Tips for Passing the CPA Exams in 2021

Intro

Back in 2019, I passed the REG exam with a score of 91. I also scored a 98 on BEC, 95 on FAR, and 90 on AUD. So I decided to launch my company Maxwell CPA Review to help students pass the CPA exams. In this article, I’m going to guide you through which REG topics to focus on to pass the exam! At a high level, I will introduce important REG topics and even include a few study tips. So let’s jump in!

My Study Approach

Throughout my 8 weeks of studying, I spent two-and-a-half hours studying each day Monday–Friday and 5 hours each day Saturday–Sunday, totaling around 20 study hours a week. The recommended number of study hours for REG is around 110, and I spent around 140 hours preparing for REG.

What’s the difference between the Monday–Friday study routine versus the Saturday–Sunday routine? Monday through Friday, you only want to focus on new content. Watch new video lectures, do a few practice questions, and create a summary outline of what you’re learning. Then on the weekend, first review the content you learned during the week, and then do as many practice problems as possible. Since REG includes so many rules, SIMs are a good way to test your retention of multiple rules all in one problem.

REG Exam Structure

Even though the REG exam has a lot of rules and details, the good news is that there are certain inflation-adjusted numbers that you do not have to worry about memorizing. For example, the standard deduction amounts change every year, so you would not have to memorize them for the exam. 

The REG exam is broken up into the two major sections of taxation and ethics/business law. Let’s first jump into the taxation section.

Individual Taxation

The first area of taxation is individual taxation, which is for how each person is taxed on their 1040 form. You want to know how adjusted gross income (AGI) is calculated because it’s used for several tax deduction and credit limits. Know the difference between pre-AGI and post-AGI. 

Next, it’s important to know how a deduction functions differently from a credit. Also, know how the standard deduction differs from itemized deductions. Make sure you understand how capital gains and losses work. Specifically, know how short-term gains are taxed versus long-term gains, along with how to net them together.

To keep everything clear on individual taxation, there are three different income buckets you want to distinguish between: ordinary income (e.g. W-2 income), passive income (e.g. rental income), and investment income (e.g. selling stocks). These buckets matter, because there are different rules for each type of income.

Business Taxation

Within business taxation, there are several types of entities to study. Business entities include C-Corps, S-Corps, LLCs, Partnerships, and Sole Proprietorships. A C-Corp pays tax on its income, meaning that the C-Corp itself pays the tax, not the individual. S-Corps are known as pass-through entities which means the income is passed through the business return to the individual tax return (1040). Therefore, the individual pays tax on the S-Corp income, not the entity itself. 

Within business taxation, make sure you understand the topic of basis quite thoroughly. Different rules apply when it comes to S-Corp basis versus partnership basis.

Property Transactions

You need to know how property transactions are taxed for the REG exam. For example, when a company sells vehicles, how is the transaction taxed? Three important factors to consider for property taxation include 1) length of ownership, 2) type of property, and 3) depreciation recapture. 

Make sure you know the difference between ordinary assets, 1231 assets, and capital assets. Finally, study the various depreciation methods, such as straight-line depreciation, bonus depreciation, and Section 179 depreciation.

Ethics Section

The second major section of the REG exam focuses on ethics and business law. The ethics section focuses on ethical guidelines for accountants. For example, students need to know about tax preparer penalties and what causes them (e.g. failure to sign a return). Additionally, know the difference between negligence, gross negligence, and breach of contract.

Business Law Section

For the business law section, make sure you know how contracts work. Consider questions like, “When is a contract valid?” “When is a contract fulfilled?” and “When is a verbal contract allowed?” Also, study how assignment works, which is essentially when Company A pays Company B to perform a job, and Company B instead pays Company C to perform the job.

Conclusion

And there you have it! In this article, we have covered the major sections of the REG exam to focus on to put you on the path to a 75! I hope this article has put you one step closer to passing your exam.

About the Author

Kyle Ashcraft is a CPA that scored a 90+ on all four CPA exams. Kyle founded Maxwell CPA Review, which is an exam-prep company that offers one-on-one tutoring for the CPA exams. Kyle can be reached at MaxwellCPAreview@gmail.com or by visiting MaxwellCPAreview.com