Course Updates-2

Becker Professional Education
Regulation Course Updates—June 2023
The purpose of this document is to provide you with a list of items that have been updated in the June
2023 Regulation textbook version (V4.4). Additions, changes, and clarifications in the text have been
indicated with yellow highlight. All other text is unchanged from V4.3.
Becker students who have a version 4.3 Regulation textbook may purchase the new version 4.4 textbook
for a nominal cost. Please see the Becker website for more details.
CPA Exam Review Replacement Textbook Pages
Details on the replacement textbook pages are provided below.
Course Update
V4.4 Location V4.3 Location Description of Update Document
Page Number
Cost-of-living and other inflation adjustments

have been made to tax rates, phase-out
Regulation
Same thresholds, mileage rates, etc., to reflect the
Units R1 – R6 N/A
latest information released by the IRS and other
government and regulatory agencies.
The content related to item 2 ‘Nontaxable

R1 Module 2
Same Fringe Benefits’ has been updated to reflect the 4
Page 16
tax provisions of the Secure Act 2.0.
The content related to item 2.10.4 ‘Exception to

R1 Module 2
Same Penalty Tax’ has been updated to reflect the tax
Page 23 5
provisions of the Secure Act 2.0.
The content related to item 2 ‘Section 199A

R1 Module 4 R1 Module 4 Qualified Business Income Deduction for Flow-
Page 50 Pages 50-53 Through Business Entities’ was streamlined in N/A
order remove content that’s not testable.
The content related to item 3.5 ‘Early

R2 Module 1
Same Distribution Penalty’ has been updated to reflect
Page 8 6
the tax provisions of the Secure Act 2.0.
R2 Module 1 The text of item 5.2 ‘Excludable Distributions’

Same
Page 10 has been updated for technical accuracy. 7
The text of item 9 ‘Self-Employed Retirement

R2 Module 1
Same Plans’ has been updated to reflect the tax
Page 11 8
Course Update
Page Number
Example 2 in item 9 ‘Self-Employed Retirement

R2 Module 1
Same Plans’ has been updated to reflect the tax
Page 12 9
R2 Module 2 The text and layout of Example 1 has been

Same
Page 23 updated for technical accuracy and clarity. 10
The text of 2.8 ‘General Business Credit’ was

R2 Module 3 updated to reflect the change in name of the
Same
Page 38 alcohol fuels credit to the alternative fuels 11
credit.
The text of item 2.14.3 ‘Small Employer

R2 Module 3 Retirement Plan Start-up Costs Credit’ was
Same
Page 43 updated to reflect the tax provisions of the 12
Secure Act 2.0.
The text of Item 2.16 ‘Residential Energy

R2 Module 3 Credits’ was updated to reflect new regulations
Same
Page 44 and item 2.17 ‘Vehicle and Fuel-Related 13
Credits’ was added to reflect new regulations.
The text of Item 3.1.2 ‘Employee Taxation’ and

R2 Module 4
Same Illustration 2 were updated to remove details
Page 51 14
related to AMT as it is no longer testable.
The text of Item 1.4.1 ‘General Business Credit’

was updated to reflect the revised name of the
R4 Module 4
Same Alternative fuels credit and to remove the
Page 28 15
Alternative motor vehicle credit which is no
longer available.
The text of Item 5.3 ‘Shareholder Basis in S

R5 Module 1
Same Corporation Stock’ was updated to correct the
Page 9 16
ordering rules for shareholder basis.
The text of Item 3.4 ‘Employer Liability for

R7 Module 1
Same Independent Contractors’ was updated to
Page 13 17
improve clarity.
Course Update
Page Number
The text of item 1.15 ‘Accord and Satisfaction

R7 Module 3
Same and Substituted Contract’ was revised for
Page 33 18
accuracy.
R7 Module 4 The text of item 1 ‘Introduction’ was updated to

Same
Page 39 improve clarity. 19
R7 Module 6 The text of item 2 ‘Creation (Attachment of the

Same
Page 67 Security Interest)’ was revised for accuracy. 20
R1 through R4, Updates for inflation adjustments were made to

R6 and R7 Same various flashcards in units R-1 through R-4, R-6
21 - 67
flashcards and R-7.
2 Gross Income: Part 1 REG 1
Employer-Provided Parking
The value of employer-provided parking up to $300 per month (2023) may be excluded.
The exclusion is available even if the parking benefit is taken by the employee in place of
taxable cash compensation.
Transit Passes
The value of employer-provided transit passes up to $300 per month (2023) may be excluded.
Qualified Retirement Plans
y Payments Made by Employer (Nontaxable)
Generally,
y payments
p y made by y an employer
p y to a non-Roth retirement plan are not
LQFRPHWRWKHHPSOR\HHDWWKHWLPHRIbFRQWULEXWLRQ
y Benefits Received (Taxable)
The amount contributed to the non-Roth retirement account that is exemptp from tax
(plus any
(p y income earned on such amount)) is taxable to the employee in the year in
which the amount is distributed to the employee.
Flexible Spending Arrangements (FSAs)
A flexible spending arrangement stems from a Section 125 employee flexible benefit plan.
The plan allows employees to receive a pretax reimbursement of certain (specified)
incurred expenses.
y Pretax Deposits Into Employee's Account
Employees have the ability to elect to have part of their salary (generally up to $3,050
for 2023) deposited pretax into a flexible spending account designated for them. These
deposits must be done via salary reduction directly by the employer, and the employee
is not taxed on that income. The employee has the option to use the deposited funds to
pay for qualified health care and/or qualified dependent care costs, and submits claims
to the plan administrator for reimbursement.
y Forfeit Funds Not Used Within 2½ Months After Year-End
An employee generally must use the money in an FSA within the plan year. Funds not
used within 2½ months after the year-end are forfeited. However, this grace period only
applies if the employer amended the plan accordingly. Alternatively, the employer may
amend the plan to allow an employee to carry over up to $610 per year (2023) to use in
WKHIROORZLQJb\HDU
2.3 Interest Income

2.3.1 Taxable Interest Income
The items below represent taxable interest income:
Interest from federal bonds.
Interest from industrial development bonds.
Interest from corporate bonds.
Part of the proceeds from an installment sale is taxable as interest.
Interest paid by the federal or state government for late payment of a tax refund is taxable.
For certain taxpayers and certain bonds, the amortization of a bond premium is an
offset (reduction) to the interest received and a reduction to the bond's basis, and the
amortization of a bond discount is an addition to the interest received and an addition to
the bond's basis.
R1–16 Module 2 Gross

© Becker Professional Education Corporation. All rightsIncome:
reserved.Part 1
REG 1 2 Gross Income: Part 1
2.10.4 Exception to Penalty Tax (Still Subject to Ordinary Income Tax)

There is no penalty if the premature distribution was used to pay:
Homebuyer (first time): Distribution used toward the purchase of a first home within 120
days of distribution ($10,000 maximum exclusion)
Insurance (medical)
y Unemployed with 12 consecutive weeks of unemployment compensation
y Self-employed (who are otherwise eligible for unemployment compensation)
Medical expenses in excess of percentage of AGI floor
Disability
y (p
(permanent or indefinite, not temporary disability); federally declared disaster
($22,000 maximum)
Education: College tuition, books, fees, etc.
Adoption or birth of child made within one year from the date of birth or adoption ($5,000
maximum exclusion)
Death or terminal illness
2.11 Annuities
An annuity is a contract between a taxpayer and an insurance company in which the taxpayer
contributes a lump-sum payment (or series of payments) and in return receives regular annuity
payments over time. There are two basic types of annuities: 1) fixed period annuities, in which
payments are received over a fixed period of time; and 2) life annuities, in which payments are
received over the taxpayer's lifetime.
Each annuity payment received by the taxpayer consists of return of investment (contributions),
which are nontaxable, and earnings, which are taxed as ordinary income. How much of each
annuity payment is nontaxable return of investment and how much is taxable earnings depends
on whether the annuity is a fixed period annuity or a life annuity.
2.11.1 Fixed Period Annuity Payments

The annuity exclusion ratio, which is the portion of each annuity payment that is a nontaxable
return of investment, is the original investment divided by the expected value of the annuity. For
a fixed period annuity, the expected value of the annuity is the amount of each payment times
the number of payments.
Example 3 Fixed Period Annuity
Facts: Zoe purchased an annuity for $60,000 that would pay her $750 per month for
bPRQWKV\HDUV
Required: Calculate the amount of the taxable portion of each annuity payment received.
Solution:
Expected value of the annuity = $750 monthly annuity payment × 120 months = $90,000
Annuity exclusion ratio = $60,000 original investment / $90,000 expected value = 66.7%
return of capital
Taxable portion of each annuity payment = 100% – 66.7% = 33.3% × $750 monthly payment
b$249.75
© Becker Professional Education Corporation. All rights reserved. Module 2 R1–23

1 Adjustments REG 2
3.3.2 Distributions From Roth IRA

Distributions from Roth IRAs are considered to first come from principal (contributions), then
earnings. Distributions of principal (contributions) from a Roth IRA are non-taxable because no
deduction was taken when the contributions were made. Distribution of earnings from a Roth
IRA are nontaxable if the distribution is a "qualified distribution."
A "qualified distribution" is a distribution from a Roth IRA that:
1. is made at least five years after the first day of the year of the taxpayer's first contribution to
the Roth; and
2. meets one of the following requirements:
y Taxpayer is age 59½ or older
y Taxpayer is disabled
y Taxpayer is a "first-time" homebuyer (has not owned a home for two years) and uses
the distribution to purchase a home (limited to $10,000)
y Distribution is made to a beneficiary after the taxpayer's death
A distribution that does not meet these requirements is a "nonqualified distribution" and any
earnings distributed are taxable ordinary income.
The required minimum distributions starting on April 1 of the year after the taxpayer reaches
age 73 do not apply to Roth IRAs.
3.4 Nondeductible Traditional IRA Deductible Traditional

If a taxpayer's deduction for a contribution to a traditional IRA is
Roth
limited, a nondeductible traditional IRA contribution can be made
instead. The overall limitation still applies to the combined deductible Nondeductible Traditional
DQGQRQGHGXFWLEOHFRQWULEXWLRQVbRUbHDUQHGbLQFRPH
Earnings on nondeductible traditional IRA contributions accumulate tax free until withdrawn.
Distributions from a nondeductible traditional IRA will be taxed as follows:
y Taxable: Earnings (taxed as ordinary income)
y Nontaxable: Principal contributions (because not deducted when contributed)
A distribution is allocated between principal (contributions) and earnings pro rata based on
relative amounts in the IRA account at the time of the distribution.
Minimum distributions are required to be taken by April 1 of the year following the year in
which the taxpayer reaches age 73.
3.5 Early Distribution Penalty

Distributions taken before the taxpayer reaches the age of 59½ are subject to a 10 percent
penalty. The penalty applies to taxable distributions from traditional (deductible and
nondeductible) and Roth IRAs. Early distributions are exempt from penalty if used for:
Qualifying medical expenses or health insurance premiums if unemployed
Disability, terminal illness, or death
Qualified higher education expenses
First-time home purchases (limited to $10,000) or a federally declared disaster (limited
to $22,000)
Qualified birth or adoption of child within one year of birth or adoption (limited to $5,000)
R2–8 Module 1 Adjustments

© Becker Professional Education Corporation. All rights reserved.
1 Adjustments REG 2
5 Health Savings Accounts
5.1 Pretax Contribution

Health savings accounts (HSAs) enable workers with high-deductible health insurance plans
to make pretax contributions of up to $3,850 in 2023 ($7,750 for families) to cover health care
costs. These amounts are increased by $1,000 for taxpayers age 55 or older. No contributions
are allowed once a taxpayer becomes covered by Medicare Parts A or B.
5.2 Excludable Distributions

Any amount paid or distributed out of an HSA that is used exclusively to pay the qualified
medical expenses of any account beneficiary is not includable in gross income. Note that
distributions for qualified drugs include only those prescribed by a physician.
Distributions made p prior to age
g 65 that are not used to p
pay
yqqualified medical expenses are
includable in gross income and subject to an additional 20 percent tax.
5.3 High-Deductible Plan Defined

A high-deductible health insurance plan is a plan that has at least a $1,500 annual deductible for
self-only coverage and a $3,000 annual deductible for family coverage plans (2023).
Out-of-Pocket Limitation: Annual out-of-pocket expenses paid under the plan must be
limited to $7,500 for self-only coverage plans and $15,000 for family coverage plans (2023).
Out-of-pocket expenses include deductibles, co-payments and other amounts (other than
premiums) that must be paid for plan benefits.
5.4 Archer Medical Savings Account (MSA) Contributions

No new Archer MSAs could be established after the year 2007; however, any accounts
established prior to 2008 are allowed to continue.
Archer MSAs are similar to IRAs, but they are used for health care. Typically, they are used
only if an HSA is unavailable, as HSAs are generally more flexible.
Qualified participants are self-employed individuals or employees of small businesses (fewer
than 50 employees).
These accounts were designed to be and must be used in conjunction with a high-deductible
(2023: $2,650–$3,950 self-only coverage/$5,300–$7,900 family coverage) health
insurance plan.
The maximum out-of-pocket expenses limit is $5,300 for self-only coverage plans and $9,650
for family coverage plans (2023).
6 Moving Expenses
Moving expense deductions are only allowed for members of the Armed Forces (or spouses and
dependents) on active duty who move pursuant to a military order and incident to a permanent
change of station.

REG 2 1 Adjustments
7 Self-Employment Tax (50 Percent)
Self-employed taxpayers with net business income are subject to two taxes: income tax and
self-employment (Social Security and Medicare) tax. Fifty percent of the self-employment tax is
deducted to arrive at adjusted gross income.
8 Self-Employed Health Insurance
Self-employed individuals may deduct all of the health insurance premiums paid for the
taxpayer, spouse, and dependents, provided that the plan is set up in the name of the
self-employed individual or the individual's business. The deduction is limited to the amount of
the taxpayer's self-employment income. The health insurance premiums are deducted above
the line (adjustment), rather than as an itemized deduction subject to a percentage of AGI floor.
9 Self-Employed Retirement Plans
Self-employed
p y taxpayers
p y are allowed to deduct contributions made to q qualified self-employed
p
non-Roth retirement p plans as an above-the-line deduction (adjustment)
( j ) for AGI. As with
employer-sponsored
p y p non-Roth p plans, the earnings
g are not taxed until theyy are distributed.
Distributions from the pplan are fully
y taxable as ordinary
y income and are subject
j to the same
early
y and late distribution p
penalties as other retirement pplans. For p
plans that are designated as
Roth, contributions are not deductible and qualified distributions are nontaxable.
The maximum amount that a self-employed taxpayer can contribute to a self-employed
retirement plan each year depends on the type of plan. The most common self-employed
retirement plans are simplified employee pension (SEP) IRAs, savings incentive match plan for
employees (SIMPLE) IRAs, and Solo 401(k)s.
9.1 SEP IRA

The 2023 maximum contribution to a SEP IRA is the lesser of:
20 percent of self-employment net income reduced by one-half of self-employment tax
deduction; or
$66,000 ($73,500 for taxpayers age 50 or older).
9.2 SIMPLE IRA

The 2023 maximum contribution to a SIMPLE IRA is the lesser of:
deduction; or
$15,500 ($19,000 for taxpayers age 50 and older).
9.3 Solo 401(k)

The 2023 maximum contribution to an individual 401(k) is the lesser of:
deduction; or
$66,000 ($73,500 for taxpayers age 50 or older).

1 Adjustments REG 2
Example 2 &DOFXODWLQJ0D[LPXP$OORZDEOH&RQWULEXWLRQWRb6(3Ζ5$
Facts: Peter has self-employment

p y net income ((after the deduction for one-half of the
self-employment
self-
f employment tax, but before any SEP IRA contribution) of $100,000.
Required:
q Calculate Peter's maximum allowable contribution to his SEP IRA self-employed
self-
f employed
retirement plan for 2023.
Solution:
Self-employment
p y net income (after deduction for one-half $100,000
of self-employment tax)
Times × 20%
Maximum allowable contribution $ 20,000
10 Penalty on Early Withdrawal of Savings

(Interest Income): Interest Forfeited
An example of forfeited interest is the interest penalty on early withdrawal of savings when
funds in a certificate of deposit are withdrawn before maturity.
11 Alimony
Alimony payments to a former spouse are adjustments deductible to arrive at AGI only for
divorce or separation agreements executed on or before December 31, 2018.
11.1 Alimony/Spousal Support (Income to Payee/Adjustment to Payor)

Payments for the support of a former spouse are income to the spouse receiving the payments
and are deductible to arrive at adjusted gross income (adjustment) by the contributing spouse.
The following conditions must exist for alimony to be deductible:
Payments must be legally required under a written divorce (or separation) decree
or agreement;
Payments must be in cash (or its equivalent);
Payments cannot extend beyond the death of the payee-spouse;
Payments cannot be made to members of the same household; and
Payments must not be designated as anything other than alimony.

REG 2 2 Itemized Deductions
(continued)
Ordinary Income Property: The personal furniture contributed to Goodwill, a public charity,
has depreciated in value, so it is ordinary income property and is subject to the 50 percent
of AGI limitation. The amount of the contribution is the lesser of the cost basis or the FMV
at the date of contribution, which is $10,000.
4. Limitation for contributions subject to 50% limit:

AGI $100,000 × 50% $50,000
Less: cash contribution allowed (line 3) (15,000) $35,000
5. Contribution of ordinary income property to Goodwill (FMV) 10,000
6. Allowable deduction for ordinary income property contribution
(lesser of 4 or 5) 10,000
LTCG Property: The sculpture contributed to the Art Museum, a public charity, is a long-term
investment or personal-use asset that has appreciated in value, so it is long-term capital
gain (LTCG) property and is subject to the 30 percent of AGI limitation. The amount of the
contribution is the FMV at the date of contribution, which is $30,000.
7. Limitation for contributions subject to 30% limit:

Lesser of:
y AGI $100,000 × 30% $30,000 (a)
y AGI $100,000 × 50% $50,000
Less: cash contribution allowed (line 3) (15,000)
Less: ordinaryy income property contribution
allowed (line 6) ((10,000
(10,000)) 25,000 (b)
8. Limitation of deduction (lesser of a or b) $25,000
9. Contribution of LTCG property to Art Museum (FMV) 30,000
10. Allowable deduction for LTCG property contribution
(lesser of 8 or 9) $25,000
11. Total charitable contributions deduction:

Cash $15,000
Ordinary income property 10,000
LTCG property 25,000
Total charitable contribution deduction $50,000
12. Charitable contribution carryforward:
LTCG property contribution (FMV) $30,000
Less: amount deducted in current year (25,000)
LTCG property contribution carryforward $ 5,000

3 Tax Computation and Credits REG 2
2023 Adjusted Gross Income (AGI)

Head Married
Credit Rate Single or MFS of Household Filing Jointly Maximum Credit
50% $0–$21,750 $0–$32,625 $0–$43,500 $2,000 × 50% = $1,000
20% $21,751–$23,750 $32,626–$35,625 $43,501–$47,500 $2,000 × 20% = $400
10% $23,751–$36,500 $35,626–$54,750 $47,501–$73,000 $2,000 × 10% = $200
0% Over $36,500 Over $54,750 Over $73,000 $2,000 × 0% = $0
2.7 Foreign Tax Credit

A taxpayer may claim a credit for foreign income taxes paid to a foreign country or United States
possession. There is a limitation on the amount of the credit an individual can obtain. In lieu of
this credit, an individual can deduct the taxes as an itemized deduction.
Allowable Credit
There is no limit on foreign taxes used as a deduction; however, foreign tax credits are
limited to the lesser of:
y Foreign taxes paid, or
Taxable income from all

y foreign operations
× U.S. tax = Foreign tax credit limit
Total taxable worldwide income
Carryover of Excess (Disallowed) Credit

Any disallowed foreign tax credit may be carried over as follows:
y Carry back one year
y Carry forward 10 years
2.8 General Business Credit

2.8.1 Included Credits
The general business credit is a combination of:
Investment credit
Work opportunity tax credit
Alternative fuels credit
Increased research credit (generally 20 percent of the increase in qualified research
expenditures over the base amount for the year)
Low-income housing credit
R2–38 Module 3 Tax Computation

© Becker Professional Education Corporation. and Credits
All rights reserved.
REG 2 3 Tax Computation and Credits
2.14 Small Employer Retirement Plan Start-up Costs Credit

Eligible small businesses are allowed a tax credit related to the start-up costs of establishing a
new qualified retirement plan. The credit is available for the first three years of the plan (may
elect to start claiming the credit in the tax year before the year the plan becomes effective).
2.14.1 Eligible Employers

No more than 100 employees who received at least $5,000 in compensation in the
preceding year; and
At least one plan participant is a non-highly compensated employee.
2.14.2 Eligible Start-up Costs

Eligible start-up costs include the ordinary and necessary costs to set up and administer the
plan, and to educate employees about the plan.
An employer can choose to either deduct the start-up costs or claim the credit for those costs,
but cannot do both.
2.14.3 Amount of the Credit

The credit is the greater of:
50 p
percent of the first $1,000 of eligible
g start-up
p costs for employers
p y with 51 to
100 employees (100 percent for employers with 50 or fewer employees); or
The lesser of:
y $250 for each employee who is eligible for the plan and not a highly compensated
employee; or
y $5,000
Example 6 6PDOO(PSOR\HU5HWLUHPHQW3ODQ6WDUWXS&RVWV&UHGLW
Facts: Alice started a SEP IRA for her business in the current year that includes herself and two
employees. The eligible start-up costs were $1,200. Alice is not a highly compensated employee.
Required: &DOFXODWHWKHDPRXQWRI$OLFH
VVPDOOHPSOR\HUUHWLUHPHQWSODQVWDUWXSFRVWVbFUHGLW
Solution: The amount of the credit is $1,000, which is the greater of:
y 100 percent of the first $1,000 of eligible start-up costs: $1,000 × 100% = $1,000 or
y Lesser of: $250 × 3 employee-participants = $750, or $5,000
2.15 Small Business Health Care Tax Credit

A credit of up to 50 percent of the employer's costs of the plan premiums (or the average of
the group's premium for small businesses within the taxpayer's state) is allowed as a credit
for eligible employers, provided the employer contributes at least 50 percent of the costs of
health coverage on behalf of employees enrolled in a qualified health plan offered through
a Small Business Health Options Program (SHOP).
Smaller businesses receive the better tax benefits.

3 Tax Computation and Credits REG 2
The credit is not refundable, and the unused amount is carried back one year and then
carried forward for 20 years. (Tax-exempt organizations, however, will receive a refund
of the tax credit.)
The costs for family members, sole-proprietors, partners, S corporation owners with
greater than two percent ownership, and shareholders owning more than five percent of
corporations are excluded.
If the expenses were used to qualify for the credit, they are not allowable as tax deductions
for employee benefits expense.
2.16 Residential Energy Credits

2.16.1 Residential Clean Energy Credit
A credit of 30 p
percent of the installation costs for q
qualifying
y g solar, wind, and g
geothermal
energy-generating
gy g g systems
y in 2022 through 2032 is allowed. A reduced credit percentage is
allowed in 2033 (26%) and 2034 (22%).
2.16.2 Energy Efficient Home Improvement Credit

A credit for the costs of qualified energy efficiency improvements.
If p
placed in service in 2022, the credit is 10 percent of qualified costs with a lifetime credit
limit of $500.
If p
placed in service after December 31, 2022, the credit is 30 percent of qualified costs with
an annual credit limit of $1,200.
2.17 Vehicle and Fuel-Related Credits

2.17.1 Clean Vehicle Credit
A credit of up
p to $7,500 for new electric vehicles (($4,000 for p
previously
y owned electric vehicles)
placed in service after December 31, 2022. The credit is subject to modified AGI limitations.
2.17.2 Alternative Fuel Refueling Property Credit

A credit of 30 p
percent of the installation costs of "qualified
q alternative fuel vehicle refueling
property"
p p y installed in the home (e.g., electric vehicle recharging station). Maximum credit
RIb
2.18 Premium Tax Credit (PTC)

The premium tax credit is a refundable credit that helps eligible individuals and families with
low or moderate income afford health insurance purchased through a Health Insurance
Marketplace. The "credits" are available immediately when the insurance is purchased to help
eligible individuals pay for their monthly health insurance premiums.
R2–44 Module 3 Tax Computation

REG 2 4 Employee Stock Options
3.1.2 Employee Taxation

Generally, there is no taxation of the option as compensation. Basis of the stock is the
exercise price plus any amount paid for the option (if any).
Generally, any gain or loss on a subsequent sale of the stock is capital. If the holding period
requirements are not satisfied, any gain is ordinary, up to the amount that the stock's FMV
on the exercise date exceeds the option price.
Generally, if the options lapse, no deduction is available as the option was not taxed in the
first place. There may be a loss if any amount was paid for the option itself.
An employee may exercise up to $100,000 of ISOs in a year. Any amount exercised that
exceeds this amount will be treated as a nonqualifying option.
3.1.3 Employer Taxation

Generally, an employer does not receive a tax deduction for an ISO because it is not considered
compensation income to the employee.
Illustration 2 ΖQFHQWLYH6WRFN2SWLRQ
On July 1, Year 10, Mary was granted an Incentive Stock Option (ISO) to purchase 200 shares of
her employer's stock for $120 per share. The FMV of the stock on the date of grant was $120.
Mary exercised these options on August 7, Year 11. The stock was selling for $150 per share
on the exercise date. On November 1, Year 12, Mary sold all of the shares for $200 per share.
Mary does not recognize any ordinary income at the date of grant because this qualifies as
an ISO.
Mary's adjusted basis in the stock is the exercise price of $24,000 (200 shares × $120).
Mary has a long-term capital gain in Year 12 in the amount of $16,000, which is the selling
price of $40,000 (200 shares × $200) less the adjusted basis of $24,000. The holding period
requirements have been met.
Mary's employer receives no deduction for the granting of the option.
3.2 Employee Stock Purchase Plans

An ESPP may grant options to employees to purchase stock in the corporation.
3.2.1 Requirements
The plan must be written and approved by the shareholders.
An ESPP cannot grant options to any employee who has 5 percent or more combined voting
power of the corporation, parent, or subsidiary.
Generally, the plan must include all full-time employees other than highly compensated
employees and those with less than two years of employment.
The option exercise price may not be less than the lesser of 85 percent of the FMV of the
stock when granted or exercised.
The option cannot be exercised more than 27 months after the grant date.

4 Tax Computations and Credits REG 4
1.3 Flat Tax Rate and Taxable Income Regular tax

The taxable income of a corporation is arrived at by taking gross Accumulated earnings tax
income (basically the same items that would be included in an
individual's gross income) and deducting the same business Personal holding company tax
expenses that an individual would deduct. A corporation's
WD[DEOHLQFRPHLVVXEMHFWWRDIODWWD[RIbSHUFHQW3HUVRQDO
service corporations are also subject to a flat tax of 21 percent.
1.4 Tax Credits

1.4.1 General Business Credit
Included Credits
The general business credit consists of a combination of any of the following:
y Investment credit
y Work opportunity tax credit
y Alternative fuels credit
y Research and development tax credit (generally 20 percent of the increase in qualified
research expenditures over the base amount for the year)
y Low-income housing credit;
y Small employer pension plan start-up costs credit
y Other infrequent credits
Limitation
The credit may not exceed "net income tax" (regular tax less nonrefundable tax credits) less
25 percent of net regular tax liability above $25,000.
Unused Credit Carryover
Although some limits must be applied separately, unused credits may generally be carried
back one year and forward 20 years.
1.4.2 Research and Development Tax Credit (Part of General Business Credit)
The research and development (R&D) tax credit is designed to stimulate research and
development activity of U.S. companies by reducing their after-tax cost.
The credit is generally calculated as 20 percent of the increase in qualified research
expenditures over a defined base amount.
The research tax credit can also be calculated using the alternative simplified credit.
The R&D tax credit is first computed separately and then is subject to the limitations of the
general business credit because it is a component of the general business credit.
"Qualified small businesses," defined as businesses with less than $5 million in annual gross
receipts and having gross receipts for no more than five years, are able to use the R&D tax
credit to offset the FICA employer portion of payroll tax. The amount of credit that can be
used to offset payroll tax is capped at $250,000 for each eligible year.
R4–28 Module 4 Tax Computations

REG 5 1 S Corporations
5.3 Shareholder Basis in S Corporation Stock

The calculation of a shareholder's basis in S corporation stock is generally the same as partnerships:
Initial stock basis (contributions)

+ Additional contributions
+ Income items ((ordinary
y business income, separately
p y
stated income/gain items, and tax-exempt income)
ȫ Distributions to shareholders
ȫ Nondeductible expenses
ȫ Loss/deduction items (ordinary
( business loss, separately
stated loss/deduction items)
= Ending basis in S corporation stock
Unlike partnerships, S corporation shareholders do not include any S corporation debt in their
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5.4 Limitations on Pass-Through of Losses

For an S corporation shareholder to deduct a loss, the shareholder must clear four hurdles,
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1. Tax basis limitation
2. At-risk limitation
3. 3DVVLYHDFWLYLW\ORVV3$/OLPLWDWLRQ
4. Excess business loss limitation
The tax basis and at-risk limitations are applied at the entity level, and limit the ability of
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5.4.1 Tax Basis Limitation

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A loss in excess of the shareholder's tax basis is suspended until tax basis is reinstated in future
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k%HFNHU3URIHVVLRQDO(GXFDWLRQ&RUSRUDWLRQ$OOULJKWVUHVHUYHG Module 1 R5–9

REG 7 1 Agency
1. Activities
The conduct causing the injury need not actually have been authorized by the employer;
rather the conduct need only be (i) of the same general type the employee was hired to
perform; and (ii) actuated, at least in part, by a desire to serve the employer.
Illustration 10 Liability of Employer for Employee
Although a bar owner might not authorize a bouncer to beat up boisterous customers, the
owner nevertheless can be held liable if this occurs because the conduct is of the same
general nature as the bouncer's job.
y Intentional Torts
The employer usually is liable only for an employee's negligence and is not liable for
LQWHQWLRQDOWRUWVVLQFHLQWHQWLRQDOWRUWVDUHVHOGRPZLWKLQWKHVFRSHRIbHPSOR\PHQW
However, where the tort is authorized or where use of force is authorized (as with a
ERXQFHUWKHHPSOR\HUFDQbEHbOLDEOH
y Crimes
An employer generally is not liable in tort for an employee's conduct that constitutes a
serious crime (e.g., carrying an illegal weapon).
Pass Key
The examiners often ask about a principal's liability for its agent's torts. Remember,
if the agent is an employee and committed a tort while trying to serve the principal/
employer, the principal/employer generally will be liable unless the tort was unexpected
HJbLOOHJDObFRQGXFW
2. Time and Geographic Area

It is not enough simply that the conduct that caused the injury was of the same general
type the employee was hired to perform. The conduct must also have occurred within
usual employment time and space limits. Small detours from an employer's directions
(e.g., driving a few blocks out of the way, stopping for lunch, etc.) fall within the scope of the
employment. Major deviations (frolic) from an employer's directions (e.g., driving 15 miles
out of the way to attend a party) fall outside the scope of employment.
3. Cannot Limit Liability by Agreement With Employee

An agreement between the employer and employee that the employer will not be liable
for employee torts does not prevent a third party from holding the employer liable. The
employer can seek reimbursement from the employee.
3.4 Employer Liability for Independent Contractors

Although the general rule is that an employer is not liable for torts committed by independent
contractors, an employer can be liable for the torts of an independent contractor if the
employer
p y authorized the tortious act or if the work involved an ultra-hazardous (or inherently
dangerous) activity.

REG 7 3 Contracts: Part 2
1.15 Accord and Satisfaction and Substituted Contract

An accord is an agreement to substitute one performance ffor another, and satisfaction is the
execution of the accord. Accord and satisfaction discharge the original duty. Until the accord
is satisfied a party may sue under the original contract or the accord. A substituted contract is
very similar to an accord and satisfaction case, but the duties under the original contract are
discharged immediately. Whether an agreement is an accord or a substituted contract depends
on the intent of the parties.
Illustration 13 Accord and Satisfaction
Alex agrees to sell his car to Steve for $450. The parties agree to substitute a contract
for the sale of Alex's bike to Steve for $100. The new agreement is the accord; when it is
performed is the satisfaction.
1.16 Novation
Novation is available as a defense to a party who has been released from a contract. It occurs
when a new contract substitutes a new party for an old party in an existing contract. All parties
must agree to the release.
Illustration 14 Novation
Sam agrees to build a garage for Barb, but then gets a more lucrative construction job. Sam
asks Barb if it's OK to substitute Dee to build the garage. The parties agree to substitute
Dee and release Sam. There has been a novation.
A release or agreement to discharge one of the parties without replacing that party is not a
novation but rather a simple release. Such an agreement usually requires new consideration or
detrimental reliance to be enforceable.
1.17 Conditions Can Affect a Party's Duty to Perform

A condition is an event, the occurrence or nonoccurrence of which will end a party's duty to
perform. Conditions have different names depending on when they occur. Conditions are often
preceded by "if," "subject to," or similar language.
Illustration 15 Condition
"I will pay you $10 if you mow my lawn." Mowing the lawn is an express condition to
payment of the $10.
A condition precedent is a condition that must occur before the other party must perform.
Conditions concurrent are conditions that must occur simultaneously. For example, the payment
of money and exchange of goods in most face-to-face sales contracts are conditions concurrent.
The parties make the exchange simultaneously. A condition subsequent is a condition that will
occur after a party's duty to perform has arisen and will cut off that duty.

4
MODULE
Contracts: Part 3 REG 7
1 Introduction
The Sales Article of the UCC ((Article 2) applies only to sales of goods. You already know a
substantial part of the Sales Article because it generally follows common law contracts discussed
earlier in this unit. This module will highlight the differences between the two. If an issue is not
covered, assume that the Sales Article follows the contract rule.
1.1 Goods—Moveable Personal Property

The UCC Sales Article applies to the sale of goods, which is defined as all things moveable.
7KLVbLQFOXGHVPRVWWDQJLEOHSHUVRQDOSURSHUW\HJFDUVFRZVDQGJURFHULHV7KHIROORZLQJDUH
excluded from the Sales Article and are covered by common law contracts:
Contracts for personal services and real estate.
Contracts for intangible personal property, such as stock or patent rights.
Contracts for fixtures—things attached to the land.
1.2 Merchants—Deal in Goods of the Kind Sold

A number of UCC rules depend on whether one or more of the parties are merchants. You must
be careful to note the status of the parties. A merchant is one who deals in goods of the kind
sold or who has special knowledge regarding the goods being sold.
The UCC is not limited to merchants. It applies to all contracts for sale of goods.
1.3 Obligation of Good Faith

The UCC imposes an obligation of good faith on both parties to a sales contract. Merchant
sellers must also observe reasonable standards of fair dealing in the trade.
2 Creation of a Contract
2.1 Agreement (Mutual Assent)—Offer and Acceptance

2.1.1 Offer—Merchant's Firm Offer
Under the common law, consideration is needed to make an offer irrevocable. There is a limited
exception to this rule that only arises under the UCC—merchant's firm offers. Certain offers
by merchants are irrevocable without consideration. Merchant's firm offers are irrevocable for
the time stated, or if no time is stated, for a reasonable time, but in no event longer than three
months. To qualify as a merchant's firm offer:
The seller must be a merchant (regularly deals in goods of the kind sold);
The offer must be in writing and signed by the merchant; and
The offer must give assurances that it will be kept open for a certain time.

REG 7 6 Secured Transactions
1.4.1 Goods
Goods include consumer goods, inventory, and equipment. The category into which a particular
good falls is determined by how the debtor uses the item, not by the nature of the item.
Illustration 3 Classifying Goods
If a debtor uses a car as a delivery vehicle for his business, it is equipment. If he uses a car
for household purposes, it is consumer goods. If he buys a car to sell at his auto dealership,
LWLVbLQYHQWRU\
1.4.2 Intangible Collateral Accounts

An account is any right to payment for goods, services, real property, or use of a credit card
not evidenced by an instrument or chattel paper (e.g., the money you owe your doctor after
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1.4.3 Investment Property

Investment property includes stocks, bonds, mutual funds, etc.
1.4.4 Proceeds
Proceeds include whatever is received upon the sale, exchange, collection, or other disposition
of collateral.
2 Creation (Attachment) of the Security Interest
Recall that attachment establishes the right of a creditor in collateral vis-a-vis the debtor.
Generally, a security interest will attach to an item of collateral if the parties agree that the
security interest will attach. The agreement can be in writing (including electronic documents)
or it can be oral if the secured party takes possession of the collateral (which is called a
pledge). If the security agreement is in writing, it must be signed
g by the debtor. Additionally,
the debtor must have rights in the collateral, and the creditor must have given value for the
VHFXULW\bLQWHUHVW
2.1 Property in Which Debtor Acquires Interest in Future

(After-Acquired Property)
A secured party will sometimes want to obtain a security interest not only in a debtor's present
property, but also in property that the debtor will obtain in the future. This is permissible and
is facilitated by including an "after-acquired property clause" in the security agreement. The
security interest attaches to the after-acquired property as soon as the debtor acquires an interest
in the property.
2.2 Duties of Secured Party After Attachment

A secured party has a duty to file or send the debtor a termination statement when the debt is
paid, confirm for the debtor the unpaid amount left on the secured debt, and to use reasonable
care to preserve any collateral in the secured party's possession.

Gross Income: Part 2
Describe the self-employment (SE) tax.
FC-01997 REG 1-28

• SE tax = 2.9% Medicare tax + 12.4% Social Security tax
= 15.3% of net SE income
• Net SE income = SE income × 92.35%
• Only self-employment income up to $160,200 (2023)
is subject to the 12.4% Social Security tax.
• Adjustment for AGI for one-half of SE tax paid.
REG 1-28
To what property do the uniform

capitalization (UNICAP) rules apply?
FC-01998 REG 1-29

The UNICAP rules apply to real or tangible personal property
that is:
• Produced by the taxpayer for use in the taxpayer's trade
or business
• Produced by the taxpayer for sale to customers
(manufacturer's inventory)
• Purchased for resale to customers (retailer's inventory)
The UNICAP rules do not apply if the taxpayer's average gross
receipts for the previous three years is $29 million or less.
REG 1-29
Describe the limitation on the deduction

of business interest expense.
FC-01999 REG 1-31

• The business interest expense deduction is limited to the sum
of (1) business interest income; (2) 30% of adjusted taxable
income (ATI); and (3) floor plan financing interest expense.
• Disallowed business interest expense can be carried forward
indefinitely.
• Limitation does not apply if average gross receipts are
$29 million or less for the prior three taxable years.
REG 1-31
What taxpayers are exempt from the requirement

to use the percentage-of-completion method for
long-term contracts for tax purposes?
FC-02000 REG 1-32

• Small contractors
ż Expect to complete project within two years; and
ż 7D[SD\HU‫މ‬VDYHUDJHDQQXDOJURVVUHFHLSWVIRUWKUHH
previous years do not exceed $29 million.
• Home construction contractors
ż At least 80% of total contract costs are related to
construction or rehabilitation of dwelling units (excluding
hotels, etc., that are used on a transient basis).
REG 1-32
Items From Other Entities
What are the QBI deduction limitations based

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for a specified service trade/business (SSTB)?
FC-02001 REG 1-40

Taxable income at or below $182,100 ($364,200 MFJ):
• Full 20% of qualified business income (QBI) deduction
• Wage and property limit does not apply
Taxable income above $232,100 ($464,200 MFJ):
• No QBI deduction allowed
Taxable income $182,100–$232,100 ($364,200–$464,200 MFJ):
• QBI, wages, and qualified property amounts are reduced
• Wage and property limit phased in based on reduced amounts
REG 1-40
Items From Other Entities
:KDWDUHWKH4%,GHGXFWLRQOLPLWDWLRQVEDVHGRQWKHWD[SD\HU‫މ‬V
taxable income level for a qualified trade/business (QTB)?
FC-02002 REG 1-41

Taxable income no more than $182,100 ($364,200 MFJ):
• Full 20% of qualified business income (QBI) deduction
• Wage and property limit does not apply
Taxable income above $232,100 ($464,200 MFJ):
• Full wage and property limit applies
Taxable income $182,100–$232,100 ($364,200–$464,200 MFJ):
• Wage and property limit phased in if limitation amount is less
than 20% of QBI (so reduced QBI deduction)
REG 1-41
Adjustments
List the deductions for AGI.
FC-02003 REG 2-1

• Educator expenses • Penalty of early withdrawal of
savings
• Traditional IRA contribution
• Student loan interest • Alimony paid (only for divorce or
separation agreements executed
• Health savings account on or before December 31, 2018)
• Moving expenses (for military
• Attorney fees paid in
orders only) certain discrimination and
• One-half self-employment tax whistle-blower cases
• Self-employed health insurance
• Self-employed retirement
contribution
REG 2-1
Adjustments
What are the limits on contributions to SEP IRA plans?
FC-02004 REG 2-3

SEP IRA plans are retirement plans for self-employed (SE)
taxpayers and their employees.
Maximum contribution is lesser of:
• 20% of SE net income reduced by one-half of SE tax

deduction, or
• $66,000 ($73,500 for taxpayers age 50 or older) (2023)
REG 2-3
Adjustments
What is the maximum annual contribution

a taxpayer can make to IRAs?
FC-02005 REG 2-6

The maximum annual contribution a taxpayer can make to IRAs for 2023 is
the lesser of:
• $6,500 ($7,500 if age 50 or older); or
• Earned income (can use spouse’s earned income if MFJ)
Annual contribution limit applies to the sum of a taxpayer’s contributions to:
• Deductible traditional IRAs
• Nondeductible traditional IRAs
• Roth IRAs
REG 2-6
Adjustments
What are the limits on deduction of traditional IRA contributions?
FC-02006 REG 2-7

AGI limitations (phase-outs) apply to the deduction of traditional IRA contributions
if a taxpayer (or spouse, if married) participates in an employer-sponsored
retirement plan (ESRP).
• Unmarried taxpayer participates in an ESRP: AGI phase-out $73,000–$83,000
• Married taxpayer participates in an ESRP: AGI phase-out $116,000–$136,000
• Married taxpayer does not participate in an ESRP, but spouse does:

AGI phase-out $218,000–$228,000
• If a taxpayer (and spouse, if married) does not participate in an ESRP:

No AGI limit on deduction of traditional IRA contributions
REG 2-7
Adjustments
What are the limits on contributions to a Roth IRA?
FC-02007 REG 2-8

Contributions to a Roth IRA are subject to the following limitations:
• Maximum contribution limits for all IRAs are lesser of:

ż $6,500 ($7,500 if age 50 or older); or
ż Earned income (can use spouse’s earned income if MFJ)
• AGI limitations (phase-outs) for Roth IRA contributions only:

ż Unmarried: AGI phase-out $138,000–$153,000
ż MFJ: AGI phase-out $218,000–$228,000
REG 2-8
Itemized Deductions
What is the additional standard deduction

for elderly and/or blind?
FC-02008 REG 2-10

The standard deduction amount is increased by the following
amounts (2023) for taxpayers age 65 or older and/or blind:
• Unmarried taxpayers: $1,850 for each condition

(age 65+ or blind)
• Married taxpayers: $1,500 for each taxpayer, each condition
(age 65+ or blind)
REG 2-10
Itemized Deductions
What is the standard deduction for a taxpayer

who is the dependent of another taxpayer?
FC-02009 REG 2-11

If a taxpayer can be claimed on another person's return, the
standard deduction is limited to the greater of:
• $1,250 (2023), or
• Earned income plus $400.
REG 2-11
Tax Computation and Credits
What are the child and dependent care credit limitations?
FC-01859 REG 2-20

Maximum qualifying expenditures $3,000 ($6,000 for two or
more dependents).
• Maximum 35% credit rate if AGI is $15,000 or less.

• Credit is gradually phased out for high-income taxpayers but
not below 20%.
A qualifying person is one under age 13 who qualifies as a
dependent or a spouse or disabled dependent who is unable to
care for self.
REG 2-20
Who must make estimated tax payments?
FC-00999 REG 2-31

Taxpayers with:
1. $1,000 or more tax liability and the taxpayer's withholding

is less than the lesser of 90% of current year's tax; or
2. 100% of last year's tax [110% if last year's AGI is > $150,000
($75,000 for married filing separately)]
REG 2-31
What is the tax treatment of unearned income of a child

who falls under the "kiddie tax" rules?
FC-02010 REG 2-34

Net unearned income of a dependent child who falls under the
"kiddie tax" rules is taxed at the parent's marginal rate.
Net unearned income = Child's total unearned income less:
• the child's standard deduction of $1,250; and

• an additional $1,250 (taxed at the child's tax rate).
REG 2-34
Cost Recovery
What is the Section 179 expense deduction?
FC-02011 REG 3-27

Up to $1,160,000 of acquisition cost of personal property used
in a trade or business may be deducted in 2023.
Limitations:
1. Reduced $1 for each $1 of qualifying property placed in

service in excess of $2,890,000 (2023).
2. Deduction is limited to taxable income (before the deduction).
REG 3-27
Cost Recovery
Describe the bonus depreciation method

for federal income tax purposes.
FC-02012 REG 3-29

• Bonus depreciation expense is 80 percent (2023) of the cost
of qualified property placed in service during the year.
• Qualified property is personal property and qualified
improvements with a class life of 20 years or less.
• Bonus depreciation expense is claimed after Section 179
expense (if elected), and before regular MACRS
depreciation expense.
REG 3-29
Corporate Taxable Income
Describe the limitation on the deduction

of business interest expense.
FC-02014 REG 4-8

• The business interest expense deduction is limited to the sum
of (1) business interest income; (2) 30% of adjusted taxable
income (ATI); and (3) floor plan financing interest expense.
• Disallowed business interest expense can be carried forward
indefinitely.
• Limitation does not apply if average gross receipts are
$29 million or less for the prior three taxable years.
REG 4-8
Differences Between Book and Tax
Name some nondeductible trade or business expenses.
FC-02013 REG 4-10

• Bad debts, allowance method (only direct write-off method is deductible)
• Business entertainment
• Business meals (50%)
• Political contributions
• Executive compensation in excess of $1 million per year for the CEO,
CFO, and three other highest compensated officers
• Federal income taxes
• Penalties
• Estimated liabilities for contingencies (e.g., warranties)
REG 4-10
Trusts and Gifts
What is the annual exclusion for gifts?
FC-02015 REG 6-2

Gifts of up to $17,000 per year/per donee are excluded from gift tax
($34,000 if married and gift-splitting).
Unlimited exclusions:
• Amounts directly paid on behalf of a donee:
ż Tuition paid directly to an educational organization
ż Fees paid directly to a health care provider for medical care
of the donee
• Charitable gifts
• Marital deduction
REG 6-2
Trusts and Gifts
What is the difference between

a present interest gift and a future interest gift?
FC-02016 REG 6-3

• The postponement of a right to use, possess, or enjoy the
property distinguishes a future interest from a present interest.
• A present interest qualifies for the annual gift tax exclusion
($17,000 in 2023).
• A future interest (or a present interest without ascertainable
value) does not qualify for the annual gift tax exclusion.
REG 6-3
Federal Tax Procedures
Summarize the failure-to-file penalty.
FC-02017 REG 6-41

Generally, 5% of the amount of tax due for each month (or any portion
thereof) the return is not filed.
Generally, the penalty cannot exceed a maximum of 25% of the
amount of tax due.
The minimum penalty if the income tax return is more than 60 days
late is the lesser of $485 (2023) or 100% of the tax due.
If no tax is due, then there is no failure-to-file penalty.
If both the failure-to-file penalty and the failure-to-pay penalty are
due, the failure-to-file penalty is reduced by the amount of the
failure-to-pay penalty.
REG 6-41
A distinct contract in which the promisor promises to keep an
offer open in exchange for consideration from the promisee.
REG 7-24
Becker Professional Education
Regulation Course Updates—June 2023
CPA Final Review Replacement Textbook Pages
Details on the replacement textbook pages are provided below.
Course Update
Page Number
Cost-of-living and other inflation adjustments N/A

have been made to tax rates, phase-out
Regulation
Same thresholds, mileage rates, etc., to reflect the
Units I - V
latest information released by the IRS and other
government and regulatory agencies.
RII Topic D The text of Item 2.3 ‘The Tax’ was updated for
Same 70
Page D-1 inflation.
RIII Topic A The text of Item 1.1.1 ‘Individual Taxpayers’

Same 71
Page A-1 was updated for inflation.
RIII Topic B The text of Item 2 ‘Section 179 Expense

Same 72
Page B-1 Deduction’ was updated for inflation.
RIII Topic A The text of Item 3 ‘Bonus Depreciation’ was

Same 73
Page B-2 updated for inflation.
The text of item 1 ‘Annual, Inflation-Adjusted

RIII Topic C
Same Exclusion’ and item 3 ‘Gifts–Present vs. Future 74
Page C-1
Interest’ were updated for inflation.
RIV Topic A The text of item 2.1 ‘Dependency Definitions’

Same 75
Page A-2 was updated for inflation.
RIV Topic B The text of item 2.6.2 ‘Business Expenses’ was

Same 76
Page B-2 updated to remove a provision that expired.
The text of item 2.7 ‘Individual Retirement

RIV Topic B
Same Account (IRA) Distributions’ was updated to 77
Page B-3
reflect the tax provisions of the Secure Act 2.0.
Course Update
Page Number
RIV Topic D The text of item 1.2 ‘Retirement Plan

Same 78
Page D-1 Contributions’ was updated for inflation.
The amounts in the ‘Traditional IRA Income

Phase-Out Ranges for Married Individuals’
RIV Topic D
Same table, the text of item 1.2.3 ‘Nondeductible 79
Page D-2
Contributions’ and the IRA Summary table were
updated for inflation.
The text of items 1.2.4 ‘Self-Employed

RIV Topic D Retirement Plans’, 1.3 ‘Student Loan Interest’,
Same 80
Page D-3 and 1.6 ‘Health Savings Accounts (HSA)’ were
updated for inflation.
RIV Topic D The text of item 2.1 ‘Standard Deductions’ was

Same 81
Page D-4 updated for inflation.
The text of item 2.3.4 ‘Limitations Based on

RIV Topic D
Same Taxable Income Level’ was updated for 82
Page D-7
inflation.
RIV Topic E The text of item 2.6 ‘Earned Income Credit’ was
Same 83
Page E-2 updated for inflation.
RV Topic A The text of item 1 ‘Book Income vs. Taxable

Same 84
Page A-1 Income’ was updated for inflation.
Topic
Government
Federal Regulation
Laws and of Business XX
Regulations D
1 Worker Classification
1.1 Employee vs. Independent Contractor
For government regulation questions, know whether you are dealing with
an employee or an independent contractor. Businesses must consider:
Whether the business has the right to control the manner or method of
performing the work (employee) or not (independent contractor).
Whether the worker has his or her own tools (indicative of independent
contractor) or the business supplies them (indicative of employee).
Whether the worker is paid by the job (indicative of independent
contractor) or is salaried or is paid hourly (indicative of employee).
Whether the job is of limited duration (indicative of independent
contractor) or is continuous (indicative of employee).
Whether the worker receives benefits (indicative of employee).
2 Federal Insurance
Contributions Act (FICA)
FICA provides workers and their dependents with benefits in case of death,
disability, or retirement.
2.1 Participation and Funding

All employees must participate as well as self-employed persons earning
more than $400 profit in a year.
FICA is funded by taxing income.
2.2 Employer Responsibility/Deductibility

Employers are responsible for collecting and submitting the tax and
must match the tax imposed on employees. The employer’s match is a
deductible business expense.
2.3 The Tax

Forr 2023, employees must pay 6.2 percent of their taxable wages up to
$160,200 as FICA and 1.45 percent of their full, gross wages for Medicare.
There is an additional 0.9 percent Medicare surcharge for income exceeding
$200,000 for single persons and $250,000 for married persons filing jointly.
2.4 Self-Employed Persons

Self-employed persons pay both the employer’s and employee’s tax but
may deduct the employer’s tax as a business expense.
© Becker Professional Education Corporation. All rights reserved. Regulation Final Review II D-1
Topic
Acquisition and Disposition of Assets XX
Acquisition and Disposition of Assets A
1 Capital Gains and Losses

Gains/losses on property held by the taxpayer (e.g., a personal vehicle,
stocks and securities, real property not used in a trade or business,
partnership interests, and other investment assets) are reported on
Schedule D. The net gain or loss is calculated on Schedule D and reported
as a single amount on Form 1040.
1.1 Gains and Losses From Dispositions

Amount Realized
< Adjusted Basis of Asset Sold >
Gain
or
Loss
Amount realized includes cash, property (FMV), services provided (FMV),

and relief from liability.
Adjusted basis generally is the amount paid for the asset (cost) increased
for any improvements and decreased for any depreciation (allowed
or allowable).
1.1.1 Individual Taxpayers

For individual taxpayers, gains/losses are long-term or short-term.
Short-term gains and losses are for assets held for one year or less, and
they are taxed using the same rates as ordinary income. Long-term gains
and losses relate to assets held more than one year and are subject to a
preferential tax rate of 0, 15, or 20 percent depending on the taxpayer’s
taxable income. Although most taxpayers are subject to a 15 percent
preferential tax rate, a 0 percent preferential tax rate applies
pp to
taxpayers with a low taxable income, which in 2023 is $89,250 or less for
MFJ taxpayers; $59,750 for head of household; and $44,625 or less for
single taxpayers. A 20 percent preferential tax rate applies to taxpayers
p
with a high taxable income, which in 2023 is more than $553,850 for
MFJ taxpayers; $523,050 for head of household; and $492,300 for
single taxpayers.
Deduction of net long-term or short-term losses against ordinary income
is limited to $3,000 ($1,500 if married filing separately) for individual
taxpayers. Excess losses are carried forward indefinitely.
© Becker Professional Education Corporation. All rights reserved. Regulation Final Review III A-1
Topic
Cost Recovery XX
Cost Recovery B
1 MACRS
The MACRS method is typically applied to depreciable assets placed in
service after 1986. Questions on the CPA Exam generally focus on the half-
year, mid-month, and mid-quarter conventions.
1.1 Salvage Value

Salvage value is ignored for tax purposes.
1.2 Personal Property

Generally, the half-year convention applies for MACRS depreciation
(one-half year of depreciation is taken in the years of acquisition
and disposition).
The mid-quarter convention applies when more than 40 percent of
depreciable personal property is placed in service in the fourth quarter of
the year.
Cost recovery (depreciation expense) is calculated using 200 percent
double-declining balance for 3-, 5-, 7-, and 10-year property, switching
to straight-line when greater.
Qualified improvement property has a 15-year recovery period, using
150 percent declining balance and the half-year convention.
1.3 Real Property

Residential real property is depreciated using the straight-line method
over 27.5 years.
Nonresidential real property is depreciated using the straight-line
method over 39 years.
The mid-month convention applies (one-half month of depreciation is
taken in the month of acquisition and disposition).
2 Section 179 Expense Deduction

A taxpayer can elect to expense up to $1,160,000 (2023) of personal
property acquired during the year. The maximum deduction is reduced
dollar for dollar by the amount of personal property
p p placed
p in service
during the taxable year that exceeds $2,890,000 (2023). The Section 179
expense deduction is not allowed if a net loss exists or if the deduction
would create a net loss.
© Becker Professional Education Corporation. All rights reserved. Regulation Final Review III B-1
B Cost Recovery
3 Bonus Depreciation
A taxpayer can take 80 percent bonus depreciation (2023) for personal
property with a recovery period of 20 years or less (including 15-year
qualified improvements). Bonus depreciation is taken after Section 179
expense and before regular MACRS depreciation.
Question 1 MCQ-09639
Michael Sima, a sole proprietor craftsman, purchased an amount of

equipment in the current year that exceeded the maximum Section
179 expense allowance by $20,000. Sima’s total purchases of personal
property placed in service in the current year did not exceed the
Section 179 phase-out threshold. All of the personal property (including
the equipment) was purchased in November of the current year. Sima
elected the maximum Section 179 allowed for the year and elected
out of bonus depreciation. The Section 179 expense election did not
create or increase a net loss on Sima’s Schedule C for the current year.
Which method may Sima use to depreciate the remaining equipment in
the current year?
1. Sima may not depreciate any additional equipment other than
the Section 179 maximum in the current year and must carry
forward the excess amount to use in the following taxable year.
2. MACRS half-year convention for personal property.
3. MACRS mid-quarter convention for personal property.
4. Straight-line, mid-month convention for real property.
B-2 III Regulation Final Review © Becker Professional Education Corporation. All rights reserved.
Topic
Gift Taxation XX
Gift Taxation C
1 Annual, Inflation-Adjusted Exclusion

In determining the amount of gifts made in a calendar year, the donor may
exclude the first $17,000 (2023) of gifts made to each donee. This annual
exclusion is not available for a gift of a future interest (i.e., a gift that can
only be enjoyed by the donee at some future date), even if the donee does
receive a current ownership interest in the gift. A gift by either spouse may
be treated as made one-half by each. This gift splitting creates an exclusion
off $34,000 per donee (2023).
2 Unlimited Exclusion
Payments made directly to an educational institution.
Payments made directly to a health care provider for medical care.
Charitable gifts.
Marital deduction (must be a terminable interest).
3 Gifts—Present vs. Future Interest
3.1 Definition
The postponement of the right to use, possess, or enjoy the property
distinguishes a future interest from a present interest.
A present interest qualifies for the annual exclusion off $17,000 (2023).
A future interest (or a present interest without ascertainable value) does
not qualify for the annual exclusion.
3.2 Future Interest Gifts

Reversions (gifting assets and later getting the property back).
Remainders (distributed at some future time).
Trust income interests, where accumulation of income by a trustee is
mandatory and accumulations are distributed at some future time at the
discretion of the trustee.
© Becker Professional Education Corporation. All rights reserved. Regulation Final Review III C-1
A Filing Status and Dependents
2 Dependents
Certain tax benefits, such as an advantageous filing status or certain tax
credits, require either a qualifying child or qualifying relative. Each category
has requirements.
2.1 Dependency Definitions

Dependency requirements are as follows:
Qualifying Child Qualifying Relative

Close Relative: Son, daughter, stepchild, brother, Support: Taxpayer must provide > 50%. To claim
sister, stepbrother/sister, or a descendant of these. someone as a dependent in multiple support
Also includes adopted and foster children. situations, one must provide > 10%.
Age Limit: In general, child must be < 19 (or 24 if a Under specific

p amount of taxable gross income
full-time student) and younger than the taxpayer. ($4,700 for 2023).
Residency: Same principal abode for > ½ tax year. If a

Precludes dependent filing a joint tax return.
foster child, must be for the whole year.
Only U.S. citizens or residents of U.S., Canada,

Eliminate Gross Income Test: Does not apply.
or Mexico.
Relative
Support Test: Qualifying child may not contribute more
or
than one-half of their own support.
Taxpayer lives with individual for whole year.
A-2 IV Regulation Final Review © Becker Professional Education Corporation. All rights reserved.
B Gross Income
2.3 Dividends (Schedule B)

Amounts received that represent a portion of a corporation’s earnings
and profits are taxable income. Property dividends are taxable income at
the property’s FMV.
Amounts that do not represent a portion of a corporation’s earnings and
profits are first credited as a return of capital to the extent of the individual’s
basis in the stock. Any excess amounts are then taxable as a capital gain.
Dividends on stock held more than 60 days in the 120-day period
beginning 60 days before the ex-dividend date are subject to a
15 percent tax rate for most taxpayers (0 percent for taxpayers with low
taxable income and 20 percent for taxpayers with high taxable income).
2.4 State and Local Tax Refunds

State and local tax refunds are taxable if the taxpayer received a benefit
from the itemized deduction of those taxes on a prior return (called the
“tax benefit rule”).
2.5 Alimony
Alimony received from a divorce or separation agreement executed on
or before December 31, 2018 is taxable income to the recipient and an
adjustment from gross income for the payor.
Payments must be in cash, be required by divorce decree, and be made

“periodically” (e.g., monthly). Lump-sum property settlements are
not alimony.
Child support is not alimony. Child support must be paid first. If total
payments do not cover all child support and alimony, they are first
applied to child support and then to alimony.
2.6 Business Income (Schedule C)

Self-employed individuals report all business income and expenses
allocable to business activities on Schedule C. A single amount is then
transferred from Schedule C and reported on the face of Form 1040.
2.6.1 Business Gross Income

Business gross income includes cash or fair market value of property
received as compensation.
2.6.2 Business Expenses

Business expenses
p include cost of goods sold, business licenses, salaries
and commissions paid
p to others (not to sole proprietor),
p p depreciation,
p
business meals (deduction limited to 50 percent), rent, insurance, travel,
supplies, etc.
2.6.3 Net Income

Schedule C net business income is subject to both income tax and
self-employment taxes on the taxpayer’s Form 1040 individual income
tax return.
B-2 IV Regulation Final Review © Becker Professional Education Corporation. All rights reserved.
Gross Income B
2.6.4 Net Loss
A Schedule C net loss is deductible against other Form 1040 income. Net
operating losses (NOLs) arising in 2018, 2019, and 2020 tax years can be
carried back five years (oldest year first) and carried forward indefinitely
to offset taxable income in other years. NOLs arising in 2021 and beyond
cannot be carried back but can be carried forward indefinitely. Post-2017
NOLs carried forward to post-2020 tax years can only offset 80% of taxable
income after deducting any pre-2018 NOL carryforwards.
2.7 Individual Retirement Account (IRA)

Distributions
Taxable distributions from IRAs are ordinary income to the taxpayer. For
traditional IRAs, distributions must start by April 1 of the year following the
year in which the taxpayer reaches age 73.
2.7.1 Types of IRA Distributions

The extent to which a distribution is taxable depends on the type of
IRA distribution and whether it is a distribution of earnings or principal
(contributions made).
Deductible Traditional IRA Distribution:

• Distribution of contributions for which a deduction was taken when
made are taxable.
• Earnings are taxable when distributed.
Nondeductible Traditional IRA Distribution:

• Distribution of contributions for which a deduction was not taken
when made are nontaxable.
• A distribution from a nondeductible traditional IRA is allocated
between principal (contributions) and earnings pro rata based on
relative amounts in the IRA account at the time of the distribution.
Nonqualified Roth IRA Distribution:

• Roth IRA contributions are not deductible, so distribution of
contributions made are nontaxable.
• Distributions from Roth IRAs are considered to first come from
principal (contributions), then earnings.
Qualified Roth IRA Distribution:

• Both distribution of principal (contributions) and earnings are
nontaxable.
• To be a “qualified” distribution, the Roth IRA must have been
open for at least five years, and the taxpayer must be age 59 ½
or older, disabled, a first-time homebuyer using it to purchase a
home (maximum $10,000), or a beneficiary receiving it after the
owner’s death.
© Becker Professional Education Corporation. All rights reserved. Regulation Final Review IV B-3
Adjustments and Deductions Topic
Adjustments and Deductions to Arrive at Taxable Income XX
to Arrive at Taxable Income D
1 Adjustments to Gross Income

Adjustments are subtracted from gross income to arrive at adjusted
gross income.
1.1 Alimony Paid

Alimony paid pursuant to a divorce or separation agreement executed
on or before December 31, 2018 is an adjustment to gross income and
alimony received is income.
1.2 Retirement Plan Contributions

1.2.1 Maximum Contribution Amount
The maximum amount a taxpayer
p can contribute to an IRA is the lesser of
earned income or $6,500 (2023).
Taxpayers age 50 or older can contribute an additional $1,000.

A married taxpayer can use a spouse’s earned income to make a contribution.
Earned income includes salary and wages, self-employment income,
taxable alimony, and taxable non-tuition fellowship and stipends
received by graduate and postdoctoral students.
1.2.2 Deduction for Contributions to Traditional IRAs

The amount a taxpayer can deduct depends on the taxpayer’s AGI and
whether the taxpayer (or spouse) is a participant in another qualified
retirement plan:
If a taxpayer is a participant
p in another plan, the deduction starts to
phase out when AGI is $73,000 and is fully phased
p p out when AGI is
$83,000 ($116,000–$136,000 AGI for MFJ) (2023).
If a taxpayer is not a participant in another plan but his or her spouse
p
is, the deduction starts to phase out when the couple’s
p AGI is $218,000
and is fully phased out when AGI is $228,000 (2023).
If a taxpayer (and spouse, if any) is not a participant in another plan,
there is no AGI phase-out for the deduction.
© Becker Professional Education Corporation. All rights reserved. Regulation Final Review IV D-1
D Adjustments and Deductions to Arrive at Taxable Income
Traditional IRA Income Phase-Out Ranges for Married Individuals

Spouse 1 has earned income If Spouse 2 has no earned income
2023 Modified AGI Phase-out In ESRP? Can IRA be deducted? Can IRA be deducted?
N/A No Yes Yes
<116,000 Yes Yes Yes
$116,000–$136,000 Yes Yes* Yes
$136,001–$217,999 Yes No Yes
$218,000–$228,000 Yes No Yes**
>$228,000*** Yes No No
Note: If Spouse 2 has earned income, follow the same rules as Spouse 1.
ESRP = Employer Sponsored Retirement Plan
*The IRA deduction for the working spouse is phased out.
**The IRA deduction for the nonworking spouse is phased out.
***At modified AGI of more than $228,000, neither the working spouse nor the nonworking spouse can
deduct their traditional IRA.
1.2.3 Nondeductible Contributions

Traditional Nondeductible IRAs: For 2023, maximum contribution
is lesser off $6,500, individual’s earned income, or the amount not
contributed to other IRAs.
Roth IRAs: The maximum contribution amounts are the same.
For 2023,
r 2023, eligibility to contribute to a Roth IRA starts to phase out
when AGI is $138,000
$138,000 and is fully phased out when AGI is $153,000
($218,000–$228,000 AGI for MFJ, $0–$10,000 for MFS) (2023).
IRA Summary
Deductible Nondeductible
Roth IRA
Traditional IRA Traditional IRA
Maximum contribution $6,500 combined annual maximum contribution with $1,000 additional
(2023): “catch up” contribution for age 50 and older
Above-the-line deduction Yes No No
for contribution:
Withdrawals:
• Contributions Taxable Nontaxable Nontaxable
• Earnings Taxable Taxable Nontaxable
(if qualified distribution),
taxable (if nonqualified
distribution)
D-2 IV Regulation Final Review © Becker Professional Education Corporation. All rights reserved.
Adjustments and Deductions to Arrive at Taxable Income D
1.2.4 Self-Employed Retirement Plans
The maximum amount that a self-employed taxpayer can contribute to a
self-employed (S/E) retirement plan in 2023 depends on the type of plan.
SEP IRA
Lesser of 20 percent of S/E net income reduced by deduction for
one-half of S/E tax, orr $66,000 ($73,500 for taxpayers age 50 and older)
SIMPLE IRA
Lesser of 100 percent of S/E net income reduced by deduction for one-
half of S/E tax, orr $15,500 ($19,000 for taxpayers age 50 and older)
Solo 401(k)
Lesser of 20 percent of S/E net income reduced by deduction
for one-half of S/E tax, orr $66,000 ($73,500 if the taxpayer is age
50 or older)
1.3 Student Loan Interest

Deduction is limited to $2,500. Forr 2023, AGI phase-out
p amounts are
$75,000–$90,000 (S or HH) and $155,000–$185,000 (MFJ).
1.4 Educator Expenses

A deduction of up to $300 is allowed as an adjustment for qualified
teaching/classroom expenses for elementary and secondary
school teachers.
1.5 Moving Expenses

Moving expense deductions are only allowed for members of the armed
forces (or spouses and dependents) on active duty who move pursuant to a
military order and incident to a permanent change of station.
1.6 Health Savings Accounts (HSA)

Health savings accounts allow employees with high-deductible insurance
plans to make pretax contributions to an HSA to cover health care costs.
For 2023, the maximum contribution is $3,850 for self-only coverage

and $7,750 for family coverage.
Funds grow tax-free, and there is no time limit for spending.
Withdrawals used to pay qualified medical expenses are excluded from
gross income.
1.7 Other Adjustments

Interest penalty on early withdrawal of funds.
Self-employed health insurance premiums (100 percent deductible).
One-half of self-employment tax.
D Adjustments and Deductions to Arrive at Taxable Income
Question 1 MCQ-09451
Darwood and Samantha Stevens were divorced in January 2018. In

accordance with the divorce decree, Darwood transferred title in their
home to Samantha in 2018. The home, which had a fair market value
of $300,000 was subject to a $100,000 mortgage that had more than
20 years to run. Monthly mortgage payments amount to $2,000.
Under the terms of the settlement, Darwood is obligated to make the
mortgage payments on the home for the full remaining 20-year term
of the indebtedness, regardless of how long Samantha lives. Darwood
made 12 mortgage payments in 2023. What amount is deductible by
Darwood as alimony on his 2023 tax return?
1. $0
2. $24,000
3. $200,000
4. $224,000
2 Deductions From Adjusted Gross

Income (AGI)
Taxpayers may generally choose between using the standard deduction
and itemizing deductions. (This usually depends upon which produces the
better tax result; however, if the taxpayer is MFS and his or her spouse
itemizes deductions, the taxpayer must also itemize deductions).
2.1 Standard Deductions
2023
Single (or MFS) $13,850
Head of Household $20,800
MFJ (or surviving spouse) $27,700
Forr 2023, the additional standard deduction for taxpayers who are elderly
(age 65 or older) and/or blind is $1,850 for unmarried taxpayers and
$1,500 for MFJ taxpayers.
D-4 IV Regulation Final Review © Becker Professional Education Corporation. All rights reserved.
Adjustments and Deductions to Arrive at Taxable Income D
2. Qualified Property: Any tangible, depreciable property that is held by
the business at the end of the year and is used at any point during the
year in the production of QBI.
3. Qualified Trade or Business (QTB): Any business other than a specified
service trade or business (SSTB).
4. Specified Service Trade or Business (SSTB): An SSTB is a trade or
business involving direct services in certain fields (such as health, law,
accounting, actuarial science, performing arts, consulting, athletics,
financial services, and brokerage), and any trade in which the principal
asset is the reputation or skill of one or more of its employees or owners.
Engineering and architectural services are specifically excluded from the
definition of SSTB.
2.3.2 Calculating the Deduction

The basic deduction:
20% × Qualified business income (QBI)
2.3.3 W-2 Wage and Property Limitation

When applicable, the QBI deduction is limited to the greater of:
50 percent of W-2 wages for the business; or

25 percent of W-2 wages for the business plus 2.5 percent of unadjusted
basis of qualified property.
2.3.4 Limitations Based on Taxable Income Level

When applicable, the QBI deduction is limited to the greater of:
2023 Taxable Income (before QBI deduction) at or below $182,100

($364,200 MFJ):
• If QTB or SSTB o Full 20 percent QBI deduction, W-2 wage and
property limit does not apply
2023 Taxable Income (before QBI deduction) above $232,100
($464,200 MFJ):
($464,200
• If QTB o Full W-2 wage and property limitation applies
If SSTB o No QBI deduction allowed
2023 Taxable Income (before QBI deduction) from $182,100 to
$232,100 ($364,200 to $464,200 MFJ):
• If QTB o Phase-in of W-2 wage and property limitation (if limitation is

less than 20 percent of QBI)
• If SSTB o QBI, W-2 wages, and qualified property amounts are
reduced, then phase-in of W-2 wage and property limitation using
reduced amounts
E Tax Computations and Credits
2.3 Credit for the Elderly

or Permanently Disabled
Credit is equal to 15 percent of eligible income to individuals 65 years or
older or less than 65 but permanently disabled.
JOINT
SINGLE
(both qualified)
5,000 GROSS GIVEN 7,500
( ALL ) (Social Security) ( ALL )
(1/2 over $7,500) (1/2 Excess AGI) (1/2 over $10,000)
Balance Balance
x 15% Rate x 15%
Credit Credit
2.4 Higher Education Credits

2.4.1 American Opportunity Credit
Individuals are eligible during the first four years of college. The credit is
a maximum of $2,500 (100 percent of the first $2,000, plus 25 percent of
the next $2,000 of qualified expenses). The American opportunity credit is
partially refundable.
2.4.2 Lifetime Learning Credit

This credit is available for an unlimited number of years. It is equal to 20
percent of qualified expenses of up to $10,000.
2.4.3 Phase-outs
Both higher education credits are phased out for higher-income taxpayers.
Phase-out begins with modified AGI of $80,000 ($160,000 MFJ) and is fully
phased out at $90,000 ($180,000 MFJ).
2.5 Retirement Savings Contribution Credit

Up to $1,000 for traditional or Roth IRA contributions by lower-income
taxpayers.
2.6 Earned Income Credit

The earned income credit is a refundable credit for low-income taxpayers.
The taxpayer must live in the U.S. for more than half the taxable year
and meet certain low-income thresholds and other requirements.
The maximum basic earned income credit is between 7.65 and
45 percent of earned income, depending upon filing status and the
number of dependents (note that having zero dependents does not
preclude claiming the earned income credit).
The earned income credit cannot be claimed if the taxpayer has

investment income in excess off $11,000 (2023).
E-2 IV Regulation Final Review © Becker Professional Education Corporation. All rights reserved.
Topic
Differences Between Book and Tax Income XX
Differences Between Book and Tax Income A
1 Book Income vs. Taxable Income

The following chart gives an overview of the differences between financial
and tax accounting for corporations.
Corporation Tax Summary GAAP: Financial Statements IRC: Tax Return Temp. Perm. None
Gross Income
Gross sales Income Income 3
Installment sales Income Income when received 3
Rents and royalties in advance Income when earned Income when received 3
State tax refund Income Income 3
Dividends:
equity method Income is subsidiary's earnings Income is dividends-received
100/65/50% exclusion No exclusion Excluded forever 3 3
Items Not Includable in "Taxable Income"
State and municipal bond interest Income Not taxable income 3
Life insurance proceeds Income Generally not taxable income 3
Gain/loss on treasury stock Not reported Not reported 3
Ordinary Expenses
Cost of goods sold Currently expensed Uniform capitalization rules 3
Officers' compensation (top) Expense $1,000,000 limit 3
Bad debt Allowance (estimated) Direct write-off 3
Estimated liability for contingency
(e.g., warranty) Expense (accrue estimated) No deduction until paid 3
Interest expense: business loan Expense Deduct (up to limit) 3 3
Tax-free investment Expense Not deductible 3
Charitable contributions All expensed Limited to 10% of adjusted taxable income 3 3 3
Loss on abandonment/casualty Expense Deduct 3
Loss on worthless securities Expense Deduct 3
Depreciation: MACRS vs. straight-line Slow depreciation Fast depreciation 3
Section 179 depreciation Not allowed (must depreciate) $1,160,000 (2023) 3
Different basis of asset Use GAAP basis Use tax basis 3
Amortization: start-up/ $5,000 maximum/amortize excess over
organizational expenses Expense 15 years 3
Franchise Amortize Amortize over 15 years 3
Goodwill Impairment test Amortize over 15 years 3
Depletion: percentage vs.
straight-line (cost) Cost over years Percentage of sales 3
Percentage in excess of cost Not allowed Percentage of sales 3
Profit sharing and pension expense Expense accrued No deduction until paid 3
Accrued expense (50% owner/family) Expense accrued No deduction until paid 3
State taxes (paid) Expense Deduct 3
Meals Expense Generally 50% deductible 3
(continued on next page)
© Becker Professional Education Corporation. All rights reserved. Regulation Final Review V A-1

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Becker Professional Education

Regulation Course Updates—June 2023

CPA Exam Review Replacement Textbook Pages

Details on the replacement textbook pages are provided below.

Cost-of-living and other inflation adjustments

The content related to item 2 ‘Nontaxable

The content related to item 2.10.4 ‘Exception to

The content related to item 2 ‘Section 199A

The content related to item 3.5 ‘Early

R2 Module 1 The text of item 5.2 ‘Excludable Distributions’

The text of item 9 ‘Self-Employed Retirement

Example 2 in item 9 ‘Self-Employed Retirement

R2 Module 2 The text and layout of Example 1 has been

The text of 2.8 ‘General Business Credit’ was

The text of item 2.14.3 ‘Small Employer

The text of Item 2.16 ‘Residential Energy

The text of Item 3.1.2 ‘Employee Taxation’ and

The text of Item 1.4.1 ‘General Business Credit’

The text of Item 5.3 ‘Shareholder Basis in S

The text of Item 3.4 ‘Employer Liability for

The text of item 1.15 ‘Accord and Satisfaction

R7 Module 4 The text of item 1 ‘Introduction’ was updated to

R7 Module 6 The text of item 2 ‘Creation (Attachment of the

R1 through R4, Updates for inflation adjustments were made to

2.3 Interest Income

R1–16 Module 2 Gross

2.10.4 Exception to Penalty Tax (Still Subject to Ordinary Income Tax)

2.11.1 Fixed Period Annuity Payments

Example 3 Fixed Period Annuity

© Becker Professional Education Corporation. All rights reserved. Module 2 R1–23

3.3.2 Distributions From Roth IRA

3.4 Nondeductible Traditional IRA Deductible Traditional

3.5 Early Distribution Penalty

R2–8 Module 1 Adjustments

5 Health Savings Accounts

5.1 Pretax Contribution

5.2 Excludable Distributions

5.3 High-Deductible Plan Defined

5.4 Archer Medical Savings Account (MSA) Contributions

R2–10 Module 1 Adjustments

7 Self-Employment Tax (50 Percent)

8 Self-Employed Health Insurance

9 Self-Employed Retirement Plans

9.1 SEP IRA

9.2 SIMPLE IRA

9.3 Solo 401(k)

© Becker Professional Education Corporation. All rights reserved. Module 1 R2–11

Facts: Peter has self-employment

10 Penalty on Early Withdrawal of Savings

11.1 Alimony/Spousal Support (Income to Payee/Adjustment to Payor)

R2–12 Module 1 Adjustments

4. Limitation for contributions subject to 50% limit:

7. Limitation for contributions subject to 30% limit:

11. Total charitable contributions deduction:

© Becker Professional Education Corporation. All rights reserved. Module 2 R2–23

2023 Adjusted Gross Income (AGI)

2.7 Foreign Tax Credit

Taxable income from all

k%HFNHU3URIHVVLRQDO(GXFDWLRQ&RUSRUDWLRQ$OOULJKWVUHVHUYHG Module 1 R5–9