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TCP UWorld Supplemental Course: Tax Compliance and Planning

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  1. WELCOME. PLEASE START HERE!

    1. Welcome to Farhat Lectures
  2. 2. How to Use This Course & Resources
  3. 3. Choosing the Right CPA Discipline
  4. 4. CPA Exam Study Tips & Common Questions
  5. 🚀Introduce Yourself
    1 Topic
  6. 🚨🚨🚨2026 AICPA Released Questions
    1 Topic
  7. 💡TCP1: Tax compliance and planning for individuals
    41 Topics
    |
    10 Quizzes
  8. 💡TCP 2: Compliance for passive activity and at-risk loss limitations (excluding tax credit implications)
    9 Topics
    |
    6 Quizzes
  9. 🚨🚨HOW TO SOLVE SIMULATIONS (TUTORIAL + VIDEO EXAMPLES)
    ✅TCP CPA Exam Simulation Tutorial + 2024 and 2025 AICPA Video Questions. UWorld
    6 Topics
    |
    2 Quizzes
  10. 🎯AICPA Released Questions
    1 Quiz
  11. 💡TCP3: Gift taxation compliance and planning
    7 Topics
    |
    2 Quizzes
  12. 🎯AICPA Released Questions
    1 Quiz
  13. 💡TCP4: Individual Financial Planning
    44 Topics
    |
    17 Quizzes
  14. 💡TCP 5.01: C Corporations: Net Operating and Capital Loss Utilization
    13 Topics
    |
    3 Quizzes
  15. 💡TCP 5.02: Transactions between a Shareholder and a C Corporation
    2 Topics
    |
    1 Quiz
  16. 💡TCP 5.03: Consolidated Tax Returns
    5 Topics
    |
    1 Quiz
  17. 💡TCP 5.04: C Corporations: International Tax Issues
    68 Topics
    |
    17 Quizzes
  18. 💡TCP 6: S Corporations
    16 Topics
    |
    3 Quizzes
  19. 💡TCP 7: Partnerships
    11 Topics
    |
    7 Quizzes
  20. 💡TCP 8: Trust taxation
    8 Topics
    |
    1 Quiz
  21. 🎯AICPA Released Questions
    1 Quiz
  22. 💡TCP 9: Tax-exempt Organizations
    3 Topics
    |
    1 Quiz
  23. 🎯AICPA Released Questions
    1 Quiz
  24. 💡Tcp 10: Formation And Liquidation Of Business Entities
    13 Topics
    |
    6 Quizzes
  25. 💡TCP 11: Tax Planning for Corporations
    12 Topics
    |
    5 Quizzes
  26. 🎯AICPA Released Questions
    3 Quizzes
  27. 💡Tcp 12: Tax Planning For S Corporations
    16 Topics
    |
    10 Quizzes
  28. 🎯AICPA Released Questions
    3 Quizzes
  29. 💡TCP 13: Tax planning for partnerships
    4 Topics
    |
    3 Quizzes
  30. 🎯AICPA Released Questions
    4 Quizzes
  31. 💡TCP 14: Nontaxable disposition of assets
    15 Topics
    |
    11 Quizzes
  32. 💡TCP 15: Amount and character of gains and losses on asset disposition, and netting process, including installment sales
    14 Topics
    |
    14 Quizzes
  33. 🎯 AICPA Released Questions: Property Transactions
    3 Quizzes
  34. 💡TCP 16: Related party transactions, including imputed interest
    5 Topics
    |
    3 Quizzes
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Responses

    1. Hello Martavious,

      John’s $2,500 of ordinary income is only the “bargain‐element” of the option (the $5 per share you’re taxed on). Your tax basis in the stock is everything you’ve “invested” in it:
      – Cash paid on exercise: 500 shares × $10 = $5,000
      – Income recognized at exercise: 500 shares × ($15 FMV − $10 exercise price) = $2,500

      Together, those give you a cost basis of $5,000 + $2,500 = $7,500. If you used only $2,500 as John’s basis, you’d ignore the $5,000 he actually paid to buy the shares.

      I hope this makes sense!

  1. In the video when Farhat is giving an example it seems that the exercise price = fmv of the stock and if we continue with the video I got the clarity that exercise price = strike price. please correct me if I am wrong.

    1. Hello Prem,

      You are correct, the exercise price is the same as the strike price.

      In the example shown, the strike (exercise) price is $40 (set on the grant date). The FMV of $50 is the market price at the exercise date.

      The option is “in the money” when the FMV of the stock is greater than the exercise (strike) price.
      If FMV > $40 → in the money
      If FMV < $40 → out of the money Since the FMV is $50, which is greater than the $40 strike price, the option is in the money. Hope this helps!

  2. For Non-Qualified Stock with determinable option price. Employer can deduct FV of option price ($1000) as explained in video. Employer should also be able to deduct $2500 (diff between FV on exercise date – Exercise price), correct?

    1. Hello Rohit,

      No, the employer does not get a second deduction for the $2,500 at exercise in this example.

      Because the nonqualified stock option had a readily ascertainable value at the grant date, John recognized ordinary income of $1,000 at the grant date. The employer’s deduction generally matches the amount of compensation income recognized by the employee, so the employer deducts $1,000 at that time. The IRS notes that nonstatutory options with a readily determinable fair market value are taxable at grant, while options without a readily determinable value are taxed at exercise.

      The $2,500 amount at exercise is not a second compensation deduction here because John is not recognizing additional ordinary income at exercise. That appreciation is reflected later in the employee’s capital gain or loss when the stock is sold.

      Therefore, the rule is:
      • If the NQSO has a readily ascertainable value at grant → employee recognizes ordinary income at grant, and employer deducts that same amount.
      • If the NQSO does not have a readily ascertainable value at grant → employee recognizes ordinary income at exercise, and employer deducts the bargain element at exercise.

      Hope this helps!

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