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EA Part 1 · Topic guide

Advising the Individual Taxpayer

Individual tax advice starts with what changed: employment, family, investments or residence. Connect that change to withholding, records, elections and filing obligations, then explain the assumptions behind the recommendation.

Life event to planning action

Employee becomes self-employed

Tax question
How will income and SE tax be paid?
Useful next action
Project income and review estimated payments.

Investment sold

Tax question
What are basis, character and gain?
Useful next action
Collect acquisition records before estimating tax.

Marriage or household change

Tax question
Which filing status and benefits apply?
Useful next action
Update the household facts and review withholding.

Move abroad

Tax question
Which U.S. filing and foreign-income rules still apply?
Useful next action
Check citizenship/residency and foreign tax records.
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For the July 2026-February 2027 SEE window: tax law through December 31, 2025; questions generally use calendar year 2025.

How to work through the decision

  1. 1Identify the change
  2. 2Model the tax consequence
  3. 3Explain and document the choice

Turn a life event into a specific planning question

Useful tax advice begins with the event, the timing and the decision the taxpayer can still make. A new business can change income tax, self-employment tax and payment obligations. A marriage or separation can change filing status and credit eligibility. A sale can create a gain and an installment-payment issue. The objective is to connect those effects, rather than recommend a deduction without understanding the rest of the return.

Separate facts from forecasts. Wage income already earned is different from projected consulting profit. A planned contribution is different from one actually made. Record the assumptions and identify the fact that would require revising the advice. In an exam scenario, the best next action may be obtaining a missing fact instead of immediately selecting a product, election or filing position.

Build a projection and a payment calendar

Project full-year income from all sources, allowable expenses, deductions and credits. For a new sole proprietor, estimate net profit rather than treating revenue as earnings available to spend. Self-employment tax is a separate calculation, with its deductible part entering the income-tax computation. Compare the projected total tax with withholding and payments already made, then assess the estimated-tax safe-harbor and installment rules.

A recommendation to “save money for April” is incomplete if payments are due during the year. Withholding and estimated payments have different timing treatment, and irregular income may call for the annualized-income method. The detailed safe-harbor lesson explains those mechanics. Here, the planning output should identify the amount to review, the date to review it and the event that would trigger an updated projection.

Job to self-employment

Questions to resolve
Profit, SE tax, remaining withholding
Planning output
Updated projection and payment dates

Marriage or separation

Questions to resolve
Year-end status, residence, support
Planning output
Filing-status and credit review

Investment sale

Questions to resolve
Basis, holding period, capital losses
Planning output
Gain estimate and payment review

Move abroad

Questions to resolve
Residence, income source, foreign taxes
Planning output
Cross-border filing and benefit analysis

Evaluate timing, eligibility and cash consequences

A deduction does not reimburse the full cost of an expenditure. Spending $1,000 solely to obtain a deduction may reduce tax by only a fraction of that amount. Likewise, moving a receipt or deduction between years is useful only if the law permits the timing and the overall consequences support it. Explain the after-tax result, cash requirement and eligibility conditions together.

For a move abroad, citizenship or residence status can preserve U.S. reporting obligations. Foreign earned income relief requires qualification and coordination with foreign tax credits; working overseas does not automatically exclude every receipt. For household changes, test each benefit rather than assuming that the person who claims a dependent gets every associated tax advantage. Advice should state which conditions remain to be verified and avoid promising an outcome from incomplete facts.

Original worked example

A freelancer needs a payment plan

A salaried client leaves employment in July and starts consulting. No tax is withheld from the consulting receipts.

  1. 1

    Separate gross receipts from deductible business costs to estimate net profit.

  2. 2

    Include the possible SE-tax effect as well as income tax.

  3. 3

    Compare projected payments with the applicable estimated-tax rules and payment dates.

Result

The advice addresses both the projected liability and when payments must be made.

A profit projection without a payment calendar can still leave an underpayment problem.

Apply the method to different facts

Original worked case 2

A payment projection needs a timing follow-up

A client projects $18,000 full-year total tax, $10,000 withholding and $3,000 estimated payments already made. A late-year business contract could add income. The facts do not establish payment dates or a safe harbor.

  1. Calculate the present projected gap: $18,000 - $10,000 - $3,000 = $5,000.
  2. Do not label $5,000 as the penalty-free required estimate. Obtain prior-year tax, applicable AGI, payment dates and the timing of the new income.
  3. Update the projection when the contract amount becomes reliable and evaluate the available withholding or estimate response.

The $5,000 is a planning gap under current assumptions. The recommendation still needs an installment analysis and an update trigger.

Mistakes to catch

  • Recommending a deduction without establishing eligibility and records.
  • Promising a tax saving before considering related limits or additional taxes.

Check your understanding

Should advice use last year’s return alone?

Use it as a starting point, then update the facts. A job change or large sale can materially change the current-year result even when the prior return was correct.

2. A client wants to spend $2,000 only to claim a deduction. What should the advice explain?

Answer: The business purpose, deductibility, cash cost and expected tax saving.

An allowable deduction is not dollar-for-dollar reimbursement. A planning decision must consider the remaining after-tax cost and any limits, not just the size of the deduction.

3. Does an overseas work assignment eliminate the need for a U.S. tax projection?

Answer: No. Determine the taxpayer’s status, income, foreign taxes and available relief.

The assignment can create new coordination issues rather than end the filing obligation. Residence qualification and income eligibility must be evaluated separately.

Put the rule into practice

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Sources and scope

Source check: . IRS and PSI materials support the factual rules. Worked cases and suggested study sequences are original educational examples, not official exam questions or IRS study requirements.

Use the version applicable to your testing window. Live IRS pages can advance to a later tax year. These notes are exam study material; examples state simplifying assumptions.