Individual Taxation

# REG — Individual Taxation Exam: CPA — REG (Taxation & Regulation) — Core section (all candidates required) Last Updated: June 2026 --- ## The Individual Tax Formula `` Gross Income − Adjustments (Above-the-Line Deductions) = Adjusted Gross Income (AGI) − Greater of: Standard Deduction or Itemized Deductions − Qualified Business Income Deduction (§199A) = Taxable Income × Tax Rate = Gross Tax − Tax Credits = Net Tax Liability − Withholding and Estimated Payments = Amount Owed / Refund `` --- ## Gross Income General rule: All income from whatever source derived is included unless specifically excluded. ### Common Inclusions - Wages, salaries, tips (W-2 box 1) - Business income (Schedule C) - Interest (taxable) and dividends - Capital gains - Rents and royalties - Alimony (pre-2018 divorces — gross income to recipient) - Gambling winnings - Discharge of indebtedness (with exceptions) - Social Security (up to 85% if income exceeds thresholds) ### Common Exclusions | Item | Rule | |---|---| | Gifts and inheritances | Not gross income to recipient | | Life insurance proceeds | Excluded (generally; exceptions for transfers for value) | | Municipal bond interest | Excluded from federal tax | | Workers' compensation | Excluded | | Employer health insurance | Excluded | | Employer-provided meals/lodging on business premises | Excluded if for employer's convenience | | §105 qualified medical reimbursements (HRA) | Excluded | | Scholarship used for tuition/fees | Excluded; room and board portion is income | | Child support received | Not gross income | | Up to $250K/$500K…