot recognize loss on liquidating distributions to related parties owning more than 50%, including disqualified property acquired within five years.
The gift-loan de minimis exceptions of $10,000 and $100,000 apply only to loans between individuals, not to corporation-shareholder loans under §7872.
2025 trust brackets run 10% up to $3,150, 24% to $11,450, 35% to $15,650, then 37% above.
By default, trustee fees split 50/50 between income and corpus, while capital gains allocate to corpus and stay trapped in the trust.
For 2025, a trust reaches the top 37% marginal rate at just $15,650 of taxable income, versus $609,350 for a single filer.
Trusts owe the 3.8% NIIT on undistributed net investment income above the 2025 threshold of $15,650, where the 37% bracket begins.
Under §709 a partnership may immediately deduct up to $5,000 of organizational costs, phasing out dollar-for-dollar above $50,000, with the remainder amortized over 180 months.
Even without a §754 election, basis adjustments are mandatory when a §743(b) or §734(b) adjustment would decrease basis by more than $250,000.
The §706 required-year hierarchy is the majority interest year (partners owning more than 50% of profits and capital), then the principal partners year (those with 5% or greater interest), then least aggregate deferral.
A §444 election lets a partnership adopt a fiscal year differing from its required year by up to three months but mandates a §7519 required payment approximating the deferral benefit.
Under IRC 512(b)(13), interest, rent, royalties, or annuities from an entity controlled by more than 50% ownership are included in UBI regardless of passive character.
Real property rents lose the passive UBI exclusion when more than 50% of rent relates to personal property or rent is based on net income or profits.
The $1,000 specific deduction reduces UBTI once per organization regardless of activity count, before applying the 21% flat corporate rate.
Exempt organizations must file Form 990-T when gross UBI is at least $1,000, and pay estimated tax if UBTI liability will exceed $500.
A 40% partner contributing land with adjusted basis $100,000 and a $60,000 mortgage has initial basis of $64,000 ($100,000 − $60,000 + $24,000).
Nonliquidating distributions of noncash property reduce shareholder stock basis by the property's FMV, not the corporation's adjusted basis.
When liabilities assumed exceed the contributed property's adjusted basis, §357(c) triggers gain equal to the excess and initial stock basis is zero, never negative.
S corporation losses reduce stock basis to zero first, then debt basis; any excess losses suspend indefinitely.
Contributing property with adjusted basis $120,000 subject to a $45,000 mortgage the S corp assumes yields an initial stock basis of $75,000.
Recourse liabilities are allocated by economic risk of loss, while nonrecourse liabilities follow the three-tier allocation under §752, with Tier 3 using profit-sharing ratios.
Nonliquidating property distributions reduce a partner's basis by the partnership's adjusted basis in the property, not FMV, and basis can never fall below zero.
Contributing encumbered property decreases basis by 100% of the liability assumed but increases basis only by the partner's allocable share of that liability.
A controlled foreign corporation exists when U.S. shareholders each owning 10%+ of vote or value collectively own more than 50% of total vote or value.
A construction or installation project creates a permanent establishment when it exceeds 12 months, or services where employees are present more than 183 days in a 12-month period.
FDAP income from U.S. sources is subject to 30% withholding, and failing to file Form 8833 for a treaty position triggers a $10,000 penalty per failure.
GILTI equals tested income minus 10% of QBAI, and a 50% §250 deduction yields a 10.5% effective GILTI rate for corporate shareholders.
A liquidating distribution of $25,000 cash and inventory ($20,000 basis) to a partner with $80,000 outside basis, plus equipment, gives the equipment a basis of $35,000.
When a 25% partner contributes property with $75,000 basis under a $120,000 mortgage, net debt relief of $90,000 exceeds basis, triggering $15,000 recognized gain.
A 25% partner contributing land with $75,000 basis and a $30,000 mortgage (net debt relief $22,500) has an outside basis of $52,500.
A profits interest received for services is generally not taxable on receipt under Rev. Proc. 93-27, while a capital interest is ordinary income equal to FMV.
The consolidated return follows the parent's tax year, typically due March 15 (or September 15 with extension) for calendar-year filers.
Each subsidiary executes Form 1122 (Authorization and Consent) for the initial consolidated year, while the common parent files Form 1120.
On a consolidated return, charitable contributions are computed on a group basis subject to the 10% limit at the consolidated level.
An affiliated group under IRC §1504 requires the common parent own at least 80% of vote AND at least 80% of value of one includible corporation.
Under §4958, a disqualified person pays a 25% initial excise tax on the excess benefit, rising to 200% if not corrected, while managers pay 10% up to $20,000.
Failing to file Form 990, 990-EZ, or 990-N for three consecutive years triggers automatic revocation, and §501(h) lobbying revocation occurs only after exceeding 150% of the limit over 4 years.
The §501(h) lobbying limit is 20% of the first $500,000 of exempt purpose expenditures, 15% of the next $500,000, 10% of the next $500,000, and 5% of the remainder, capped at $1,000,000.
Form 1023-EZ requires assets ≤ $250,000 and gross receipts ≤ $50,000, costing $275, while standard Form 1023 costs $600 (2025).
A grantor reversionary interest exceeding 5% of trust value triggers grantor trust status under §673.
Grantor trust rules under IRC §§671-679 make a revocable trust a grantor trust via the power to revoke under §676.
The personal exemption is $300 for a simple trust and $100 for a complex trust.
Trust tax brackets compress so the 37% rate applies at just $15,200 of taxable income (2025), versus $609,350 for a single filer.
The annual §382 limitation equals the FMV of the loss corporation multiplied by the long-term tax-exempt rate.
Corporate capital losses cannot offset ordinary income and carry back 3 years and forward 5 years as short-term capital losses.
Post-2017 C corporation NOLs carry forward indefinitely but are limited to 80% of taxable income computed before the NOL deduction.
A Section 382 ownership change occurs when 5% shareholders increase aggregate ownership by more than 50 percentage points over a 3-year testing period.
Entity Tax Planning
16 items
The §1375 passive investment income tax equals 35% of excess net passive income when passive income exceeds 25% of gross receipts and AEP exists.
Built-in gains tax equals 21% times the lesser of recognized gain or net unrealized built-in gain, applied during the five-year recognition period.
A large corporation has taxable income of $1 million or more in any of the three preceding years and may use the prior-year estimated-tax safe harbor only for Q1.
Excess passive investment income while holding AEP for three consecutive years terminates the S election.
A C corporation distributing appreciated property recognizes gain equal to FMV minus adjusted basis, while distributing depreciated property generates no deductible loss.
An S election terminates upon exceeding 100 shareholders or issuing a second class of stock, and re-election is barred for five years without IRS consent.
C corporations avoid estimated-tax underpayment penalties by paying 100% of current-year tax or 100% of prior-year tax, with no 110% high-income threshold.
In a post-formation §351 contribution, the shareholder's stock basis equals property basis transferred minus boot received plus gain recognized.
A C corporation liquidation with $300,000 corporate gain taxed at 21% plus shareholder gain at 20% yields a 42.1% effective rate, versus 20% for an S corporation.
An S corporation is limited to 100 shareholders and one class of stock, and may not have nonresident alien, corporate, or partnership shareholders.
In a §351 transfer with $90,000 property basis, $20,000 boot, and $20,000 gain recognized, the shareholder's stock basis is $90,000 and the corporation's property basis is $110,000.
S corporations converted from C status within five years face the §1374 built-in gains tax at the highest corporate rate of 21% on net recognized built-in gain.
Contributing land with $40,000 basis and $100,000 FMV locks in $60,000 of pre-contribution gain allocated entirely to the contributing partner under §704(c).
Unlike §351's 80% control requirement, §721 grants partnership-contribution nonrecognition even for a 5% interest.
Under §751, inventory is substantially appreciated when its FMV exceeds 120% of basis, triggering ordinary income on the entire amount.
Contributing equipment with $80,000 basis and a $50,000 liability for a 40% interest yields an outside basis of $50,000 after $30,000 net liability relief.
Property Transactions
12 items
§1033 replacement must occur by the end of the second year after realization, extended to three years for condemned real property and four years for federally declared disasters.
In a related-party §1031 exchange, disposing of the property within two years triggers recognition of the previously deferred gain.
A §1031 exchange requires replacement property be identified within 45 days and acquired within 180 days of transferring the relinquished property, running concurrently.
After 2017, §1031 like-kind treatment applies only to real property held for business or investment, making personal property exchanges fully taxable.
Section 1244 stock requires the corporation's aggregate paid-in capital not exceed $1,000,000 at issuance and more than 50% of gross receipts from active business over the preceding five years.
The Section 1231 lookback rule recharacterizes net gains as ordinary income to the extent of unrecaptured net Section 1231 losses from the prior 5 years.
Unrecaptured Section 1250 gain on real property is taxed at a maximum rate of 25% for noncorporate taxpayers.
Section 1244 allows an ordinary loss on qualifying small business stock up to $50,000 single/MFS and $100,000 MFJ, with excess treated as capital loss.
Under §453(e), if a related installment buyer disposes of the property within two years, the original seller must accelerate and recognize the deferred gain.
The §7872 AFR varies by loan term: short-term ≤3 years, mid-term >3 to 9 years, and long-term >9 years.
Under §267(d), the buyer's recognized gain on later sale to an unrelated party equals the greater of zero or realized gain minus the previously disallowed related party loss.
Below-market gift loans of $10,000 or less are exempt, while loans from $10,000 to $100,000 cap imputed interest at the borrower's net investment income (zero if NII is $1,000 or less).
