How Tax Reform Impacts the CPA Exam: Key Changes and Testable Areas

Tax Reform and the CPA Exam

Tax law is one of the most dynamic areas of accounting, and the CPA exam must reflect the current state of the law. Since the Tax Cuts and Jobs Act (TCJA) of 2017, successive legislative actions have continued to reshape the tax landscape. For CPA candidates, understanding which provisions are current, which have expired or are sunsetting, and which are newly enacted is critical for exam success.

The CPA exam REG section tests federal taxation extensively, and the AICPA updates the exam content to reflect legislative changes once they are enacted and effective. This means candidates must study the law as it stands during their testing window, not historical provisions or proposed legislation that has not yet been signed into law.

Individual Tax Provisions Under Scrutiny

Many TCJA individual provisions are scheduled to sunset after December 31, 2025. These include the reduced marginal tax rates, the increased standard deduction, the suspension of personal exemptions, the $10,000 cap on state and local tax (SALT) deductions, and the increased child tax credit. Whether Congress extends, modifies, or allows these provisions to expire will significantly affect what CPA candidates need to study.

If the individual provisions sunset, pre-TCJA rules would generally return. This would mean lower standard deductions, the return of personal exemptions, uncapped SALT deductions, and different marginal tax brackets. CPA candidates taking the exam in late 2025 or 2026 should pay close attention to legislative developments and AICPA announcements about which version of the law is tested.

Qualified Business Income Deduction

The Section 199A qualified business income (QBI) deduction allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities. This provision is also subject to the TCJA sunset. CPA candidates should understand the computation of the QBI deduction, including the W-2 wage and qualified property limitations, the specified service trade or business (SSTB) restrictions, and the taxable income thresholds that phase in these limitations.

Corporate Tax Changes

Unlike many individual provisions, the TCJA reduction of the corporate tax rate to 21% was made permanent. However, other corporate provisions have evolved. The treatment of research and experimental expenditures changed significantly beginning in 2022, requiring capitalization and amortization over five years for domestic research (fifteen years for foreign research) rather than immediate expensing. This change has generated substantial discussion and legislative proposals for modification.

The corporate alternative minimum tax (CAMT) introduced by the Inflation Reduction Act imposes a 15% minimum tax on the adjusted financial statement income of large corporations with average annual adjusted financial statement income exceeding $1 billion. CPA candidates should understand the basic mechanics of this tax, including the computation of adjusted financial statement income and the interaction with regular corporate income tax.

Bonus Depreciation Phase-Down

The 100% bonus depreciation provision began phasing down after 2022, with the rate decreasing by 20 percentage points per year. By 2025, the bonus depreciation rate is 40%, and by 2027, it will be fully phased out absent legislative action. CPA candidates should know the current rate for their testing window and understand how bonus depreciation interacts with Section 179 expensing and the MACRS depreciation system.

International Tax Provisions

The TCJA fundamentally restructured international taxation by moving toward a territorial system with anti-abuse provisions. Key international provisions that CPA candidates should understand include the Global Intangible Low-Taxed Income (GILTI) rules, the Base Erosion and Anti-Abuse Tax (BEAT), and the Foreign-Derived Intangible Income (FDII) deduction.

The OECD Pillar Two framework, establishing a global minimum tax rate of 15%, adds another layer of complexity. While the United States has not enacted Pillar Two implementing legislation, many other countries have, which affects US multinational companies. CPA candidates should understand the conceptual framework of Pillar Two and how it interacts with existing US international tax provisions like GILTI.

Energy and Climate Tax Incentives

The Inflation Reduction Act of 2022 introduced or expanded numerous energy-related tax credits, including the clean vehicle credit, the residential clean energy credit, the energy efficient home improvement credit, and various business energy credits. These provisions are testable on the CPA exam and represent a growing area of tax practice.

Exam Preparation Strategies for Tax Reform

• Always study the version of the tax law that applies to your testing window, and verify this through AICPA exam content updates.
• Focus on understanding the mechanics and limitations of key provisions rather than memorizing specific dollar thresholds that may change.
• Pay particular attention to the interplay between individual and corporate provisions, especially for pass-through entity taxation.
• Understand the conceptual framework behind international tax provisions, even if the specific calculations are complex.
• Practice multi-step tax computation problems that integrate several provisions, as the exam tests application more than recall.

Tax reform is an ongoing process, and the CPA exam evolves with it. Building a strong conceptual foundation will help you adapt to whatever changes the law brings, both on the exam and in your career.