Complete Strategy for the US CPA/EA Exam — Tax, Financial Accounting, Business Law, and More

The Formula for Passing

The Uniform CPA Exam consists of four sections, each requiring a score of 75 or higher to pass (scored on a 0–99 scale). The IRS Enrolled Agent (EA) Exam consists of three parts, also requiring 105 out of 150 points per part to pass.

CPA Exam Structure (AICPA)

Financial Accounting and Reporting (FAR)
Auditing and Attestation (AUD)
Regulation (REG) — covers federal taxation and business law
Business Analysis and Reporting (BAR) or one of the discipline sections (ISC, TCP)
Each section: 75-point passing threshold
Must pass all sections within 30 months

For the EA Exam, the three-part structure is:

Part 1: Individual Taxation
Part 2: Business Taxation
Part 3: Representation, Practices, and Procedures (Circular 230)

Strategic subject balance is critical — a high score in one section cannot offset a failure in another.

Subject Priority Ranking

The practical priority order for the CPA REG section (and EA overlap):

구분

Building individual tax and business entity tax together creates the most efficient path — REG knowledge directly reinforces EA preparation.

Federal Tax Law: 5 Core Themes

Federal taxation has fixed high-frequency topics that reward focused study with high scores.

Theme 1 — Individual Income Tax Structure (Form 1040)

Gross income inclusions and exclusions (§61, §101–§139)
Above-the-line deductions (Schedule 1): educator expenses, student loan interest, HSA, self-employment tax deduction
Standard deduction vs itemized deductions (Schedule A): SALT cap, mortgage interest, charitable contributions
Tax credits vs deductions: Child Tax Credit, Earned Income Credit (EIC), American Opportunity Credit
AMT (Alternative Minimum Tax) basics

Theme 2 — Business vs Employee Income Classification

Independent contractor vs employee distinction (IRS common-law test: behavioral control, financial control, type of relationship)
Schedule C (Sole Proprietor): net profit, self-employment tax calculation
W-2 employees: withholding, FICA obligations
Misclassification penalties: employer liability under IRC §3509

Theme 3 — Optimal Tax Policy (from REG Theory)

Tax neutrality vs tax incentives
Horizontal equity vs vertical equity
Regressive vs progressive tax structure
Economic effects of excise taxes, capital gains rates, and depreciation incentives

Theme 4 — Deficit Financing and Government Debt

Fiscal policy and automatic stabilizers
Ricardian Equivalence theory in tax policy debates
Tax multiplier and crowding-out effect
Treasury securities and the national debt ceiling

Theme 5 — Business Entity Taxation Overview

Sole proprietor (Schedule C), Partnership (Form 1065), S-Corp (Form 1120-S), C-Corp (Form 1120)
Pass-through vs double taxation
Self-employment tax implications by entity type

Individual Income Tax: Focused Review (Form 1040)

6-Step Tax Computation Structure

① Total gross income (wages, interest, dividends, business, rental, other)
       ↓
② Adjusted Gross Income (AGI)
   (Gross income − above-the-line deductions)
       ↓
③ Taxable Income
   (AGI − Standard Deduction or Itemized Deductions)
   (AGI − Qualified Business Income Deduction if applicable)
       ↓
④ Tentative Tax (apply tax brackets)
   2024 brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%
       ↓
⑤ Tax Credits applied
   (Child Tax Credit, EIC, Education Credits, Foreign Tax Credit)
       ↓
⑥ Net Tax Due / Refund
   (Tax − Withholding / Estimated Tax Payments)

Key Exclusions from Gross Income (Nontaxable Income)

Gifts and inheritances (§102)
Life insurance death benefits (§101)
Municipal bond interest (§103) — state and local government bonds
Workers’ compensation (§104)
Up to $250,000 ($ 500,000 MFJ) gain on home sale (§121)
Employer-paid health insurance premiums

Business Entity Taxation: 3 Core Areas

Financial Statements and Their Interrelationships (FAR)

Statement	Core Information	Period
Balance Sheet	Assets, Liabilities, Equity balances	End of period
Income Statement	Revenue, Expenses, Net Income	Period
Statement of Stockholders’ Equity	Changes in equity accounts	Period
Cash Flow Statement	Operating, Investing, Financing flows	Period
Notes to Financial Statements	Supplemental disclosures	End of period

Basic Journal Entry Types (7 Patterns)

Asset acquisition: (Dr) Asset ↑ / (Cr) Cash ↓ or Liability ↑
Liability recognition: (Dr) Expense ↑ / (Cr) Accrued Liability ↑
Revenue recognition: (Dr) Cash / Receivable ↑ / (Cr) Revenue ↑
Depreciation: (Dr) Depreciation Expense ↑ / (Cr) Accumulated Depreciation ↑
Bad debt: (Dr) Bad Debt Expense ↑ / (Cr) Allowance for Doubtful Accounts ↑
Inventory: (Dr) Cost of Goods Sold ↑ / (Cr) Inventory ↓
Equity issuance: (Dr) Cash ↑ / (Cr) Common Stock + APIC ↑

Cost Accounting Basics: CPA Exam Focus Points

Three elements of product cost: Direct Materials, Direct Labor, Manufacturing Overhead
Cost flow: Raw Materials → WIP → Finished Goods → COGS
Absorption costing vs variable costing operating income difference

Business Law: Contracts and Commercial Law

Business law on the CPA REG exam focuses on contracts, agency, and the UCC.

Key Contract Law Concepts (Common Law + UCC Article 2)

① Contract Formation

Offer, Acceptance, Consideration — the three essentials
Statute of Frauds: contracts requiring written form (real estate, contracts > 1 year, goods ≥ $500 under UCC)
Capacity and legality requirements

② Agency Law

Principal-agent relationship and fiduciary duties
Actual authority vs apparent authority vs ratification
Disclosed vs undisclosed principal liability

③ Secured Transactions (UCC Article 9)

Security interest, collateral, perfection (filing a UCC-1)
Priority rules among competing creditors

④ Bankruptcy Basics (Chapter 7 vs Chapter 11)

Liquidation (Chapter 7) vs Reorganization (Chapter 11 and Chapter 13)
Automatic stay, exempt property, discharge of debts

Circular 230 and Tax Preparer Ethics

구분

Circular 230 governs the conduct of attorneys, CPAs, EAs, and other practitioners before the IRS. Key duties include: due diligence, prompt responses to IRS requests, and prohibition on frivolous positions.

12-Month Study Plan

Months 1–2

FAR foundation — Master the balance sheet equation (Assets = Liabilities + Equity), income statement structure, and 7 basic journal entry types. Read IRC §61 (gross income definition) for context.

Months 3–4

REG individual tax — Form 1040 six-step structure, key exclusions, above-the-line deductions, and Schedule C. Start EA Part 1 material simultaneously.

Months 5–6

REG business entities — partnerships, S-corps, C-corps, depreciation (MACRS), §179 expensing. Business law: contracts, agency, UCC Article 2. First pass through practice questions.

Months 7–8

AUD fundamentals and EA Part 3 (Circular 230). Full-length practice exams for REG and FAR. Focus reinforcement on weak areas.

Months 9–10

Scheduled practice exams with timed simulations. Practice time management across all sections. Maintain error log.

Months 11–12

Final review of most-tested topics. Full practice exam for each section. 2 weeks before exam: cycle through summary notes for all sections.

Study Checklist

Review all items before the exam.

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