FEDERAL TAXATION

Federal tax law is complex and constantly evolving. These topics provide comprehensive coverage of
individual and special-situation tax issues.

TOPIC 39
Understanding Filing Status: Single, MFJ, MFS, HOH, QSS
Filing status is one of the most consequential decisions on a tax return, affecting tax brackets, standard deduction
amounts, and eligibility for numerous credits and deductions. This topic covers all five statuses with the qualifying
rules and helps taxpayers identify the most beneficial status available to them.

Overview of the five IRS filing statuses
Qualifying rules for Head of Household
Married Filing Jointly vs. Married Filing Separately: pros and cons
Qualifying Surviving Spouse (QSS) rules
Impact of filing status on tax brackets and standard deductions
Filing status and eligibility for tax credits
Changing filing status after divorce or death of a spouse

TOPIC 40
Standard Deduction vs. Itemized Deductions
The choice between taking the standard deduction and itemizing is a binary decision that can save or cost
thousands, and the 2017 Tax Cuts and Jobs Act dramatically shifted most filers toward the standard deduction. This
topic explains both options, the major itemized categories, and strategic techniques like bunching to maximize
deductions.

Standard deduction amounts by filing status and tax year
Additional standard deduction for age and blindness
Itemized deduction categories: SALT, mortgage interest, charitable, medical
SALT deduction cap: $10,000 limitation
Bunching deductions strategy
Qualified Business Income (QBI) and its interaction
When itemizing makes sense: the break-even analysis

TOPIC 41
Federal Tax Brackets & Marginal vs. Effective Tax Rates
Many taxpayers misunderstand how progressive tax brackets work, believing all income is taxed at their highest
rate rather than only the income within each bracket. This topic demystifies marginal vs. effective tax rates and
introduces basic bracket management strategies.

How progressive tax brackets work
Current ordinary income tax brackets
Marginal tax rate vs. effective (average) tax rate
Taxable income calculation: AGI minus deductions
Capital gains tax rates vs. ordinary income rates
Bracket management strategies
Tax bracket planning for retirement income

TOPIC 42
W-2 Employees vs. 1099 Independent Contractors
The distinction between employee and independent contractor status has major tax implications, with 1099 workers
bearing both halves of Social Security and Medicare taxes. This topic explains the IRS classification rules, the
self-employment tax burden, and the unique deductions available to independent contractors.

IRS worker classification criteria (behavioral, financial, relationship)
Tax withholding for W-2 employees vs. self-responsibility for 1099
Self-employment tax burden for 1099 workers (15.3%)
Deductions available only to self-employed workers
Worker misclassification: IRS penalties and SS-8 process
Hybrid situations: W-2 plus 1099 income
Quarterly estimated tax obligations for independent contractors

TOPIC 43
Self-Employment Tax & Schedule SE
Self-employment tax covers both the employer and employee portions of Social Security and Medicare, adding
15.3% to the federal tax burden for sole proprietors and independent contractors. This topic walks through the
Schedule SE calculation, the above-the-line deduction, and structures that can reduce SE tax legally.

Self-employment tax rate: 12.4% Social Security + 2.9% Medicare
Net earnings from self-employment calculation
Schedule SE: completing the form
Deducting 50% of SE tax from AGI
Additional Medicare Tax (0.9%) for high earners
Self-employment tax for S-corp owners vs. sole proprietors
Reducing SE tax through S-corp election

TOPIC 44
Estimated Quarterly Taxes: Who Owes & How to Pay
Taxpayers without sufficient withholding — including the self-employed, retirees with investment income, and gig
workers — must make quarterly estimated tax payments or face underpayment penalties. This topic explains who
owes estimates, how to calculate them using safe harbor methods, and how to pay them efficiently.

Who must make estimated tax payments
Safe harbor rules: 100% and 110% of prior year tax
Calculating estimated payments using Form 1040-ES
Quarterly due dates and penalties for underpayment
Methods for paying: IRS Direct Pay, EFTPS, credit card
Adjusting estimates mid-year after income changes
State estimated tax payments coordination

TOPIC 45
Child Tax Credit & Dependent Care Credits
The Child Tax Credit and Dependent Care Credit provide meaningful tax relief for families with children and
dependent care expenses, but their calculation involves income phase-outs and eligibility rules that require careful
planning. This topic covers both credits in detail, including their refundable components and interaction with
dependent care FSAs.

Child Tax Credit: amount, income phase-outs, and qualifying children
Refundable portion: Additional Child Tax Credit
Child and Dependent Care Credit: qualifying expenses and rates
Dependent care FSAs and their interaction with the credit
Credit for Other Dependents (non-child dependents)
ITIN requirements for child tax credits
Legislative changes affecting child tax credit amounts

TOPIC 46
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is one of the most valuable refundable credits for low-to-moderate income workers,
yet it is frequently misclaimed due to complex eligibility rules. This topic covers EITC qualification, credit
calculation, common errors, and the special rules that apply to childless workers.

EITC eligibility: income, filing status, and qualifying children
EITC credit amounts by filing status and number of children
Investment income limitation
Common EITC errors that trigger audits
EITC for workers without children
Due diligence requirements for paid tax preparers
Retroactive EITC claims and amended returns

TOPIC 47
Education Tax Credits & Deductions
The federal tax code provides several education incentives including the AOTC, LLC, and student loan interest
deduction, each with distinct eligibility rules and income phase-outs. This topic explains how to choose the right
education tax benefit and avoid the coordination pitfalls that can disqualify a credit.

American Opportunity Tax Credit (AOTC): rules and limits
Lifetime Learning Credit (LLC): rules and phase-outs
AOTC vs. LLC: choosing the right credit
Student loan interest deduction
529 plan tax benefits at the federal and state level
Employer education assistance exclusion
Coordination rules when using multiple education benefits

TOPIC 48
Alternative Minimum Tax (AMT)
The Alternative Minimum Tax is a parallel tax system designed to ensure high-income taxpayers cannot eliminate
their entire tax liability through deductions, but it can unexpectedly affect middle-income taxpayers in certain
situations. This topic explains how AMT is calculated, its common triggers, and planning strategies to minimize or
avoid it.

What the AMT is and why it was created
AMT exemptions and phase-outs
Calculating tentative minimum tax
Common AMT triggers: ISOs, large deductions, SALT
AMT and incentive stock options (ISOs)
AMT credit (Form 8801) and carryforward
Planning strategies to minimize AMT exposure

TOPIC 49
IRS Audits: Types, Triggers & How to Respond
An IRS audit is a formal review of a tax return that can range from a simple letter requesting documentation to a
comprehensive field examination. This topic demystifies the audit process, explains common triggers, and equips
taxpayers and their advisors to respond effectively and assert their rights.

Audit selection methods: DIF scores, random, related examinations
Three audit types: correspondence, office, field
Most common individual audit triggers
Documentation and recordkeeping best practices
Your rights during an audit (Taxpayer Bill of Rights)
Representing yourself vs. hiring a CPA or EA
Audit outcomes: agreement, disagreement, and appeals

TOPIC 50
Tax Penalties, Interest & IRS Notices
IRS penalties and interest compound quickly on unpaid tax liabilities, and many taxpayers do not realize they can
request abatement for first-time or reasonable-cause situations. This topic explains the most common penalties,
how interest is computed, and the strategies available to reduce or eliminate penalty amounts.

Failure to file vs. failure to pay penalties
Accuracy-related penalties (20% of underpayment)
Fraud penalties and their enhanced rates
IRS interest: how it accrues on balances owed
Understanding common IRS notices (CP2000, CP3219, LT11)
Penalty abatement: first-time abatement and reasonable cause
Responding to IRS notices within deadlines

TOPIC 51
Tax Resolution: Installment Agreements & OIC
When taxpayers cannot pay their full IRS balance, several resolution options exist ranging from installment
agreements to Offers in Compromise that settle for less than the full amount owed. This topic explains each
resolution pathway, the IRS financial analysis used to evaluate them, and how to select the most appropriate option.

IRS collection process: notice sequence and timelines
Streamlined installment agreements: eligibility and setup
Currently Not Collectible (CNC) status
Offer in Compromise (OIC): doubt as to collectibility
Offer in Compromise: doubt as to liability
Calculating reasonable collection potential (RCP)
Partial Pay Installment Agreements (PPIA)

TOPIC 52
Innocent Spouse Relief
Innocent spouse relief provides protection for taxpayers who are held jointly responsible for a spouse’s or former
spouse’s tax understatement due to erroneous or fraudulent reporting. This topic explains the three forms of relief
available, their eligibility requirements, and the important distinction between innocent and injured spouse claims.

When innocent spouse relief applies: joint and several liability
Traditional innocent spouse relief (IRC §6015(b))
Separation of liability relief (IRC §6015(c))
Equitable relief (IRC §6015(f))
Injured spouse allocation (Form 8379) vs. innocent spouse
Deadline for filing innocent spouse claims
Divorce decree provisions and IRS collection

TOPIC 53
Clergy & Minister Tax Issues
Ministers occupy a uniquely complex tax position — treated as employees for income tax purposes but as
self-employed for Social Security and Medicare, with the added benefit and complexity of the housing allowance
exclusion. This topic is essential for clergy and their tax advisors, covering housing allowance rules, SE tax
obligations, and retirement planning strategies.