The biggest mistake candidates make with tax planning isn't forgetting a rule—it's misjudging the timing. You might know the mechanics of a Roth conversion cold, but the exam won't ask what it is. It will give you a client with a volatile income stream and ask you when to pull the trigger. Get that wrong, and you fail the question.
Tax planning for the EA exam involves advising on the strategic timing of income and deductions, and the optimal use of tax-advantaged accounts. It requires applying rules on Roth conversions, capital gains, and bunching deductions to minimize a client's lifetime tax liability, not just their current-year bill.
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Why Do Tax Planning Strategies Matter on the EA Exam?
Tax planning questions test your ability to think like an advisor, not just a preparer. They require you to look at a client's financial picture—this year, next year, and in retirement—and recommend the most tax-efficient course of action. This is about proactive decision-making to legally minimize a client's tax burden.
On SEE Part 1, these questions are designed to separate candidates who memorize from those who can apply. You won't just be asked to calculate a deduction. You'll be asked to advise whether to take it this year or next, or whether a different strategy altogether would yield a better result. Expect scenarios that ask you to:
- Identify the best course of action among several options.
- Calculate the tax impact of a proposed strategy.
- Determine the optimal timing for a financial move.
The trap isn't the complexity of the rules themselves, but the failure to connect them to a client's specific circumstances—their current vs. future income, their age, and their long-term goals. You might know the Roth contribution limits, but can you spot the one year in a client's life when a massive conversion makes perfect sense? That's the judgment the IRS is looking for.
Ready to see if you can spot these opportunities? Try a set of VoraPrep's adaptive EA practice questions and test your judgment.
What Key Tax Planning Rules Must I Know for 2026?
To score high on these questions, you need a firm grasp of the mechanics and the strategic implications of several core tax provisions. All dollar amounts are based on 2025 figures, which are the most current available; assume 2026 amounts will be indexed for inflation.
Roth Conversion Strategies
A Roth conversion moves pre-tax retirement funds (like a traditional IRA) into a post-tax Roth IRA. The entire converted amount is taxable as ordinary income in the year of the conversion.
- The Core Strategy: Convert in a year when your marginal tax rate is lowest. This minimizes the tax cost of the conversion, allowing future growth and qualified withdrawals to be tax-free when you're likely in a higher bracket during retirement.
- The Backdoor Roth: For high-income earners phased out of direct Roth contributions (phase-out for single filers begins at $151,000 in 2025), this involves making a non-deductible contribution to a traditional IRA and then promptly converting it to a Roth.
- The Pro-Rata Rule Trap: If you have any other pre-tax IRA funds (including SEP/SIMPLE IRAs), you can't just convert the non-deductible portion tax-free. The conversion is taxed based on the ratio of your pre-tax IRA balances to your total IRA balances.
- The 5-Year Rule for Conversions: This is a common exam trap. A 10% penalty applies to withdrawals of converted funds within 5 years of the conversion, even if you are over age 59½. Each conversion has its own 5-year clock.
Income and Deduction Timing
This involves shifting income and deductions between tax years to take advantage of changes in marginal tax rates.
| Strategy Component | Action in High-Income Year | Action in Low-Income Year |
|---|---|---|
| Income (e.g., bonuses, consulting fees) | Defer to a future, lower-income year. | Accelerate from a future, higher-income year. |
| Deductions (e.g., business expenses) | Accelerate payment to offset high-taxed income. | Defer payment to a future, higher-income year. |
| Capital Gains | Harvest capital losses to offset gains. | Harvest capital gains to take advantage of low rates. |
| Roth Conversions | Generally avoid; conversion is taxed at a high rate. | Optimal time to convert; pay tax at a lower rate. |
Year-End Planning Opportunities
- Bunching Itemized Deductions: With the state and local tax (SALT) deduction capped at $10,000 and a high standard deduction ($30,700 for MFJ in 2025), it's often best to "bunch" controllable deductions. This means prepaying two years' worth of property taxes (if allowed) or charitable contributions into one year to exceed the standard deduction, then taking the standard deduction the next year. This is also a key strategy for medical expenses, which are only deductible above a 7.5% AGI floor.
- Donating Appreciated Property: Donating stock held for more than a year allows a deduction for the Fair Market Value (FMV) while avoiding capital gains tax on the appreciation. This is almost always more tax-efficient than selling the stock and donating the cash.
- Qualified Charitable Distributions (QCDs): Taxpayers age 70½+ can donate up to $110,000 (2025 amount) directly from an IRA to a charity. The distribution is excluded from income and counts toward any Required Minimum Distribution (RMD), which is a powerful way to reduce AGI.
- Required Minimum Distributions (RMDs): The RMD age is 73 for those born 1951-1959 and 75 for those born 1960 or later. Failing to take an RMD triggers a stiff 25% penalty (or 10% if corrected promptly).
ABLE Accounts
These are tax-advantaged savings accounts for individuals diagnosed with a significant disability before age 26.
- Contributions: Up to the annual gift tax exclusion ($19,000 for 2025) can be contributed using after-tax dollars.
- Tax Benefit: Growth and qualified withdrawals are tax-free.
- Key Planning Point: The first $100,000 in an ABLE account does not count against the asset limit for means-tested benefits like SSI. This is a critical tool for preserving eligibility.
For a deeper look at the interplay with education credits, see our guide on how the EA exam tests education tax benefits.
Worked Example: Thinking Through a Roth Conversion
Let's apply these concepts to a scenario that perfectly illustrates the "judgment over recall" principle.
Scenario: Maria, age 55 and single, has an Adjusted Gross Income (AGI) of $160,000 in 2025. She has $300,000 in a pre-tax traditional IRA. She plans to take a sabbatical in 2026 and projects her AGI will drop to just $60,000. She expects to be in a 24% marginal tax bracket in retirement. In 2025, her marginal rate is 24%. Question: Maria is considering converting $100,000 of her traditional IRA to a Roth IRA. What is the tax difference between converting in 2025 versus 2026? (Use 2025 tax brackets for single filers: 22% up to $105,000 taxable income, 24% up to $199,000). The Tempting Wrong Answer: A candidate focused on "getting money into a Roth ASAP" would advise converting in 2025. They see the 24% rate now matches her future 24% rate and think it's a wash. This ignores the golden opportunity presented by the low-income year. Step-by-Step Reasoning:- Analyze the 2025 Conversion:
- Maria's 2025 AGI is $160,000. The conversion adds $100,000, making her AGI $260,000.
- This pushes a significant portion of her income into the 32% bracket.
- The tax on the $100,000 conversion would be a blend of her 24% and 32% brackets. Let's estimate the tax cost at roughly $28,000. (A precise calculation isn't needed to see the strategic error).
- Analyze the 2026 Conversion (The "Aha" Moment):
- Maria's 2026 projected AGI is only $60,000.
- The $100,000 conversion adds to this, bringing her total 2026 AGI to $160,000.
- Let's calculate the tax on that $100,000 with more precision, assuming a $15,000 standard deduction for a single filer in 2026.
- Her taxable income without the conversion would be $60,000 - $15,000 = $45,000. This is all in the 12% and 22% brackets.
- The $100,000 conversion income would fill up the rest of the 22% bracket and then move into the 24% bracket.
- Roughly $60,000 of the conversion would be taxed at 22% (~$13,200).
- The remaining $40,000 would be taxed at 24% (~$9,600).
- Total tax on the conversion in 2026: ~$13,200 + ~$9,600 = $22,800.
- Compare and Conclude:
- Tax cost in 2025: ~$28,000
- Tax cost in 2026: ~$22,800
- Tax Savings by Waiting: ~$5,200
Your 7-Day Turnaround Sprint on Tax Planning Judgment
Use this intensive plan to move from memorization to application in one week.
- Day 1: Master the Roth Conversion Decision. Don't just review the rules. Create a checklist of factors for advising a conversion: current vs. future tax rates, availability of cash to pay the tax, the 5-year rule, and the pro-rata rule. Work 5 VoraPrep questions specifically on conversion timing.
- Day 2: Run Income & Deduction Scenarios. Take three different client profiles (e.g., W-2 employee with bonus, cash-basis freelancer, retiree with capital gains). For each, map out the best timing for income and deductions if they expect income to rise next year vs. fall next year.
- Day 3: Master Deduction Bunching. Calculate the two-year total deduction for a client using the bunching strategy vs. not bunching. Use the current standard deduction and SALT cap. Do this for charitable contributions and then for medical expenses.
- Day 4: Connect the Concepts. Work through practice questions that combine at least two planning strategies. For example, a client harvesting capital losses and considering a Roth conversion. How does one affect the other? Our AI tutor, Vory, can walk you through these multi-step problems.
- Day 5: Drill the Thresholds. Create flashcards for only the most critical numbers: RMD ages (73/75), QCD age (70½) and limit, ABLE contribution limit, and the capital loss deduction limit ($3,000).
- Day 6: Identify Your Personal Traps. Go through every practice question you've gotten wrong this week. Write down the reason for the error in one sentence. Was it a misread? A forgotten rule? A calculation mistake? This log is your personal study guide.
- Day 7: Full Scenario Simulation. Take a 25-question quiz composed entirely of scenario-based planning questions. Treat it like the real exam. Review every explanation, even for questions you got right, to reinforce the underlying judgment.
Tax planning isn't an isolated topic. It's built on a solid understanding of income, deductions, and retirement accounts. For a complete overview, review our breakdown of the entire EA SEE Part 1 exam.
Frequently Asked Questions
How many tax planning questions are on the EA exam? The IRS does not specify counts, but expect 10-15% of SEE Part 1 questions to require tax planning judgment. These skills are often integrated into questions about income, deductions, or retirement. What is the best way to study tax planning strategies? Focus on scenario-based practice questions. For every rule you learn, immediately ask "How would I use this to advise a client?" and work through an example. VoraPrep's library of over 3,000+ EA practice questions is built for this purpose. Is tax planning tested only with multiple-choice questions? Yes, the entire SEE Part 1 exam, including tax planning, consists of multiple-choice questions (MCQs). However, complex, multi-part scenarios can feel like mini case studies that demand deep analytical skills. What's the most common mistake candidates make on these questions? The most common mistake is focusing only on the current tax year. Candidates often select an answer that provides an immediate benefit but ignores a much larger tax cost or savings in a future year.---
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Official Resources and References
- IRS Enrolled Agent Information: Official IRS page for Enrolled Agents.
- Prometric IRS Enrolled Agent Exam Information: Details about exam registration, scheduling, and the candidate handbook.
- IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs): Detailed guidance on IRA contributions and conversions.
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs): Information on IRA distributions, including RMDs and qualified charitable distributions.