Individual Deductions, Credits and Losses
This topic covers standard and itemized deductions, adjustments, qualified business income, child tax credit, education credits, EITC, foreign tax credit, casualty losses, and loss limitations.
How to study for CPA REG
Build every answer around taxpayer type, tax year, filing obligation, basis, character, limitation, and procedural consequence.
Core concepts
Concept 1
Individual Deductions, Credits and Losses questions test whether a CPA candidate can apply tax law, federal procedure, business law, or entity tax rules to a practical client fact pattern.
Exam cue: Identify the taxpayer type, tax year, transaction, return, authority, and dollar amount or deadline being tested.
Concept 2
The best REG answer usually identifies the taxpayer, transaction, year, tax basis, filing obligation, limitation, and procedural consequence before calculating.
Exam cue: Decide whether the task is inclusion, deduction, credit, basis, gain or loss, filing, penalty, representation, or legal liability.
Concept 3
Eliminate answers that skip statutory requirements, mix individual and entity rules, ignore basis, overlook filing deadlines, or choose a tax result without checking limitations.
Exam cue: Check limitations, character, timing, basis ordering, related-party rules, and whether the amount belongs on an individual or entity return.
Risk pitfalls and guardrails
Calculating taxable income before separating exclusions, adjustments, deductions, credits, and separately stated items.
Guardrail: Use a 15-second safety pause before finalizing your action.
Applying entity-level tax rules to owners, or owner-level limitations to the entity itself.
Guardrail: Use a 15-second safety pause before finalizing your action.
Ignoring statute of limitations, preparer penalty, Circular 230, estimated tax, or filing-status details that control the answer.
Guardrail: Use a 15-second safety pause before finalizing your action.
Memory anchors
Standard Deduction
The standard deduction reduces taxable income when itemizing is not used.
Itemized Deduction
Itemized deductions include allowable medical, tax, interest, charitable, and other listed deductions subject to limits.
Adjustment to Income
Adjustments to income are above-the-line deductions used in computing adjusted gross income.
QBI Deduction
The qualified business income deduction can reduce taxable income from eligible pass-through business income.
Child Tax Credit
The child tax credit applies when qualifying child and income requirements are met.
Education Credit
Education credits reduce tax for qualifying education expenses when requirements are satisfied.
EITC
The earned income tax credit is a refundable credit subject to earned income, filing, residency, and due diligence rules.
Foreign Tax Credit
The foreign tax credit can reduce U.S. tax for qualifying foreign taxes paid or accrued.
Casualty Loss
Personal casualty losses are limited and generally require federally declared disaster treatment under current rules.
Loss Limitation
Loss limitations can include basis, at-risk, passive activity, capital loss, and excess business loss rules.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A self-employed taxpayer pays $8,000 of qualifying health insurance premiums and is not eligible for subsidized employer coverage. Where is the deduction generally taken?
A sole proprietor has $80,000 net Schedule C profit and deducts the allowable one-half of self-employment tax. How is that deduction classified?
Answer all questions to submit.
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Move forward only after this module is stable.
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