chapter 1-6 mods

_pages/1-minor-p5279.md

@@ -23,7 +23,7 @@ title: Becoming as EA.pdf
 
 **www.prometric.com/see**
 
-- Prometric’s website includes an overview of examination topics, sample test questions, FAQs, & "What to Expect on Test Day" video, & "Take a Test Drive"
+- Prometric’s is a company that proctors the EA exam(~$250). Their website includes an overview of examination topics, sample test questions, FAQs, & "What to Expect on Test Day" video, & "Take a Test Drive"
 
 **GOTO**: https://www.irs.gov/tax-professionals/enrolled-agents
 

_pages/p334.chapter.01.md

@@ -5,39 +5,53 @@ title: p334.chapter.1.pdf
 
 # Chapter 1: Filing and Paying Business Taxes
 
-## Introduction
-- Overview of the business taxes you may have to pay and the forms required.
+- Overview of the business taxes and forms required.
 - Discusses taxpayer identification numbers (TINs).
 
 ## Identification Numbers
-1. **Social Security Number (SSN):** Generally used as the taxpayer identification number (TIN) for individuals.
+
+1. **Social Security Number (SSN):** is generally used as the taxpayer identification number (TIN) for individuals.
 2. **Individual Taxpayer Identification Number (ITIN):** Issued to nonresident and resident aliens who are not eligible to obtain an SSN.
 3. **Employer Identification Number (EIN):** Required if you have employees or file pension or excise tax returns.
 
 ## Income Tax
+
 1. **Requirement to File:** If net earnings from self-employment were $400 or more, or if other filing requirements are met.
-2. **Filing Forms:** Use Form 1040 or 1040-SR with Schedule C attached.
+2. **Filing Forms:** 1040 or 1040-SR with Schedule C attached.
 3. **Electronic Filing (IRS e-file):** Benefits include accuracy, security, and faster refunds.
 
-## Self-Employment (SE) Tax
+## Self-Employment Tax
+
 1. **Purpose:** Social security and Medicare tax for individuals who work for themselves.
 2. **Requirement to Pay:** Required if net earnings from self-employment are $400 or more.
 3. **Rate:** SE tax rate is 15.3%, with a portion deductible on Schedule 1 (Form 1040).
 
 ## Employment Taxes
+
 1. **Types:** Include social security, Medicare, federal income tax withholding, and federal unemployment tax (FUTA).
-2. **Forms to File:** Forms 941 or 944 for reporting.
+2. **Filing Forms:** 941 or 944 for reporting.
 
 ## Excise Taxes
+
 1. **Applicable Situations:** If you manufacture, sell certain products, operate certain businesses, or receive payment for specific services.
-2. **Forms:** Use Form 720, Quarterly Federal Excise Tax Return, or Form 2290, Heavy Highway Vehicle Use Tax Return.
+2. **Filing Forms:** 
+   1. 720, Quarterly Federal Excise Tax Return, or 
+   2. Form 2290, Heavy Highway Vehicle Use Tax Return.
 
 ## Information Returns
+
 1. **When Required:** If you make or receive payments in your business.
-2. **Forms to File:** Form 1099-MISC for miscellaneous payments, Form 1099-NEC for nonemployee compensation, and Form 8300 for cash payments over $10,000.
+2. **Filing Forms:** 
+   1. 1099-MISC for miscellaneous payments  
+   2. Form 1099-NEC for nonemployee compensation  
+   3. Form 8300 for cash payments over $10,000
 
 ## Going Out of Business Checklists
-1. **Final Forms to File:** Checklist of forms needed if going out of business, including Schedule C, Form 4797, Form 941, and others.
+
+1. **Filing Forms:**
+   1. include Schedule C  
+   2. Form 4797  
+   3. Form 941, and others  
 
 ---
 

_pages/p334.chapter.02.md

@@ -5,19 +5,19 @@ title: p334.chapter.2.pdf
 
 # Chapter 2: Accounting Periods and Methods
 
-## Introduction
 - Discusses the selection and use of an accounting period and an accounting method for your business.
 
 ## Accounting Periods
+
 1. **Definition:** The time frame in which you calculate your taxable income.
 2. **Types of Accounting Periods:**
    - **Calendar Year:** January 1 through December 31.
    - **Fiscal Year:** 12 consecutive months ending on the last day of any month except December.
-3. **Changing Your Accounting Period:**
-   - Requires IRS approval through Form 1128, Application to Adopt, Change, or Retain a Tax Year.
-   - Some changes can be made without IRS approval if specific conditions are met.
+3. **Changing Your Accounting Period:** Some changes can be made without IRS approval;
+   1. Requires IRS approval via Form 1128, Application to Adopt, Change, or Retain a Tax Year.
 
 ## Accounting Methods
+
 1. **Definition:** A set of rules used to determine when and how to report income and expenses.
 2. **Types of Accounting Methods:**
    - **Cash Method:**
@@ -28,18 +28,20 @@ title: p334.chapter.2.pdf
      - Expenses are deducted in the year they are incurred, regardless of when they are paid.
    - **Special Methods:**
      - Combination of cash and accrual methods, with special rules applying to certain types of income and expenses.
-3. **Changing Your Accounting Method:**
-   - Requires filing Form 3115, Application for Change in Accounting Method.
-   - Automatic consent procedures are available for some changes, eliminating the need for IRS approval.
+3. **Changing Your Accounting Method:** Requires filing 
+   1. Form 3115, Application for Change in Accounting Method 
+   2. Automatic consent procedures are available for some changes, eliminating the need for IRS approval.
 
 ## Inventories
-1. **Requirement to Use:** If your business holds inventory, you generally must use an accrual method for purchases and sales.
+
+1. **Requirement to Use:** If your business holds inventory, you generally must use accrual accounting for purchases and sales.
 2. **Valuing Inventory:**
-   - **Cost Method:** Based on the cost of items in inventory.
+   - **Cost Method:** Based on the cost of items in inventory at time of purchase
    - **Lower of Cost or Market (LCM) Method:** Inventory is valued at the lower of its cost or market value.
    - **Retail Method:** Estimates the value of inventory by reducing the retail selling price by the mark-up percentage.
 
 ## Material Participation
+
 1. **Definition:** Involvement in the operation of your business to a degree that is regular, continuous, and substantial.
 2. **Passive Activity Rules:** If you do not materially participate, your business income may be classified as passive, subject to special rules and limitations.
 

_pages/p334.chapter.03.md

@@ -5,32 +5,35 @@ title: p334.chapter.3.pdf
 
 # Chapter 3: Income
 
-## Introduction
 - Provides guidance on what constitutes business income and how it should be reported.
 
 ## Gross Receipts
-1. **Definition:** Total income received from all sources before any expenses are deducted.
+
+1. **Definition:** Total income received from all sources(sales, interest, etc) before any expenses are deducted.
 2. **Types of Gross Receipts:**
    - **Sales of Products or Services:** Includes cash, checks, credit card payments, and the fair market value of property or services received.
    - **Sales Returns and Allowances:** Reductions in sales for returned goods or allowances for damaged goods.
    - **Cancellations of Debt:** Certain types of debt forgiveness may be considered income.
 3. **Bartering Income:**
    - **Definition:** Exchange of goods or services without money, which must be included in gross receipts.
-   - **Reporting:** Must report the fair market value of goods or services received.
+   - **Reporting:** Must report the **fair market value of goods or services** received.
 
 ## Cost of Goods Sold (COGS)
+
 1. **Definition:** Direct costs attributable to the production of goods sold by a business.
 2. **Calculating COGS:**
    - **Beginning Inventory:** Value of inventory at the start of the year.
    - **Purchases:** Cost of inventory bought during the year.
    - **Labor Costs:** Wages paid to workers directly involved in producing goods.
    - **Materials and Supplies:** Costs for items used in the manufacturing process.
    - **Ending Inventory:** Value of inventory at the end of the year.
-   - **Formula:** COGS = Beginning Inventory + Purchases + Labor Costs + Materials and Supplies - Ending Inventory.
-3. **Impact on Gross Income:**
+   - **Formula:**  See: [Financial formulas](https://mcc-us.github.io/bookkeeping/2023-12-24-Financial-Ratios.html)
+$$COGS = Beginning Inventory + Purchases + Labor Costs + Materials and Supplies - Ending Inventory$$
+1. **Impact on Gross Income:**
    - COGS is subtracted from gross receipts to determine gross profit.
 
 ## Other Income
+
 1. **Types of Other Income:**
    - **Interest and Dividends:** Income from investments.
    - **Rents:** Income from leasing property.
@@ -40,11 +43,13 @@ title: p334.chapter.3.pdf
    - Reported on Schedule C or other applicable tax forms.
 
 ## Income from Personal Services
+
 1. **Definition:** Earnings from work performed, including fees, wages, and other compensation.
 2. **Reporting Personal Services Income:**
    - Must include all forms of compensation, including cash and the fair market value of goods or services received in exchange for personal services.
 
 ## Non-Taxable Income
+
 1. **Types of Non-Taxable Income:**
    - **Gifts and Inheritances:** Generally not taxable.
    - **Life Insurance Proceeds:** Excluded from income in most cases.
@@ -56,4 +61,10 @@ title: p334.chapter.3.pdf
 # Chapter 3 Quiz Questions
 
 1. **What must be included in gross receipts when bartering?**
-   - **Answer:** The
+   - **Answer:** The fair market value of the goods or services received.
+
+2. **How is Cost of Goods Sold (COGS) calculated?**
+   - **Answer:** COGS = Beginning Inventory + Purchases + Labor Costs + Materials and Supplies - Ending Inventory.
+
+3. **Which type of income is generally not taxable?**
+   - **Answer:** Gifts and inheritances are generally not taxable.

_pages/p334.chapter.04.md

@@ -5,35 +5,39 @@ title: p334.chapter.4.pdf
 
 # Chapter 4: Business Expenses
 
-## Introduction
-- Discusses various types of business expenses that can be deducted from gross income to determine taxable income.
+- Discusses various types of business deductions from gross income to determine taxable income.
 
 ## Business Expenses
+
 1. **Definition:** Ordinary and necessary costs of carrying on a trade or business.
 2. **Ordinary Expense:** Common and accepted in your trade or business.
 3. **Necessary Expense:** Helpful and appropriate for your business, though not necessarily indispensable.
 
 ## Cost of Goods Sold (COGS)
+
 1. **Definition:** Direct costs of producing the goods sold by your business.
 2. **Components of COGS:**
    - **Inventory Costs:** Cost of materials and supplies used in production.
    - **Labor Costs:** Wages paid to workers directly involved in production.
    - **Overhead:** Costs indirectly tied to production, such as utilities and rent.
 
 ## Capital Expenses
-1. **Definition:** Costs of purchasing assets that have a useful life beyond the tax year.
+
+1. **Definition:** Costs of purchasing assets that have a useful life beyond the tax year, or 1 year.
 2. **Types of Capital Expenses:**
    - **Business Start-Up Costs:** Expenses incurred before the business begins operation.
    - **Improvements:** Costs to increase the value or extend the life of business property.
    - **Assets:** Purchases such as buildings, machinery, and equipment.
 
 ## Personal versus Business Expenses
+
 1. **Mixed-Use Property:**
    - Expenses related to property used for both personal and business purposes must be divided based on the proportion of business use.
 2. **Non-Deductible Personal Expenses:**
    - Personal living or family expenses are not deductible as business expenses.
 
 ## Business Use of Your Home
+
 1. **Eligibility Requirements:**
    - Part of your home must be used regularly and exclusively for business.
 2. **Deductible Expenses:**
@@ -42,12 +46,15 @@ title: p334.chapter.4.pdf
    - Allows a standard deduction of $5 per square foot of business use, up to 300 square feet.
 
 ## Business Use of Your Car
+
 1. **Standard Mileage Rate:**
    - Deduct a fixed rate for each mile driven for business purposes.
+   - Miles x rate per mile
 2. **Actual Expense Method:**
    - Deduct the actual expenses of operating the vehicle, including gas, oil, insurance, repairs, and depreciation.
 
 ## Employee Pay
+
 1. **Wages and Salaries:**
    - Amounts paid for services performed by employees.
 2. **Bonuses and Commissions:**
@@ -56,25 +63,29 @@ title: p334.chapter.4.pdf
    - Costs for programs such as health insurance, retirement plans, and education assistance.
 
 ## Rent Expense
+
 1. **Deductible Rent:**
    - Rent paid for property you use in your trade or business.
 2. **Restrictions:**
    - Rent paid in advance must be deducted in the year to which it applies, not when paid.
 
 ## Interest
+
 1. **Types of Deductible Interest:**
    - Interest on loans used for business purposes, including mortgages and business loans.
 2. **Limitations:**
    - Interest related to personal expenses or for tax-exempt income is not deductible.
 
 ## Taxes
+
 1. **Deductible Taxes:**
    - State, local, and foreign taxes related to business operations.
    - Employment taxes, including social security and Medicare taxes, paid on behalf of employees.
 2. **Non-Deductible Taxes:**
    - Federal income taxes and penalties are not deductible.
 
 ## Insurance
+
 1. **Deductible Insurance Premiums:**
    - Insurance that is ordinary and necessary for your business, including liability, malpractice, and workers' compensation insurance.
 2. **Life Insurance Premiums:**

_pages/p334.chapter.05.md

@@ -5,31 +5,35 @@ title: p334.chapter.5.pdf
 
 # Chapter 5: Net Operating Losses (NOLs)
 
-## Introduction
-- Explains what a Net Operating Loss (NOL) is, how it is calculated, and how it can be used to reduce taxable income in other years.
+- Explains Net Operating Loss (NOL), how it is calculated, and how it can be used to reduce taxable income in other years.
 
 ## What is a Net Operating Loss?
+
 1. **Definition:** Occurs when a business's allowable tax deductions exceed its gross income.
 2. **Sources of NOL:** Can arise from operating losses, casualty and theft losses, and certain other deductions.
 3. **Non-Deductible Items:** Capital losses, personal exemptions, and nonbusiness deductions are generally not included in calculating an NOL.
 
 ## Carrybacks and Carryforwards
+
 1. **Carryforward:** An NOL can be carried forward to future tax years to offset income.
-2. **Carryback:** Before the Tax Cuts and Jobs Act (TCJA), NOLs could be carried back to prior years to claim a refund. Post-TCJA, carrybacks are generally not allowed.
+2. Carryback: Before the Tax Cuts and Jobs Act (TCJA), NOLs could be carried back to prior years to claim a refund. Post-TCJA, carrybacks are generally not allowed.
 3. **Election to Waive Carryback:** Taxpayers may elect to waive the carryback period and only carry the NOL forward.
 
 ## Figuring an NOL
-1. **Calculating NOL:** 
+
+1. **Calculating NOL:**  
    - Start with taxable income before exemptions.
    - Subtract nonbusiness income and add nonbusiness deductions.
    - Adjust for NOL deductions from prior years.
 2. **Adjustments to Income:** Certain adjustments, like nonbusiness deductions, may need to be made to the income to figure the NOL.
 
 ## How to Claim an NOL Deduction
-1. **Form to Use:** Use Schedule A of Form 1045 or Form 1040 to claim an NOL deduction.
+
+1. **Filing Form:** Use Schedule A of Form 1045 or Form 1040 to claim an NOL deduction.
 2. **NOL Carryforward:** Report the NOL carryforward on Form 1040, Schedule 1, in the year it is applied.
 
 ## Example of an NOL
+
 1. **Illustrative Example:** Provides a detailed example of how an NOL is calculated, including adjustments and the steps to carry it forward or back.
 2. **NOL Deduction in Future Years:** Explains how the NOL deduction reduces income in subsequent years.
 

_pages/p334.chapter.06.md

@@ -5,14 +5,15 @@ title: p334.chapter.6.pdf
 
 # Chapter 6: Figuring Gross Profit
 
-## Introduction
-- Provides detailed instructions on how to calculate gross profit, which is essential for determining taxable business income.
+- Provides detailed instruction on calculating gross profit, which is essential for determining taxable business income.
 
 ## Gross Profit
+
 1. **Definition:** Gross profit is the amount left after subtracting the cost of goods sold (COGS) from total sales.
-2. **Formula:** Gross Profit = Net Sales - Cost of Goods Sold.
+$$Gross Profit = Net Sales - Cost of Goods Sold.$$
 
 ## Net Sales
+
 1. **Definition:** Total sales minus returns, allowances, and discounts.
 2. **Sales Returns and Allowances:**
    - **Sales Returns:** Products returned by customers.
@@ -21,6 +22,7 @@ title: p334.chapter.6.pdf
    - Cash discounts given to customers as an incentive for early payment.
 
 ## Cost of Goods Sold (COGS)
+
 1. **Components of COGS:**
    - **Beginning Inventory:** Value of inventory at the start of the year.
    - **Purchases:** Cost of goods bought during the year for resale.
@@ -32,11 +34,13 @@ title: p334.chapter.6.pdf
    - This calculation is critical for accurately determining gross profit.
 
 ## Gross Profit Margin
+
 1. **Definition:** The ratio of gross profit to net sales, expressed as a percentage.
 2. **Formula:** Gross Profit Margin = (Gross Profit / Net Sales) * 100.
 3. **Importance:** Used to assess the profitability of a business by indicating how much profit is generated from sales after accounting for COGS.
 
 ## Example of Figuring Gross Profit
+
 1. **Illustrative Example:** Provides a step-by-step calculation of gross profit, including adjustments for returns, allowances, and discounts.
 2. **Application:** Demonstrates how to apply the gross profit formula and calculate the gross profit margin.