Module 1: SU 1 - The Internal Revenue Service (IRS) may dispute or disagree with a taxpayer concerning tax positions taken by the taxpayer or the taxpayer’s lack of filing a return. In these situations, the taxpayer may have to defend their positions either in writing or in person before the IRS. Not everyone can represent taxpayers before the IRS. Treasury Department Circular 230 declares the rules for “practice before the IRS,” limiting persons who may represent taxpayers before the IRS to CPAs, enrolled agents (EAs), attorneys, and other individuals authorized to practice before the IRS. The first and second subunits of this study unit discuss the various individuals who may practice before the IRS and their standards of conduct. (Gleim Introduction)
Module 2: SU 2 - This study unit is composed of multiple general tax topics ranging from federal tax procedures to filing requirements, dependent status, tax payments, tax refunds, and accounting methods.
The first subunit describes federal tax procedures, which are composed of
- The authoritative hierarchy of taxes,
- The substantiation and disclosure of tax positions,
- Taxpayer penalties, and
- Audits and appeals of the judicial process.
The second subunit discusses filing requirements such as return due dates and dependent status. It also covers filing status; each filing status classification affects the amount of the standard deduction, applicable tax rates, and threshold amounts for various deductions and credits.
The third subunit covers tax payments, tax penalties, and tax refunds. The fourth subunit discusses accounting methods: the accrual method, the cash method, and the installment method. Finally, the fifth subunit covers the different types of tax-exempt organizations. (Gleim Introduction)
Module 3: SU 7 - The concept of basis is important in federal income taxation. The assigned value of property at any particular time is the property's basis. Multiple factors may require a taxpayer to adjust the basis of the property during the time the taxpayer owns the property. Uniform capitalization rules determine if a cost is allocated to the basis of the property or expensed in the current year.
Cost recovery is the deduction of the cost of business-use property placed in service recognized over the determinable useful life of the property.
Depreciation is a business deduction that allows a taxpayer to recover the cost or other basis of certain business-use property with a useful life in excess of 1 year. Property subject to the allowance for depreciation is tangible property that is used in a trade or business or is held for production of income and that has a determinable, limited useful life. Depreciation is an annual allowance for the wear and tear, deterioration, or obsolescence of property.
Amortization is a cost recovery method utilized for intangible assets. An amortizable asset, generally, is property that
- Is intangible,
- Is personal property (as opposed to real),
- Has a determinable useful life, and
- Is used in a trade or business or for the production of income. (Gleim Introduction)
Module 4: SU 8 - This study unit covers the first step (gross income) in computing the federal income tax liability or refund receivable for individual taxpayers (see table below). This table will be a useful reference throughout this course's tax-related Knowledge Transfer Outlines. Additionally, this study unit provides detailed explanations and examples of taxable and nontaxable items covered by the Internal Revenue Code and subsequent regulations and rulings. (Gleim Introduction)
Module 5: SU 9 - Gross income is reduced by deductions to compute taxable income. No amount can be deducted from gross income unless allowed by the Internal Revenue Code (IRC). Deductible business expenses apply to sole proprietorships (Form 1040, Schedule C), C corporations (Form 1120), S corporations (Form 1120-S), partnerships (Form 1065), and other business entities. Employers who pay wages are required to pay employment taxes based on employees' pay. These taxes include Social Security tax, Medicare tax, and unemployment tax. Not all payments made to employees are includible in their gross income. (Gleim Introduction)
Module 6: SU10 - Individual taxpayers are also allowed to take certain deductions from adjusted gross income (AGI), including the greater of the standard or itemized deductions, and the qualified business income deduction. (Gleim Introduction) This study unit covers each of these deduction in detail.
Module 7: SU 11 - This study unit analyzes available losses, the applicable limitations of each available loss, and
the calculation of the overall tax liability of the taxpayer. A taxpayer's deductible loss is limited to the amount of the taxpayer's basis in the activity, by the at-risk rules, and by the passive activity rules. The Internal Revenue Code allows deductions for losses caused by theft or casualties, whether business or personal. However, casualty losses for personal deductions are only allowed for federally declared disasters. Only the amount of each loss over $100 is deductible. Only the aggregate amount of all losses over $100 each in excess of 10% of AGI is deductible. (Gleim Introduction)
Module 8: SU 12 - Entities classified as C corporations for federal tax purposes are subject to an entity-level income
tax. In addition, when a C corporation distributes its profits to its owners as dividends, the owners are subject to income taxation on the dividend income they receive. This "double" taxation is the hallmark of C corporation status.
The computation of taxable income for C corporations is similar to that of individuals. Gross income is broadly defined (unless excluded by a code section) and then taxpayers are allowed various deductions before arriving at the taxable income upon which the income tax is computed.
However, C corporation tax calculations have several important differences. First, properties held by C corporations are guided by special rules upon formation and are treated differently than property of individuals. Second, C corporations do not use the concept of adjusted gross income (AGI). Third, C corporations are not allowed credits or deductions of a personal nature (e.g., the standard deduction or the Child Tax Credit). Also, unlike the progressive tax rate schedules used for individuals, C corporations are taxed at a flat rate of 21%. A C corporation tax return is made on Form 1120, U.S. Corporation Income Tax Return. (Gleim Introduction)
Module 9: SU 13 - An S corporation is generally not subject to a federal tax on its income. Its items of income, deductions, gains, losses, and tax preferences are passed through to its shareholders on a per-day and per-share basis. Each shareholder is taxed on his or her share of the S corporation's income as it is earned.
A partnership is a business organization other than a corporation, trust, estate, or qualified joint venture co-owned by Wvo or more persons and operated for a profit. The partnership, as an untaxed flow-through entity, reports taxable income or loss and separately stated items. For the computation of personal income tax liability, each partner considers his or her distributive share of the partnership's taxable income or loss and each of the partnership's separately stated items, whether or not any distributions are made from the partnership to the partner. Federal income tax rules for partnerships are similar to those for S corporations. Nonseparately and separately stated partnership items are currently taxed to the partners, but distributions are generally received tax free.
Book-to-tax differences exist due to differences between generally accepted accounting principles, the Internal Revenue Code, and applicable regulations. The reconciliation of book and taxable income applies to both corporations and partnerships. (Gleim Introduction)