NINJA CPA REVIEW®
NINJA Notes 2013
Regulation
Table of Contents
The N.I.N.J.A. Framework
Taxation
I. Individual Taxation 8
II. Partnership Taxation 26
III. Corporate Taxation 35
IV. Gift & Estate Taxation 50
V. Property Transactions 57
VI. Multi-Jurisdictional Tax Issues 67
Law & Professional Responsibilities
VII. Professional Responsibilities 68
VIII. Federal Securities Acts 73
IX. Business Structures 78
X. Contract Law 93
XI. Sales Law 98
XII. Commercial Paper 101
XIII. Secured Transactions 109
XIV. Bankruptcy & Debt 111
XV. Employment & Environment Law 121
XVI. Property Law 124
XVII. Agency Law 126
XVIII. Dodd-Frank Reform Act 133
2 The N.I.N.J.A. Framework
NAIL THE VIDEOS
Watch your CPA Review videos first – before working any
assigned homework questions.
The CPA Review industry says to watch a section of CPA
Review video and then work the accompanying MCQs. This
perspective stems from the old-school approach to the paper
and pencil exam where you had to sit in a live classroom and
learn from an instructor on weekends.
Today, there is a smarter way to study. You don’t have to go
to a weekend live course. You can fire up the laptop on a
Tuesday morning and knock out two hours of material
before you even brush your teeth. If you work MCQs in week
one over your week one topic, guess what? You will work
them again in week 5 or 6 when you review because you will
forget what you learned.
If you watch a video in week one and score an 85 on the
corresponding MCQs, will you be able to score an 85 four
weeks later? Not likely. You will need to work them again
anyway and it’s not a smart use of study time.
Instead, let the N.I.N.J.A. Framework guide you.
INTENSE NOTES
Repeat after me: “PUT THE HIGHLIGHTER DOWN.”
Which method do you think will help you learn the material
better – painting printed words in a book with pretty
florescent colors or writing them down on a legal pad and
thinking about the information?
3 Grab a stack of legal pads, put the highlighter down, and
start writing.
Many people have said that instead of taking their own
notes, they just re-write the material inside of this study
guide, which is fine too.
NON-STOP MCQS
Now is the time to start working multiple-choice questions
and do them with a focused frenzy. Do so many MCQs that
you’re absolutely sick of them. As you encounter little “fact
nuggets” that you didn’t know or are prone to forget, write it
down and add it to your voluminous stack of notes.
JUST RE-WRITE IT
This is where it gets tedious. This is also where the payoff
happens. You may be familiar with the fact that if you had a
choice between $3 Million and 1¢ doubled daily for 31 days,
the penny doubled for 31 days ends up tripling the $3
Million. The payoff, however, doesn’t happen until the 31st
day. The road is long, but ends up being worth it in the end.
The same goes for re-writing your study notes. The thought
of grabbing that stack of legal pads and going to town rewriting what you’ve already written may sound like a
ridiculous suggestion at first, but I am a firm believer in its
impact.
Merely writing down your notes and then reviewing them
before your exam doesn’t have near the impact as taking
your furious scribbles and converting them into re-packaged,
easily-digestible “fact nuggets.”
Not only will your notes mean more when you’ve whittled
away the non-essentials, but you are actually learning the
4 material twice. Re-processing the material by re-writing your
notes is like letting the information marinade in your mind.
Just like a well-prepared steak, you will taste the payoff of
this extra step.
Don’t like taking notes? No problem. Re-write these
NINJA Notes instead. You will absorb the material better
vs. reading only.
Plan wisely because this will likely take a week to
complete.
“I have found this to be unbelievably helpful! This is now my
second section that I have followed this piece of advice and,
once again, I am amazed at how much the material "clicks"
as I review and write the notes a second time.
Sure, it's time-consuming, but for me, it is worth it. No
questions asked. Not only does it help with processing and
understanding the material, but it also results in a better,
more organized set of study notes to use for review up until
exam date.” – Sandy
ALL COMES TOGETHER
You have watched the videos. You’ve taken ridiculous notes
and have done hundreds (thousands?) of multiple-choice
questions. You’ve re-written your notes.
Now, study that stack of review Gold in your hands multiple
times, work MCQs over weak topics, study your notes even
more, and then go in and PASS the CPA Exam.
5 How to use NINJA Notes
READING
You've invested in the NINJA Notes, now let it go to battle
for you. You should read the them as many times as
possible.
Carry it with you wherever you go.
Do you have an iPhone®, iPad®, or similar device(s)?
Simply load the PDF onto the device and if you have 5
minutes of downtime, you have 5 minutes of study
time.
It is recommended that you read the NINJA Notes at least
five times leading up to your final two weeks of exam prep.
If you have 6 weeks to study, then you need to complete
this in 4 weeks. 5 weeks to study, then complete it in 3.
4 weeks = 2 weeks. You get the picture. The point is: plan,
plan, plan and budget, budget, budget, budget because
exam day is looming.
6-Week Plan: Approx. 138 pages x 5 reads /4 weeks
/ 7 days per week = Approx. 25 pages per day
5-Week Plan: Approx. 138 pages x 5 reads /3 weeks
/ 7 days per week = Approx. 33 pages per day
4-Week Plan: Approx. 138 pages x 5 reads /2 weeks
/ 7 days per week = Approx. 49 pages per day
3-Week Plan: Approx. 138 pages x 5 reads /1 weeks
/ 7 days per week = Approx. 98 pages per day
6 RE-WRITING
This step is optional, but it won over a lot of skeptics with its
results. This is not mainstream advice. This is the NINJA
way. The mainstream way of studying for the CPA Exam is
old-fashion and outdated.
Forget the old way. You are a NINJA now.
Now is the time to either
1. Re-write your own CPA Exam notes or
2. Re-Write the NINJA Notes.
Plan on investing a week doing this and you should expect to
get through 20 pages a day (Approx. 138 pages / 7) in order
to stay on track.
After this, you will still have one week left to put the
finishing touches on your CPA Exam review prep – i.e. doing
a ton of MCQs. (http://tinyurl.com/WileyTB)
7 I. Individual Taxation
2012 INDIVIDUAL TAX RATES
This is a 2013 exam but they test over 2012 tax laws. Don't
memorize – just generally know how the tax brackets work.
 Single Taxpayer
Taxable Income Over • $0 • $8,700 • $35,350 • $85,650 • $178,650 • $388,350 But Not Over • $8,700 • $35,350 • $85,650 • $178,650 • $388,350 Pay • $0 • $870 • $4,867.50 • $17,442.50 • $43,482.50 • $112,683.50 + % Excess on of the amount over • 10% • 15% • 25% • 28% • 33% • 35% • $0 • $8,700 • $35,350 • $85,650 • $178,650 • $388,350 + % Excess on of the amount over  Married Filing Jointly
Taxable Income Over • $0 • $17,400 • $70,700 • $142,700 • $217,450 • $388,350 But Not Over • $17,400 • $70,700 • $142,700 • $217,450 • $388,350 Pay • $0 • $1,740 • $9,735 • $27,735 • $48,665 • $105,062 8 • 10% • 15% • 25% • 28% • 33% • 35% • $0 • $17,400 • $70,700 • $142,700 • $217,450 • $388,350 DEDUCTIONS & EXEMPTIONS
 2012 Standard Deduction
o Married Filing Jointly - $11,900
o Single - $5,950
 2012 Personal Exemption
o $3,800
CASH BASIS ACCOUNTING
 Allowed for Individual Taxpayers owning a Business
 Not allowed for:
o Corporations
o Partnerships with a C-Corp Partner
o Inventory
DEDUCTIONS TO ARRIVE AT AGI
 MSA/HSA Contributions
 Moving Expenses
 Deductible part of Self-Employment Tax
 Self-Employed SEP, SIMPLE, and Qualified Plans
 Self-Employed Health Insurance Premiums
 Investment penalties for early withdrawal
9  Alimony paid
 IRA Deduction
 Student Loan Interest
o Can't be another taxpayer's dependent
 Teacher expenses
 Moving Expenses
 Tuition Expense
o Can't also claim AOC or Lifetime Learning Credit
for same expenditures
SECTION 179 EXPENSES
 For New/Used equipment placed into service between
January 1, 2012 and December 31, 2012
 Max Deduction: $139,000
 Max Total Equipment Purchases for 2012: $560,000
o $139,000 deduction is phased-out dollar for dollar
for the amount of equipment purchases that
exceed $560,000
 If a company buys $575,000 in equipment,
then the $139,000 deduction is reduced by
($575,000 - $560,000) $15,000
• $139,000 - $15,000 = $124,000
10 CARRYOVERS
 Excess 179 expense
 Passive Activity Loss
o No Carryback
o Carry Forward Indefinitely
 Investment Interest expense > Investment Income
o Carry Forward Indefinitely
 Charitable Contributions
o Carry Forward 5 years
 AMT Paid
o Carry Forward Indefinitely
o Apply against future Income Tax only
 Not against future AMT liabilities
 Capital Loss
o $3,000 Loss and Carry Forward rest Indefinitely
o Loss retains Character (STCL vs LTCL)
 Compare to a Corporation
• 3 years back /5 years forward
• Carry forward as a STCL only
11 INSTALLMENT SALES
 Gross Profit / Contract Price
o Contract Price = Sales Price – (Buyer Liability)
HOME MORTGAGE INTEREST
 Mortgage Interest deductible on loans up to $1M
 Home Equity Interest deductible on loans up to $100K
BUSINESS GIFTS (SCHEDULE C)
 $25 per person is deductible
 Service awards up to $400 are deductible
BUSINESS LOSSES
 Business Losses only offset active Business Income
o W2 wages are considered active Business Income
 Passive Losses don't offset active income
o W2 wages = Active Income
 Can't be offset by Passive Losses
o Ltd Partnership income = Passive Income
 Can be offset by passive losses
o Interest/dividend income = Portfolio Income
 NOT PASSIVE!
12 CONVENTIONS
 Personal Property = Mid-Year/Mid-Quarter
o Use Mid-Quarter if 40% or more of all purchases
occur in 4th quarter
 Real Property = Mid-Month
 Leasehold Improvements = 15 Year S/L
BUSINESS START-UP COSTS
 Deduct up to $5,000 of Start-up costs
 Reduced dollar-for-dollar by amount over $50,000
 Remaining costs are amortized
MEDICAL EXPENSES – SCHEDULE A
 Deductible once 7.5% AGI threshold is reached
o If your AGI is $100,000, your first $7,500 of
medical expenses are not deductible
 Accident/Disability insurance is not deductible
MEDICAL EXPENSE - PAID ON BEHALF OF ANOTHER
 Must be a Citizen of North America
 If person is your mother/father or relative closer than a
cousin, they don't have to live with you
 Otherwise, they must live with you
 Must provide more than 50% support to individual
13 FOREIGN TAXES PAID – SCHEDULE A
 Foreign
o Income Tax - Deductible
o Real Estate Tax - Deductible
o Personal Property Taxes - Not Deductible
o Tax Assessments - Not Deductible - Add to Basis
INVESTMENT INTEREST EXPENSE – SCHEDULE A
 Deductible only the extent of Net Investment Income
 Gross Investment Income
<Investment expense in excess of 2% of AGI>
= Net Investment Income
 Note: Investment expense doesn't include Interest
Expense. Investment interest expense on tax-free
securities is not deductible
MORTGAGE POINTS – SCHEDULE A
 Deductible if it represents prepaid interest on purchase
of a new home or improving a home
 Refinance points are amortized over the life of the
mortgage
MORTGAGE INTEREST EXPENSE – SCHEDULE A
 If used to purchase a house (i.e. not to pay off credit
cards) deductible on Schedule A on debt up to $1M
 Refinance interest expense deductible up $100k of debt
14 CHARITABLE CONTRIBUTIONS – SCHEDULE A
 LTCG Property + Property related to Charity
o Deduction for FMV of property
o Up to 30% of AGI
 STCG Property + Property not related to Charity
o Deduction for Adjusted Basis in property
o Up to 50% of AGI
MISC SCHEDULE A DEDUCTIONS
 Must Exceed 2% of AGI
 Education - If required to keep your job
 Business travel expenses
 50% of meals/entertainment
 Union Dues
 Tax prep fees
 Legal fees to collect alimony
 Appraisal Fees to Value
o Casualty Loss
o Charitable Contributions
15 DEDUCTIONS NOT SUBJECT TO AGI REDUCTION
 Medical
 Casualty
 Gambling
 Investment Interest Expense
CASUALTY LOSS
 Decrease in FMV of property vs. Basis
 Use the lower of the two numbers
Lower of above number
<insurance proceeds>
<$100> (Note – this was $500 in 2009 tax year)
<10% of AGI>
=Deductible amount for casualty loss
 Expenses to repair damaged personal property
o Not Deductible
QUALIFYING CHILD
 Must be resident of North America
 Under age 19 or age 24, if student
QUALIFYING RELATIVE
 Must be citizen of North America
 Same "relative" test as the test for medical expenses
paid for another person
16 o If person is your mother/father or relative closer
than a cousin, they don't have to live with you
o Otherwise, they must live with you
o Must provide more than 50% support to individual
o Can't earn more than $3,800
 Social Security doesn't count as income
MINOR INCOME TAXED AT PARENTS’ RATE
 Child's unearned income
<early withdrawal penalties>
<$950>
<greater than $950 or child's itemized deduction
related to unearned income>
=Amount taxed at parents' rate
MARRIED FILING JOINTLY
 Different accounting methods between spouses are OK
if they each own a small business
 Non-resident aliens can file MFJ with their spouse
ALTERNATIVE MINIMUM TAX (AMT)
 Real Estate depreciation on property purchases pre-'99
vs Straight Line 40
 Difference between 200% MACRS vs 150% MACRS on
personal property
 FMV of stock options vs amount paid for them
17  7.5% medical deduction threshold for Schedule A vs
10% allowed for AMT
 No state income tax, real estate tax, or personal
property tax allowed for AMT
 No personal exemptions or standard deductions
 For construction: only percentage of completion
method allowed
 No installment method on sales allowed
 AMT paid is carried forward indefinitely and only
reduces future regular tax, not future AMT
SELF-EMPLOYMENT TAX
 15.3% of Net Profit
 Exam Trick: Executor of Estate not SE Income
REFUNDABLE TAX CREDITS
 If the credit takes the amount of tax owed for the year
below zero, the government owes the taxpayer money
 Earned Income Credit
 Additional Child Tax Credits
 American Opportunity Credit
18 EDUCATION CREDITS
 American Opportunity Credit (formerly Hope Credit)
o Includes first 4 years of post-secondary school
 Hope Credit only allowed first 2 years
o 100% Credit for first $2,000 expenses including
 Tuition
 Course-related Books & Supplies
• Hope Credit didn't include this
o 25% Credit for next $2,000 of expenses
 aka – up to $500
o Total Available Credit per student: $2,500
 Compare to Lifetime Learning Credit, which is
per taxpayer
o 40% ($1,000) of credit is refundable
 Compare to Lifetime Learning Credit, which is
not refundable
 Lifetime Learning Credit
o Per taxpayer
o Not refundable
19 ESTIMATED TAX PAYMENTS
 The lesser of:
o 90% of current total tax
o 100% of prior year's total tax
o 110% of prior year's total tax
 If AGI is $150,000 or more
FARMING
 Damaged crops? Insurance proceeds must be included
in income in the year they are received
 If weather issues force the sale of an abnormal volume
of livestock, the gain on the extra sales may be
deferred until next year
 Costs to Preserve Soil/Water = Deductible
 Costs to Drain wetlands or for irrigation = Not
Deductible
 If you want to preserve resources, you can Deduct
 If you want to use resources, you cannot Deduct
 Prepaid feed costs for livestock can be deducted up to
50% of other farming expenses
 Farm Personal Tangible Property (i.e. non-Real Estate)
uses MACRS 150
20 AUDIT APPEALS
 If no deal is reached after Appeal
o Taxpayer has 90 days to Petition the Tax Court
o If no Petition filed – Tax due within 10 Days
STATUTE OF LIMITATIONS FOR A TAX AUDIT
 3 years
 6 years if 25% or more of gross income (Gross Receipts
+ Capital Gains) was omitted from the tax return
 The clock starts ticking on the Due Date of the return
or the date the return was filed - whichever is later
 No statute of limitations for
o Fraud
o Failure to File
NON-BUSINESS BAD DEBT
 Treated as a Short-Term Casualty Loss (STCL)
TAX REFUND CLAIMS
 Must be claimed within (whichever is later)
o 3 years of return Due Date
o 2 years of Tax being paid
21 DIVIDEND INCOME
 Treated as Ordinary Income
o You can't offset Dividends with a Capital Loss
LIFE INSURANCE
 Employer can pay premiums for up to $50,000 in
coverage without it being included in income
 Premiums paid on Life Insurance coverage > $50k
count as income to the taxpayer
o If your employer pays for a $60k Life Insurance
policy, the premiums on the extra $10k are
taxable income
SCHOLARSHIPS
 Scholarships are not taxable as long as
o They are not in return for services rendered
 If a graduate assistant gets a scholarship in
return for teaching classes, that's not a taxfree scholarship
o The money is used for tuition and books
 Room and Board counts as income
TAX-FREE INTEREST INCOME
 State & Municipal Bonds
 US EE Savings Bonds
22 o US HH Bonds are taxable
 Remember: US Treasuries are taxable!!!
TAX-FREE DIVIDEND INCOME
 Some Stocks
 S-Corps
 Life Insurance
SOCIAL SECURITY BENEFITS
 Up to 85% of Social Security income can be taxed for
people in higher income brackets
UNEMPLOYMENT COMPENSATION
 Taxable
DAMAGES AWARDED
 Any payment made to make you 'whole' = Not Taxable
o You lose a limb in an auto accident and get paid
$500,000 = not counted as taxable income
 Any payment made for punitive damages = Taxable
WORKMAN’S COMPENSATION
 NOT Taxable
 Think of it as similar to being awarded damages to
make you whole = Not Taxable
23 DIVORCE, ALIMONY, & CHILD SUPPORT
 Not Taxable & Not Deductible
o Divorce Property Settlement
o Child Support
 Taxable & Deductible
o Alimony
ALIMONY RECAPTURE
 2nd Year: (3rd year - 2nd year - $15,000)
 1st Year:
1st Year Alimony Paid
<Avg. alimony paid in 2nd & 3rd years>
<$15,000>
<Recapture from 2nd year>
=1st Year Alimony Recapture  Total Recapture = 1st Year Recapture + 2nd Year
Recapture
ADOPTIONS
 Treated as personal expense and are not deductible
 Only tax benefits allowed are through the adoption
credit (which is not a refundable credit)
NET OPERATING LOSS (NOL)
 Carryback 2 ... Carryforward 20
24 IRA CONTRIBUTIONS
 Traditional IRA = Deductible
 Roth IRA = Not Deductible
FILING STATUS
 Married Filing Jointly
o Must be married at end of year
o If spouse dies, must be married at end of year
 Head of Household
o Has a dependent child
o Provides more than 50% support
o Lives with them more than 50% of year
 Qualifying Widow(er)
o Has a dependent child
o Gets MFJ status for year of death + 2 tax years
25 Get More NINJA!
Covering:
Partnership Taxation
Corporate Taxation
Gift & Estate Taxation
Property Transactions
Multi-Jurisdictional Tax Issues
Professional Responsibilities
Federal Securities Acts
Business Structures
Contract Law
Sales Law
Commercial Paper
Secured Transactions
Bankruptcy & Debt
Employment & Environment Law
Property Law
Agency Law
Dodd-Frank Reform Act
http://www.another71.com/productspage/ninja-cpa-review-study-guides/
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