CPA TCP — U.S. - Tax Compliance and Planning Quick Reference

Last revised: June 25, 2026

Compact AICPA CPA TCP tax compliance and planning reference covering federal tax formulas, basis, entities, losses, property transactions, and planning traps.

Exam Identity and Scope

Item	Reference
Official vendor/provider	AICPA
Official exam title	U.S. CPA TCP - Tax Compliance and Planning
Official exam code	CPA TCP
Page purpose	Independent Quick Reference for candidates reviewing tax compliance and planning concepts for the real exam

Use the tax year, facts, forms, and dollar limits supplied in the question. Many tax amounts are indexed or law-dependent, so the exam often tests the rule, ordering, classification, or planning consequence more than memorization of a threshold.

Core Federal Tax Computation

[ \text{Gross Income}

\text{Exclusions}
\text{Adjustments for AGI} = \text{AGI} ]

[ \text{AGI}

\text{Standard or Itemized Deductions}
\text{Qualified Business Income Deduction, if applicable} = \text{Taxable Income} ]

[ \text{Regular Tax}

\text{Additional Taxes}
\text{AMT, if applicable}

\text{Credits}
\text{Payments and Withholding} = \text{Tax Due or Refund} ]

High-Yield Tax Classification Questions

Question	Why it matters	Common exam trap
Is it income, exclusion, deduction, credit, or basis recovery?	Determines where it enters the return	Treating basis recovery as excluded income instead of non-taxable recovery of capital
Is the deduction for AGI or from AGI?	Affects AGI-based limitations	Placing business, educator, IRA, HSA, or self-employed items in itemized deductions
Is the activity business, investment, rental, or personal?	Affects deductibility, loss limits, and character	Deducting personal losses or treating hobbies as businesses
Is the taxpayer cash or accrual basis?	Determines timing	Including prepaid income or expenses incorrectly
Is gain realized, recognized, deferred, or excluded?	Determines current tax	Computing realized gain correctly but forgetting nonrecognition rules
Is the item ordinary, capital, Sec. 1231, passive, or portfolio?	Determines rate, netting, and limitations	Netting passive and portfolio items together

Individual Tax Compliance Reference

Income Inclusion and Exclusion

Item	General treatment	TCP exam focus
Wages, bonuses, taxable fringe benefits	Included in gross income	Identify employer-provided exclusions versus taxable compensation
Interest	Usually ordinary income	Municipal bond interest is generally federal-tax-exempt; private activity bonds may affect AMT
Dividends	Ordinary or qualified	Qualified dividends receive preferential treatment if requirements are met
State tax refund	Taxable only if prior deduction produced tax benefit	Tax benefit rule
Alimony	Depends on divorce/separation instrument date and governing law	Do not assume all alimony is deductible/includible
Child support	Not taxable to recipient; not deductible by payer	Distinguish from alimony
Gifts and inheritances	Generally excluded from recipient gross income	Income generated by gifted/inherited property is taxable
Life insurance proceeds due to death	Generally excluded	Interest component is taxable
Scholarships	Excludable to extent used for qualified tuition/required fees by degree candidate	Room, board, and compensation for services are traps
Social Security benefits	May be partially taxable depending on provisional income	Use exam-provided thresholds if needed
Unemployment compensation	Generally taxable	Do not treat as welfare exclusion
Discharge of indebtedness	Generally taxable unless an exclusion applies	Insolvency, bankruptcy, qualified principal residence rules may be tested if provided

Adjustments, Itemized Deductions, and Credits

Category	Examples	Exam decision point
Adjustments for AGI	Traditional IRA deduction, HSA deduction, self-employed health insurance, half of self-employment tax, student loan interest if allowed	Above-the-line deductions reduce AGI and can affect other limits
Itemized deductions	Medical, certain taxes, interest, charitable contributions, casualty losses when allowed	Compare with standard deduction; apply floors/ceilings when provided
Credits	Child-related, education, foreign tax, retirement savings, energy, general business credits	Credits reduce tax; refundable credits can exceed tax liability
Nonrefundable credit	Limited to tax liability	Cannot create refund except to extent allowed
Refundable credit	Can create refund	Watch wording: “refundable,” “partially refundable,” or “nonrefundable”

Filing Status Decision Table

Status	Use when	Common trap
Single	Unmarried and no qualifying status	Missing head-of-household eligibility
Married filing jointly	Married taxpayers file one return	Joint and several liability; relief may be tested conceptually
Married filing separately	Married taxpayers file separate returns	Often loses credits/deductions; community property issues may appear
Head of household	Unmarried or considered unmarried, qualifying person, household cost support	Qualifying relative versus qualifying child rules
Qualifying surviving spouse	Spouse died in prior period and taxpayer maintains home for dependent child, if requirements met	Confusing year of death joint return with later qualifying surviving spouse status

Business Income, Self-Employment, and Loss Limits

Schedule C and Business Income

Item	Treatment
Gross receipts	Included in business income
Cost of goods sold	Reduces gross income, not a separate deduction
Ordinary and necessary expenses	Deductible if business-related and substantiated
Meals, travel, auto, listed property	Subject to special substantiation and limitations
Home office	Requires business use and regular/exclusive use unless an exception applies
Hobby activity	Income included; loss deductions limited or disallowed under applicable rules
Self-employment tax	Applies to net earnings from self-employment; deduction allowed for employer-equivalent portion

Loss Limitation Ordering

Apply limitations in order. The order is frequently tested.

Step	Limitation	Key question
1	Basis limitation	Does the taxpayer have sufficient tax basis?
2	At-risk limitation	Is the taxpayer economically at risk for the loss?
3	Passive activity limitation	Is the activity passive to the taxpayer?
4	Excess business loss limitation, if applicable	Do aggregate business losses exceed the allowed amount?
5	NOL rules	Is any remaining loss carried as a net operating loss?

Passive Activity Rules

Activity type	Default treatment	Exception or planning point
Trade or business with material participation	Nonpassive	Material participation is fact-based
Limited partnership interest	Generally passive	Exception if taxpayer meets applicable participation tests
Rental real estate	Generally passive regardless of participation	Real estate professional and active participation rules may change treatment
Portfolio income	Not passive	Interest/dividends do not absorb passive losses
Disposition of entire passive activity	Suspended passive losses generally freed	Must dispose of entire interest in taxable transaction to unrelated party

Basis and Property Transaction Formulas

General Basis Rules

Property acquired by	Initial basis	Holding period trap
Purchase	Cost plus capitalized acquisition costs	Begins day after acquisition
Gift, gain situation	Donor’s adjusted basis, increased for certain gift tax effects if applicable	Usually tacks donor’s holding period
Gift, loss situation	Lesser of donor basis or FMV at gift date for loss purposes	Dual-basis rule can create no gain/no loss zone
Inheritance	Generally FMV at valuation date or alternate valuation date if elected	Usually long-term
Conversion from personal to business use	Lesser of adjusted basis or FMV at conversion for depreciation/loss	Gain basis may differ from loss/depreciation basis
Self-created asset	Costs capitalized if required; otherwise basis from capitalized costs	Personal effort alone does not create tax basis

Gain and Loss Computation

[ \text{Amount Realized} = \text{Cash Received}

\text{FMV of Property Received}
\text{Debt Relief}

\text{Selling Expenses} ]

[ \text{Realized Gain or Loss} = \text{Amount Realized}

\text{Adjusted Basis} ]

[ \text{Recognized Gain or Loss} = \text{Realized Gain or Loss}

\text{Deferred or Excluded Amount} ]

Property Transaction Matrix

Transaction	Tax result	High-yield trap
Sale of capital asset	Capital gain/loss	Personal-use capital losses are nondeductible
Sale of business equipment	Sec. 1231, with depreciation recapture rules	Sec. 1245/1250 recapture can convert gain to ordinary income
Like-kind exchange	Nonrecognition for qualifying real property held for business/investment	Personal property does not qualify under current federal rules
Involuntary conversion	Gain may be deferred if replacement requirements are met	Loss treatment depends on business/investment versus personal property
Installment sale	Gain recognized as payments received	Dealer sales, inventory, and depreciation recapture may be exceptions
Related-party sale	Special loss/disallowance and holding period rules may apply	Loss may be deferred/disallowed; later gain may be adjusted
Wash sale	Loss disallowed and added to basis of replacement stock/securities	Applies when substantially identical securities acquired within the statutory window
Home sale exclusion	Gain exclusion may apply to principal residence	Ownership/use tests and nonqualified use rules matter

Capital Gain and Loss Netting

Step	Action
1	Separate short-term and long-term gains/losses
2	Net short-term items against short-term items
3	Net long-term items against long-term items
4	Net short-term result against long-term result
5	Apply preferential rates, ordinary loss limits, and carryforward rules as applicable

Common trap: capital losses offset capital gains first. Only a limited net capital loss may offset ordinary income for individuals, with the remainder carried forward.

Depreciation, Amortization, and Cost Recovery

Concept	TCP reference
Depreciation	Recovery of cost for tangible property used in business or income-producing activity
Amortization	Recovery of cost for many intangible assets
Depletion	Recovery of cost for natural resources
MACRS	Federal depreciation system for many tangible assets
Sec. 179	Elective immediate expensing, subject to taxable income and statutory limits
Bonus depreciation	Additional first-year depreciation if allowed for the tax year
Listed property	Heightened substantiation; business-use percentage matters
Repairs vs improvements	Repairs generally deductible; improvements capitalized
Start-up costs	May be partially deductible and amortized if requirements are met

Repairs vs Capital Improvements

Expenditure	Likely treatment	Exam cue
Routine maintenance	Deductible repair	Keeps property in ordinary efficient operating condition
Betterment	Capitalize	Improves capacity, productivity, quality, or strength
Restoration	Capitalize	Replaces major component or returns property to like-new condition
Adaptation	Capitalize	Adapts property to a new or different use

Entity Taxation Decision Matrix

Entity	Taxpayer	Income taxed to	Liability/planning notes	Exam traps
Sole proprietorship	Individual	Owner directly	Simple compliance; self-employment tax often relevant	No separate federal income tax entity
Partnership	Partners	Flow-through	Flexible allocations if substantial economic effect	Basis, liabilities, guaranteed payments
LLC	Depends on election/default classification	Member(s) or entity	Can be disregarded, partnership, S corp, or C corp for tax	Legal form does not automatically determine federal tax treatment
S corporation	Corporation with valid S election	Shareholders	Flow-through; compensation planning for shareholder-employees	Eligibility, stock/debt basis, distributions
C corporation	Corporation	Corporation; shareholders on dividends	Potential double taxation; benefit and retention planning	E&P, dividends, corporate AMT/credits if tested
Trust/estate	Fiduciary entity	Entity or beneficiaries	DNI controls distribution deduction and beneficiary income	Fiduciary accounting income is not always taxable income

Partnership Tax Reference

Partnership Basis Formula

[ \text{Outside Basis} = \text{Contributions}

\text{Income and Gains}
\text{Partner Share of Liabilities}

\text{Distributions}
\text{Losses and Deductions}
\text{Liability Decreases} ]

Partnership Rules

Event	Partner result	Partnership result	Trap
Formation	Generally nonrecognition for contribution of property	Carryover basis in contributed property	Services for partnership interest can create taxable income
Operations	Separately stated and nonseparately stated items flow through	Files information return	Character generally determined at partnership level
Guaranteed payment	Ordinary income to recipient	Deductible or capitalized by partnership	Paid without regard to partnership income
Cash distribution	Reduces outside basis; gain if cash exceeds basis	Usually no entity-level gain	Basis cannot go below zero
Property distribution	Reduces outside basis; generally nonrecognition	Carryover/substituted basis rules	Marketable securities may be treated like cash
Liability increase	Deemed contribution; increases basis	Allocated under liability rules	Recourse/nonrecourse allocation affects loss capacity
Liability decrease	Deemed cash distribution; decreases basis	Reallocation effect	Can trigger gain if deemed distribution exceeds basis
Sale of partnership interest	Capital gain/loss, except hot assets	No direct entity sale unless asset sale	Unrealized receivables/inventory can create ordinary income

Inside vs Outside Basis

Basis type	Meaning	Why it matters
Inside basis	Partnership’s basis in its assets	Depreciation, gain/loss on asset sale
Outside basis	Partner’s basis in partnership interest	Loss deductibility, distribution taxation, sale gain/loss
Book capital	Economic capital account	Allocations and substantial economic effect
Tax capital	Tax-basis capital	Compliance reporting and basis analysis

S Corporation Tax Reference

S Corporation Eligibility and Operation

Topic	Rule focus
Eligible entity	Domestic corporation or eligible entity electing corporate/S treatment
Shareholders	Generally individuals, certain trusts, estates, and qualifying exempt organizations; nonresident alien shareholders are generally not eligible
Stock	Generally one class of stock; voting differences may be allowed
Taxation	Income, deductions, credits, and separately stated items flow through
Compensation	Shareholder-employees should receive reasonable compensation for services
Losses	Limited by stock basis, debt basis, at-risk rules, and passive activity rules

S Corporation Basis Formula

[ \text{Stock Basis} = \text{Initial Basis}

\text{Income}
\text{Capital Contributions}

\text{Distributions}
\text{Nondeductible Expenses}
\text{Losses and Deductions} ]

Debt basis is separate. A shareholder generally gets debt basis only for direct loans from the shareholder to the S corporation, not merely for corporate debt guaranteed by the shareholder.

S Corporation Distribution Ordering

Situation	Tax result
No accumulated E&P from C corporation years	Distributions generally tax-free to extent of stock basis; excess is gain
Accumulated E&P exists	Ordering rules can create dividend treatment after AAA rules
Distribution exceeds stock basis	Capital gain if stock is capital asset
Loss allocation	Cannot reduce basis below zero; suspended losses carry forward

C Corporation Tax Reference

C Corporation Tax Computation

Area	Reference
Gross income	Includes business income, investment income, gains
Deductions	Ordinary and necessary business expenses; special rules for compensation, meals, interest, charitable contributions, NOLs
Taxable income	Computed at corporate level
Tax payment	Corporation pays its own federal income tax
Shareholder tax	Dividends taxed to shareholders when distributed
E&P	Determines dividend treatment for corporate distributions

Corporate Formation: Sec. 351

Requirement	Reference
Transfer	Property transferred to corporation
Control	Transferors control corporation immediately after exchange under the statutory control test
Consideration	Stock received; boot may trigger gain
Services	Services are not property for Sec. 351 control/value purposes
Liabilities	Assumed liabilities usually do not trigger gain unless exceptions apply

Corporate Distributions

Distribution	Corporation result	Shareholder result
Cash dividend	No deduction	Dividend to extent of E&P
Appreciated property	Corporation generally recognizes gain as if sold	Shareholder receives dividend to extent of E&P; FMV basis
Loss property	Corporation generally does not recognize loss on nonliquidating distribution	Shareholder basis usually FMV
Distribution exceeding E&P	N/A	Return of capital to extent of basis, then gain
Liquidating distribution	Corporation may recognize gain/loss; shareholder treats as exchange	Shareholder recognizes gain/loss versus stock basis

Book-Tax Differences

Difference	Temporary or permanent?	Example
Depreciation method differences	Temporary	Tax MACRS vs book straight-line
Bad debt method differences	Temporary	Allowance for book vs specific charge-off for tax
Tax-exempt interest	Permanent	Municipal bond interest
Nondeductible fines/penalties	Permanent	Certain government penalties
Meals limitation	Permanent or partially permanent	Book expense exceeds tax deduction
Life insurance proceeds	Permanent	Excluded proceeds with nondeductible premiums in some cases

Qualified Business Income Deduction

Item	Reference
Applies to	Qualified business income from eligible pass-through business activities
Does not apply to	C corporation income, employee wages, investment income
Basic concept	Deduction is generally based on a percentage of QBI, subject to limitations
Limitations	Taxable income, W-2 wages, qualified property, specified service trade or business rules when applicable
Planning cue	Entity choice and compensation can affect QBI, but reasonable compensation and guaranteed payments are not QBI to recipient

Common trap: QBI is not the same as net business cash flow. Separately stated investment items, reasonable S corporation compensation, and partnership guaranteed payments require special treatment.

Retirement, Investment, and Personal Financial Planning

Planning area	Tax treatment focus	Exam trap
Traditional IRA	Deductibility and later ordinary income distributions	Active plan participation and income limits may affect deduction
Roth IRA	No current deduction; qualified distributions tax-free	Contribution eligibility and conversion taxability
Employer retirement plan	Salary deferral, employer contribution, distribution rules	Early distribution penalties and required minimum distribution concepts
HSA	Deductible/excludable contributions; tax-free qualified medical distributions	Must be eligible individual; nonqualified distributions taxable and may be penalized
529 plan	Tax-advantaged education savings	Qualified education expense definition
Life insurance	Death benefit generally excluded	Cash value access, policy loans, and transfer-for-value issues
Annuity	Recovery of investment plus taxable earnings	Exclusion ratio for nonqualified annuity payments
Municipal bonds	Federal tax-exempt interest generally	Lower pretax yield may still produce higher after-tax yield

After-Tax Yield

\[ \text{Tax-Equivalent Yield} = \frac{\text{Tax-Exempt Yield}}{1 - \text{Marginal Tax Rate}} \]

Use this when comparing municipal bonds with taxable bonds for a taxpayer in a given marginal tax bracket.

Gift, Estate, and Trust Concepts

Topic	Reference	Trap
Gift tax	Donor is generally responsible for gift tax reporting/payment	Recipient usually has no income from receiving the gift
Annual exclusion	Applies to present-interest gifts if requirements are met	Future interests generally do not qualify
Unified credit/exemption	Coordinates lifetime taxable gifts and estate tax	Use exam-provided amount if calculation is required
Gift basis	Carryover basis for gain; dual basis for loss if FMV below donor basis	No automatic FMV basis for gifts
Inherited property basis	Generally FMV at valuation date or alternate date if elected	Not the decedent’s original cost basis
Trust income	Taxed to trust or beneficiary depending on distributions and DNI	Fiduciary accounting income and taxable income differ
Simple trust	Generally required to distribute current income; no charitable distributions	Classification affects deduction and beneficiary reporting
Complex trust	May accumulate income, distribute corpus, or make charitable distributions	DNI limits distribution deduction

Tax Compliance Process Reference

Common Federal Return and Entity Forms

Form	Used for	Exam focus
Form 1040	Individual income tax return	Filing status, dependents, AGI, deductions, credits
Schedule C	Sole proprietorship business income	Business vs hobby, self-employment tax
Schedule D	Capital gains and losses	Netting, carryovers, basis
Schedule E	Rental, royalty, partnership, S corporation income	Passive activity analysis
Form 1065	Partnership information return	Separately stated items, partner basis
Schedule K-1	Partner/shareholder/beneficiary reporting	Character flows through
Form 1120	C corporation income tax return	Corporate taxable income and E&P
Form 1120-S	S corporation information return	Shareholder allocations and basis
Form 1041	Estate or trust income tax return	DNI and beneficiary taxation
Form 709	Gift tax return	Donor reporting
Form 990	Tax-exempt organization information return	Unrelated business income and compliance concepts

Filing and Payment Planning

Area	Reference
Extensions	Usually extend time to file, not time to pay
Estimated taxes	Required when withholding/payments are insufficient
Safe harbors	Often based on current-year tax or prior-year tax; use exam-provided percentages if calculation is needed
Penalties	Commonly involve late filing, late payment, underpayment, negligence, or substantial understatement
Interest	Generally accrues on underpayments
Amended returns	Used to correct previously filed returns
Statute of limitations	Varies based on filing, omission, fraud, or nonfiling facts

Common trap: an extension does not prevent interest or penalties on unpaid tax.

Tax Planning Decision Tables

Timing Income and Deductions

Taxpayer situation	Planning preference	Caveat
Higher tax rate expected next year	Accelerate income; defer deductions	Cash flow and business purpose matter
Lower tax rate expected next year	Defer income; accelerate deductions	Accounting method limits available choices
Expiring credit/deduction	Accelerate qualifying expenditure	Must meet statutory requirements
NOL or low taxable income year	Consider accelerating income or deferring deductions	Some deductions/credits may be wasted or limited
AMT exposure	Evaluate timing of preference items	Itemized deductions and private activity bonds may matter

Entity Choice Planning

Goal	Entity often considered	Tax tradeoff
Simplicity	Sole proprietorship or single-member LLC	Self-employment tax; no separate tax entity
Flexible allocations	Partnership/LLC taxed as partnership	Complex basis and liability rules
Payroll tax planning	S corporation	Reasonable compensation required
Retain earnings for growth	C corporation	Potential double taxation on dividends/sale
Attract broad investors	C corporation	More flexible ownership than S corporation
Loss pass-through	Partnership or S corporation	Basis, at-risk, and passive limitations still apply

Compensation vs Distribution

Entity	Payment type	Tax treatment focus
Partnership	Guaranteed payment	Ordinary income to partner; not dependent on profits
Partnership	Distributive share	Character flows through; may affect self-employment tax
S corporation	Wages to shareholder-employee	Deductible by corporation; payroll tax applies
S corporation	Distribution	Generally not wages, but limited by basis and AAA/E&P rules
C corporation	Salary/bonus	Deductible if reasonable
C corporation	Dividend	Not deductible; taxed to shareholder

Charitable Giving Planning

Donation	Tax result focus	Trap
Cash	Deduction subject to AGI percentage limits	Substantiation required
Long-term appreciated public stock	Potential FMV deduction and no capital gain recognition	Deduction limits and qualified organization rules
Short-term appreciated property	Deduction often limited to basis	Character affects deduction amount
Ordinary income property	Deduction often reduced by ordinary income that would be recognized	Inventory rules may apply
Services	No deduction for value of time	Out-of-pocket unreimbursed expenses may qualify

Common TCP Exam Traps

Trap	Correct approach
Confusing realized gain with recognized gain	Compute realized gain first, then apply deferral/exclusion rules
Deducting personal expenses	Personal, living, and family expenses are generally nondeductible unless a specific provision allows
Ignoring basis before loss deductions	Basis limitation comes before at-risk and passive rules
Treating K-1 cash distributions as income automatically	Flow-through income is taxed whether or not distributed; distributions affect basis
Forgetting debt relief in amount realized	Debt relief is part of amount realized on sale/disposition
Treating shareholder loan guarantees as S corporation debt basis	Direct indebtedness to shareholder is generally required
Missing ordinary income recapture	Depreciation recapture can override capital/Sec. 1231 expectations
Mixing portfolio and passive income	Portfolio income generally does not absorb passive losses
Assuming LLC means partnership taxation	LLC tax classification depends on default rules or election
Forgetting E&P in corporate distributions	Dividend treatment depends on current and accumulated E&P
Overlooking separately stated items	Character must be preserved for partners/shareholders
Ignoring substantiation	Travel, meals, auto, charitable, and listed property items need documentation

Fast Review Checklist

Before answering a CPA TCP tax scenario, identify:

Taxpayer type: individual, C corporation, S corporation, partnership, estate, trust, or exempt organization.
Tax year and any exam-provided limits.
Accounting method: cash, accrual, or special method.
Character: ordinary, capital, Sec. 1231, passive, portfolio, tax-exempt, or personal.
Timing: included/deducted now, deferred, excluded, capitalized, or amortized.
Basis: initial basis, adjustments, liabilities, distributions, depreciation, and suspended losses.
Loss limits: basis, at-risk, passive, excess business loss, NOL.
Entity-level versus owner-level consequences.
Compliance item: form, schedule, filing/payment, extension, disclosure, or penalty.
Planning result: tax saved, tax deferred, rate arbitrage, cash flow, or risk created.

Practical Next Step

Use this Quick Reference to drill mixed simulations: compute basis, classify income, apply loss limitations in order, and compare entity or transaction alternatives. Then move into timed CPA TCP practice sets that force you to explain both the tax result and the planning consequence.

Scenario Guide

Individual and Personal Tax Planning