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All EA Part 2 Formulas

Business Entities and Considerations 21 items

Section 752 net deemed distribution on contribution of encumbered property

\text{Net} = \text{Debt assumed by partnership} - \text{Contributor's new share of that debt}

gain recognized only if Net exceeds contributor's outside basis (§731(a))

Section 751 hot-asset ordinary income on sale of a partnership interest

\text{Ordinary} = \text{Share of unrealized receivables} + \text{Share of inventory items}

remainder of total gain is capital under §741

Section 6698 partnership late-filing penalty

P = \$245 \times N \times M

N = number of partners, M = months late (max 12); $245 is the amount for returns filed in 2025 and $255 for returns filed in 2026; Rev. Proc. 84-35 relief for ≤10-partner partnerships

S corporation shareholder loss deduction limit

L_{max} = B_{stock} + B_{debt}

B_{stock}

= adjusted stock basis after distributions and nondeductibles,

B_{debt}

= basis in direct shareholder loans; excess suspends and carries forward

Section 357(c) recognized gain on liability excess

G_{357(c)} = \max(0,\; L - B)

L = liabilities assumed by corporation, B = total adjusted basis of property transferred

Gain recognized on a current cash distribution from a partnership

Gain = \max(0, Cash - Basis_{out})

Cash = money distributed,

Basis_{out}

= partner's outside basis immediately before the distribution

Section 743(b) inside basis adjustment for a buyer of a partnership interest

\Delta B_{\text{inside}} = B_{\text{outside,buyer}} - S_{\text{inside}}

B_{outside}

,buyer = buyer's cost basis in the interest,

S_{inside}

= buyer's share of partnership inside basis

Section 704(d) deductible partnership loss limit

L_{\text{ded}} = \min(L_{\text{alloc}}, B_{\text{outside}})

L_{alloc}

= partner's allocated loss for the year,

B_{outside}

= outside basis before the loss

Successor partner's stepped-up outside basis on death of a partner

B_{\text{outside}} = \text{FMV}_{\text{interest}} + L_{\text{share}}

FMV_{interest}

= fair market value of interest at date of death,

L_{share}

= decedent's share of partnership liabilities

Section 6221(b) eligible-partner count for BBA opt-out

N = N_{ind} + N_{C} + N_{S\,sh} + N_{est} \le 100

each S-corp shareholder counted individually; trusts (other than decedent estates) and partnership-partners disqualify

BBA imputed underpayment at the highest applicable rate

IU = A \times r_{max}

A = net partnership adjustment for the reviewed year,

r_{max}

= highest applicable rate (currently 37%)

Partnership inside basis in property contributed under section 721

B_{inside} = B_{partner}^{adj}

B_{partner}

^adj = contributing partner's adjusted basis in the property immediately before contribution (transferred basis)

Section 362(e)(2) anti-loss-duplication corporate basis stepdown

\text{Corp Basis} = \text{FMV}

when

\sum \text{Property Basis} > \sum \text{FMV}

applies to net built-in loss contributions; elective alternative is to reduce transferor's stock basis instead

Brother-sister controlled group test under §1563(a)

Generally

\geq 80\%

voting power or value held by 5 or fewer individuals AND

> 50\%

identical ownership (§1563(f)(5)). For the accumulated earnings credit, only the

> 50\%

identical test applies (§1563(a)(2)). §1563(e) attribution does not reach between siblings

Service provider's compensation income on stock for services under §351(d)(1)

\text{Comp Income} = \text{FMV of Stock Received}

ordinary income to recipient; service shares excluded from 80% control test; stock basis = FMV included in income

Required annual payment for corporate estimated tax

RAP = \min(100\% \times T_{curr},\ 100\% \times T_{prior})

; large corps (TI

\geq

$1M in any of 3 prior yrs) lose prior-year safe harbor after 1st installment

C corp failure-to-file penalty on Form 1120

P = \min(5\% \times T \times m,\ 25\% \times T)

; if >60 days late, minimum

= \min(F,\ T)

T = unpaid tax, m = months (or part months) late, F = the §6651(j) floor for the filing year: $510 filed in 2025, $525 filed in 2026

Dividends-received deduction (DRD)

DRD = p \times D

, capped at

p \times TI

(cap waived if full DRD creates/increases NOL): p = 50/65/100% by ownership, D = dividends received, TI = taxable income pre-DRD

S corporation year-end shareholder stock basis under §1367

SB = SB_0 + C + I + TEI - D - NDE - L

SB_0

= beginning basis, C = contributions, I = income, TEI = tax-exempt income, D = distributions, NDE = nondeductibles, L = losses

S corporation per-share per-day income allocation under §1377(a)

S_i = \frac{d_i}{D_{total}} \times Item

S_i

= shareholder's allocation,

d_i

= share-days held by shareholder,

D_{total}

= total share-days in year, Item = pass-through item

Passive investment income termination test under §1362(d)(3)

Terminates if

PII > 0.25 \times GR

for 3 consecutive years with AE&P present: PII = passive investment income, GR = gross receipts

Business Tax Preparation 24 items

Section 163(j) business interest expense limitation

Cap = BII + 0.30 \times ATI + FPI

BII = business interest income, FPI = floor-plan financing; from 2025 ATI is EBITDA-based, adding back depreciation, amortization and depletion (OBBBA §70303), where 2022 through 2024 used EBIT

Section 195 first-year start-up cost deduction

Yr1 = \max(0,\ \$5{,}000 - \max(0, S - \$50{,}000))

S = total start-up costs; remainder amortized straight-line over 180 months from start

Gross profit on Schedule C

GP = NR - COGS

NR = net receipts (gross receipts less returns and allowances), COGS = cost of goods sold

Combined FICA exposure on recharacterized S corp wages

FICA_{total} = W_{recharacterized} \times 15.3\%

recharacterized wages bear both employer and employee shares (12.4% SS + 2.9% Medicare)

Depreciable basis on personal-to-business conversion

B = \min(AB, FMV)

AB = adjusted basis at conversion, FMV = fair market value at date of conversion

Small taxpayer safe harbor building expense cap

Cap = \min(0.02 \times UB,\ \$10{,}000)

UB = unadjusted basis of the building (§1.263(a)-3(h))

Bonus depreciation deduction under section 168(k) for 2025

B = b \times (\text{cost basis} - \text{§179 taken})

b = 1.00 for property acquired after January 19, 2025 (OBBBA §70301, permanent); b = 0.40 only for property acquired before January 20, 2025; recovery period ≤20 years

Cost depletion deduction for natural resources

D_c = \text{Basis} \times \dfrac{\text{units sold}}{\text{recoverable units}}

Basis = adjusted property basis; deduction cannot reduce basis below zero

Percentage depletion deduction with taxable income cap

D_p = \min(r \times \text{gross income},\ 0.50 \times \text{TI})

r = statutory rate (15% oil/gas, 22% sulfur, 5% gravel), TI = property taxable income (100% cap oil/gas)

Heavy SUV first-year cost recovery

D_1 = S + b(B - S) + 0.20(B - S - b(B-S))

B = business-use basis, S = §179 (cap $31,300 for 2025), b = bonus rate: 1.00 if acquired after January 19, 2025, 0.40 if acquired before January 20, 2025

Standard mileage deduction for business vehicle use

D = M_b \times r

M_b

= business miles, r = IRS standard rate ($0.70/mile for 2025)

Currently deductible business interest after 263A capitalization

I_d = I_{total} - I_{cp}

I_{total}

= interest paid or accrued,

I_{cp}

= construction-period interest capitalized to property basis under §263A

Section 1033 gain recognized on a condemnation reinvestment

\text{Recognized gain} = \text{Proceeds} - \text{Qualifying replacement cost}

. Proceeds = condemnation award net of selling expenses; replacement basis = cost minus deferred gain

Section 382 annual NOL limit after an ownership change

\text{Annual limit} = \text{FMV of loss corp} \times \text{LT tax-exempt rate}

. Triggered by a >50 percentage-point ownership shift over a 3-year testing period

Simplified method home office deduction

D = \$5 \times \min(\text{office sq ft}, 300)

, maximum $1,500. No depreciation allowed, no carryover of disallowed amounts

Section 1031 recognized gain on boot received

G_{rec} = \min(G_{real}, B_r)

G_{rec}

= recognized gain,

G_{real}

= realized gain,

B_r

= boot received (cash + net debt relief + non-real-property)

Installment sale gross profit ratio under section 453

GPR = \frac{GP}{CP}

GPR = gross profit ratio, GP = gross profit (selling price − adjusted basis − selling expenses), CP = contract price (total non-debt payments)

Section 1031 basis in replacement property

B_{new} = B_{old} + B_p + G_{rec} - B_r

B_{new}

= replacement basis,

B_{old}

= relinquished adjusted basis,

B_p

= boot paid,

G_{rec}

= gain recognized,

B_r

= boot received

Schedule M-2 retained earnings rollforward for a C corporation

RE_{end} = RE_{beg} + NI_{books} - \text{Distributions} \pm \text{Other adjustments}

RE = retained earnings,

NI_{books}

= book net income per Schedule M-1 line 1

Schedule M-1 book to taxable income reconciliation

TI = NI_{books} + FedTax + Perm_{add} + Depr_{excess\,book} - TaxExempt - Depr_{excess\,tax}

TI = taxable income before NOL and special deductions, Perm = permanent add-backs

Section 481(a) positive adjustment annual income inclusion

\text{Annual inclusion} = \frac{\text{Cumulative §481(a) adjustment}}{4}

positive adjustments spread one-quarter per year over 4 years starting with the year of change

Applicable large employer full-time equivalent count

FTE = FT + \frac{\sum PT\_hours}{120}

FT = employees averaging 30+ hrs/wk,

PT_{hours}

= total monthly part-time hours; ALE if FTE ≥ 50

Section 3509 reduced-rate worker misclassification penalty

Penalty = 1.5\% \times W + 20\% \times 7.65\% \times W

W = wages paid on 1099; rates double to 3% and 40% if 1099 was not filed

Section 4980H(a) sledgehammer ACA penalty

Penalty = \$2{,}900 \times (FTE - 30)

2025 rate, assessed monthly at 1/12; triggered when ALE fails to offer MEC to ≥95% of FT employees and one FT gets PTC

Specialized Returns and Taxpayers 12 items

Net tax-exempt interest input to trust DNI under section 643

\text{Net TEI} = \text{Tax-Exempt Interest} - \text{Allocable Expenses} - \text{Charity Funded with TEI}

TEI = tax-exempt interest; allocable expenses determined via the §265 ratio

Section 4975 first-tier excise tax on a prohibited transaction

\text{Tax} = 0.15 \times \text{Amount involved}

assessed per year until corrected; rises to 100% if not corrected

Farm optional method self-employment earnings

\text{SE earnings} = \tfrac{2}{3} \times \text{Gross farm income}

capped at $7,240 for 2025; available when 2025 gross farm income was $10,860 or less or net farm profits were under $7,840

Unrelated business taxable income under section 512

UBTI = \text{Gross UBI} - \text{Directly connected expenses} - \$1{,}000

Gross UBI = unrelated gross income; $1,000 = specific deduction (aggregate, not per silo)

Tax on UBTI for an exempt corporation

\text{Tax} = UBTI \times 0.21

UBTI = unrelated business taxable income; 0.21 = flat corporate rate (exempt trusts instead use trust rates)

Section 509(a)(1) public support fraction

\text{Public support \%} = \dfrac{\text{Public support}}{\text{Total support}} \geq 33\tfrac{1}{3}\%

measured over 5-year computation period; 10% qualifies with facts-and-circumstances

Safe harbor 401(k) basic matching contribution

M = 1.00 \cdot \min(d, 3\%) + 0.50 \cdot \min(\max(d-3\%, 0), 2\%)

M = employer match % of comp; d = employee deferral % of comp

ADP test maximum HCE average deferral rate

\text{ADP}_{HCE} \leq \max(1.25\,N,\ \min(N+2\%,\ 2N))

N = non-HCE ADP %; HCE = highly compensated employee under §414(q)

Self-employed retirement plan effective contribution rate

r_e = \dfrac{r}{1+r}

, so

r_e = 0.20

for a 25% SEP

apply

r_e

to net profit minus one-half SE tax, the §401(c)(2) base in the Pub 560 Deduction Worksheet for Self-Employed; never to 0.9235-adjusted profit

Section 6654(i) qualified farmer required annual payment

\text{RAP} = \min(0.6667 \times \text{Tax}_{cur},\ 1.00 \times \text{Tax}_{prior})

single estimate due Jan 15, OR file and pay by March 1

Section 175 soil and water conservation expense deduction limit

\text{Deduction} \le 0.25 \times \text{Gross farm income}

excess carries forward without limit; approved NRCS or state plan required

Schedule J farm income averaging tax under section 1301

\text{Tax} = \text{Tax}(TI - EFI) + \sum_{i=1}^{3}[\text{Tax}(TI_i + EFI/3) - \text{Tax}(TI_i)]

TI = current taxable income, EFI = elected farm income,

TI_i

= prior base-year i TI

EA Part 2 Limits and Thresholds

Business Entities and Considerations 21 items

Form 990 is required at gross receipts ≥$200,000 or assets ≥$500,000; the 990-N e-postcard applies when receipts are ≤$50,000.

The §6698 late-filing penalty for a 2025 Form 1065 (filed in 2026) is $255 per partner per month, capped at 12 months.

Form 1099-NEC reports nonemployee compensation at $600 or more and is due to both recipient and IRS by January 31.

The 20% accumulated earnings tax applies above a credit of $250,000 (or $150,000 for personal service corporations).

SE tax on a general partner's distributive share is 15.3% up to $176,100 (2025) and 2.9% Medicare thereafter.

S corporations require ≤100 eligible shareholders, one class of stock, and a Form 2553 election by the 15th day of the 3rd month.

§707(b) disallows losses on sales between a partnership and a partner owning more than 50% of capital or profits.

The 120% substantially appreciated inventory test applies only to §751(b) disproportionate distributions, not §751(a) sales of an interest.

Under §707(a)(2)(B), a contribution followed by a related distribution within 2 years may be recharacterized as a disguised sale.

Form 1065 may be extended via Form 7004 for six months to September 15 for a calendar-year partnership.

§6226 push-out underpayment interest accrues at the federal short-term rate plus 5 percentage points, two points above the standard rate.

Rev. Proc. 84-35 relief from the §6698 penalty applies to partnerships with 10 or fewer partners who are all natural persons or estates.

A PHC under §542 requires 5 or fewer individuals own >50% of stock with 60% PHC income, taxed at 20% under §541.

§357(c) recognizes gain equal to the excess of liabilities assumed over adjusted basis of property transferred, computed per transferor.

§351 control requires the transferor group own at least 80% of voting power and 80% of each class of nonvoting stock immediately after.

CAMT is a 15% tax on AFSI for corps averaging over $1 billion AFSI in 3 prior years (or $100 million for US subs of foreign-parented groups).

A §303 redemption qualifies for sale treatment if the decedent's stock value exceeds 35% of the adjusted gross estate.

Under §302(b)(2), a redemption is substantially disproportionate if after redemption the shareholder owns less than 50% voting power and less than 80% of pre-redemption ownership.

Passive investment income terminates an S election when a former C corp with AE&P earns PII exceeding 25% of gross receipts for 3 consecutive tax years.

Rev. Proc. 2013-30 grants late S election relief if Form 2553 is filed within 3 years and 75 days of the intended effective date with reasonable cause.

Voluntary S election revocation requires consent from shareholders owning more than 50% of shares, and a 5-year wait applies before re-electing.

Business Tax Preparation 24 items

Business gifts are capped at $25 per recipient per year, and the simplified home office method maxes at $1,500 (300 sq ft × $5).

The §199A QBI deduction is 20% of QBI with 2025 thresholds of $197,300 single and $394,600 MFJ.

At-risk §465 includes cash, adjusted basis of property, recourse debt, and qualified nonrecourse real estate financing, reported on Form 6198.

§1031 like-kind exchanges require identification within 45 days and closing within 180 days, reported on Form 8824.

The de minimis safe harbor allows expensing up to $2,500 per item without an AFS or $5,000 per item with an AFS.

Accountable plans require substantiation within 60 days and return of excess within 120 days.

The §179 cap for SUVs between 6,000 and 14,000 lbs GVWR is $31,300 per vehicle for 2025.

Acquired §197 intangibles like goodwill and customer lists amortize straight-line over 15 years regardless of useful life.

The small taxpayer safe harbor expenses building outlays if UB ≤$1M and outlays ≤ lesser of $10,000 or 2% of UB.

Business meals are deductible at 50% in 2025; the temporary 100% restaurant rule under §274(n)(2)(D) expired 12/31/2022.

Employer-paid group-term life premiums are deductible by the business with no coverage cap; under §79 the employee excludes the cost of only the first $50,000 of coverage.

An S-corp shareholder owning more than 2% qualifies for the §162(l) SEHI deduction only if premiums are included in W-2 box 1 wages.

Under §1033, condemnation gain is deferred by reinvesting within 2 years generally, 3 years for business real property, or 4 years for a principal residence in a disaster area.

The §44 Disabled Access Credit is 50% of eligible expenses between $250 and $10,250, capped at a $5,000 credit on Form 8826.

The §38 general business credit carries back 1 year and forward 20 years, aggregated on Form 3800.

§1031 identification rules: any 3 properties regardless of value, 200% of relinquished FMV, or 95% of identified FMV acquired.

The §1231 lookback recharacterizes net §1231 gain as ordinary up to net §1231 losses from the 5 prior tax years.

The §1014 alternate valuation date is 6 months after death, elected on Form 706 only if it lowers both gross estate and estate tax.

C corporation charitable contributions are limited to 10% of taxable income computed before the contribution deduction, DRD, and NOL carrybacks.

§7872 below-market loan rules don't apply when aggregate loans between the parties never exceed $10,000, unless the loan is a gift loan used to buy income-producing property.

Form 1125-E officer compensation detail is required when total receipts reach $500,000, and §291 adds back an extra 20% of §1250 recapture for C corporations.

ACA coverage is affordable in 2025 if the employee's self-only contribution does not exceed 9.02% of household income.

Form 8300 reports cash receipts over $10,000, filed within 15 days, with a written statement to the payor by January 31.

Under §3509 for unintentional misclassification with 1099s filed, the employer owes 1.5% of wages plus 20% of the employee FICA share.

Specialized Returns and Taxpayers 12 items

The qualified disability trust exemption under §642(b)(2)(C) is $5,100 for 2025, indexed annually.

Trusts hit the 37% bracket at $15,650 (2025); the personal exemption is $300 simple, $100 complex, $600 estate.

Real estate professional status requires more than 750 hours and more than 50% of personal services in real property trades.

Form 990 is due the 15th day of the 5th month after year-end, and 3 consecutive years of non-filing triggers automatic revocation under §6033(j).

Gross UBI of $1,000 or more triggers Form 990-T, which allows a $1,000 specific deduction and is taxed at 21% for exempt corporations.

A §501(c)(3) that files Form 1023 within 27 months of formation receives exemption retroactive to the formation date.

A §4975 prohibited transaction carries a 15% initial excise on the amount involved and 100% if not corrected by the IRS notice-of-deficiency date.

A SIMPLE IRA distribution within the first 2 years of participation triggers a 25% §72(t)(6) additional tax instead of the usual 10%.

The 2025 SIMPLE IRA elective deferral cap is $16,500 with an age-50 catch-up of $3,500 and a SECURE 2.0 ages 60-63 super catch-up of $5,250.

A §6654(i) qualified farmer needs 2/3 of gross income from farming; safe harbor is one estimate by January 15 or filing and paying by March 1.

§280A treats a dwelling as a residence (capping rental deductions at income) when personal use exceeds the greater of 14 days or 10% of rental days.

§1033(e) defers gain on excess drought sales of breeding, draft, or dairy livestock if replaced within 2 years, stretched to 4 years only when the area is designated as eligible for federal assistance.

Free IRS Enrolled Agent SEE Part 2 (Businesses) Formula and Limits Sheet (2026)

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