chap 1-9 of pub17

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-title: minor-p5279.pdf
+title: Becoming as EA.pdf
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-**Your Pathway to Becoming an Enrolled Agent**
+> This is an outline not detailed!  
+{: .block-warning }
+
+**A Pathway to Becoming an Enrolled Agent**
 
 - Obtain a Preparer Tax Identification Number (PTIN)
 - Pass the Special Enrollment Examination (SEE)
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 **About the exam**
 
-- Part 1 Individuals; Part 2 Businesses; & Part 3 Representation, Practices & Procedures.
-- Each exam contains 100 multiple-choice questions & is 3.5 hours.
-- Exam is offered May - February.
+- Part 1 Individuals
+- Part 2 Businesses
+- Part 3 Representation, Practices & Procedures
+- Each exam contains 100 multiple-choice questions & is 3.5 hours
+- Exam is offered May - February
 
 **www.prometric.com/see**
 

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+---
+layout: post
+title: p17.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.
+- Discusses taxpayer identification numbers (TINs).
+
+## Identification Numbers
+1. **Social Security Number (SSN):** 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.
+3. **Electronic Filing (IRS e-file):** Benefits include accuracy, security, and faster refunds.
+
+## Self-Employment (SE) 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.
+
+## 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.
+
+## 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.
+
+## 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.
+
+---
+
+# Chapter 1 Quiz Questions
+
+1. **What identification number should a sole proprietor use if they do not have employees?**
+   - **Answer:** Social Security Number (SSN).
+
+2. **What is the self-employment tax rate for 2023?**
+   - **Answer:** 15.3%.
+
+3. **Which form is used to report nonemployee compensation of $600 or more?**
+   - **Answer:** Form 1099-NEC.

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+---
+layout: post
+title: p17.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.
+
+## 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:**
+     - Income is reported in the year it is received.
+     - Expenses are deducted in the year they are paid.
+   - **Accrual Method:**
+     - Income is reported in the year it is earned, regardless of when it is received.
+     - 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.
+
+## Inventories
+1. **Requirement to Use:** If your business holds inventory, you generally must use an accrual method for purchases and sales.
+2. **Valuing Inventory:**
+   - **Cost Method:** Based on the cost of items in inventory.
+   - **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.
+
+---
+
+# Chapter 2 Quiz Questions
+
+1. **What is the main difference between the cash method and the accrual method of accounting?**
+   - **Answer:** The cash method reports income and expenses when received or paid, while the accrual method reports income and expenses when earned or incurred.
+
+2. **Which form must be filed to request a change in your accounting method?**
+   - **Answer:** Form 3115, Application for Change in Accounting Method.
+
+3. **When is a business generally required to use the accrual method for inventory?**
+   - **Answer:** When the business holds inventory for sale.

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+---
+layout: post
+title: p17.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.
+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.
+
+## 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:**
+   - 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.
+   - **Royalties:** Income from intellectual property.
+   - **Bad Debts Recovered:** Money received from debts that were previously written off as uncollectible.
+2. **Reporting Other Income:**
+   - 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.
+   - **Certain Fringe Benefits:** Some employer-provided benefits are non-taxable.
+2. **Exclusions:** Specific rules govern the exclusion of certain types of income from taxation.
+
+---
+
+# Chapter 3 Quiz Questions
+
+1. **What must be included in gross receipts when bartering?**
+   - **Answer:** The

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+---
+layout: post
+title: p17.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.
+
+## 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.
+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:**
+   - Includes mortgage interest, rent, utilities, repairs, and depreciation related to the business portion of your home.
+3. **Simplified Option:**
+   - 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.
+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:**
+   - Additional compensation provided to employees.
+3. **Employee Benefit Programs:**
+   - 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:**
+   - Premiums for life insurance where you are directly or indirectly the beneficiary are not deductible.
+
+---
+
+# Chapter 4 Quiz Questions
+
+1. **What criteria must be met for a business expense to be deductible?**
+   - **Answer:** The expense must be both ordinary and necessary for the business.
+
+2. **What is the simplified option for the home office deduction?**
+   - **Answer:** The simplified option allows a standard deduction of $5 per square foot of business use, up to 300 square feet.
+
+3. **Can you deduct federal income taxes as a business expense?**
+   - **Answer:** No, federal income taxes are not deductible as a business expense.

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+---
+layout: post
+title: p17.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.
+
+## 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.
+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:** 
+   - 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.
+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.
+
+---
+
+# Chapter 5 Quiz Questions
+
+1. **What is a Net Operating Loss (NOL)?**
+   - **Answer:** An NOL occurs when a business's allowable tax deductions exceed its gross income.
+
+2. **Can NOLs still be carried back to prior years under the current tax law?**
+   - **Answer:** Generally, NOLs cannot be carried back under the current tax law due to changes made by the Tax Cuts and Jobs Act (TCJA).
+
+3. **Which form is used to claim an NOL deduction?**
+   - **Answer:** Use Schedule A of Form 1045 or Form 1040 to claim an NOL deduction.

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+---
+layout: post
+title: p17.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.
+
+## 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.
+
+## Net Sales
+1. **Definition:** Total sales minus returns, allowances, and discounts.
+2. **Sales Returns and Allowances:**
+   - **Sales Returns:** Products returned by customers.
+   - **Allowances:** Reductions in the selling price due to defects or issues with the goods sold.
+3. **Sales Discounts:**
+   - 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.
+   - **Labor Costs:** Direct wages paid to workers involved in production.
+   - **Materials and Supplies:** Costs for raw materials used in manufacturing.
+   - **Ending Inventory:** Value of inventory at the end of the year.
+2. **Calculating COGS:**
+   - COGS = Beginning Inventory + Purchases + Labor Costs + Materials and Supplies - Ending Inventory.
+   - 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.
+
+---
+
+# Chapter 6 Quiz Questions
+
+1. **What is the formula for calculating gross profit?**
+   - **Answer:** Gross Profit = Net Sales - Cost of Goods Sold.
+
+2. **How is the gross profit margin calculated?**
+   - **Answer:** Gross Profit Margin = (Gross Profit / Net Sales) * 100.
+
+3. **Which components are subtracted from total sales to determine net sales?**
+   - **Answer:** Sales returns, allowances, and discounts are subtracted from total sales to determine net sales.