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Enrolled Agent Part 1 Exam Questions and Answers
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Enrolled Agent Part 1 Exam Questions and Answers
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Enrolled Agent Part 1On which Schedule would a self-employed farmer report their income and loss? - Answer -Schedule F
What types of income are reported on Schedule E (Form 1040)? - Answer -Income from rental real
estate, royalties, partnerships, S corps, trusts, and estates.
What are some situations that make discharged debt non-taxable? - Answer -(1) bankruptcy (2)
insolvency (3) amounts cancelled as a gift or bequest (4) certain student loan cancellations (5) qualified
principal residence indebtedness
What is the Section 121 exclusion, as it pertains to the sale of a personal residence? - Answer -Taxpayers
may exclude up to $250,000 in capital gains from the sale of a main home ($500,000 if married filing
jointly)
What is the normal extended due date for individual tax returns? - Answer -October 15
What IRS forms are used by an individual taxpayer to report the gain or loss from the sale of stock? -
Answer -Schedule D and Form 8949. Form 8949 reports the details of each capital asset transaction.
Schedule D is used to report the net short-term and long-term totals of the gains and losses.
When a taxpayer takes a distribution from a retirement plan, which form does the retirement plan send
to the taxpayer to report the distribution? - Answer -Form 1099-R, Distributions From Pensions,
Annuities, Retirement or Profit-Sharing Plans
,What is an instalment sale? - Answer -A type of sale that occurs over the course of several years. Gain on
sale can be reported when instalment payments are collected, rather than at the time of the sale. The
most common type of instalment sale is the sale of real estate.
Can a taxpayer with an amount due efile their return and still pay a balance due by personal check or
money order? - Answer -Yes, a taxpayer can efile their return and submit a check payable to the United
States Treasury with a form 1040-V and mail it to the IRS. As long as the payment is postmarked by the
orginal due date of the return, the payment will be considered timely.
What is a barter transaction? - Answer -Bartering is the exchange of goods or services. A barter
exchange is an organization whose members contract with each other (or with the barter exchange) to
exchange property or services
What is "Community Income" as it relates to married couples filing separate tax returns? - Answer -
Community income is considered to belong equally to both spouses. This can affect federal tax reporting
for separate returns (MFS), especially when spouses are domiciled in a community property state.
What is a Qualified domestic relations order (QDRO), and how does it affect a taxpayer's retirement plan
reporting? - Answer -A Qualified domestic relations order (QDRO) is a type of property settlement
incident to divorce. A QDRO allows a taxpayer roll over tax free all or part of a distribution from a
qualified retirement plan that they receive from an ex-spouse under a QDRO.
How does an annulment affect a taxpayer's filing status? - Answer -An annulment is a voiding of the
marriage contract. Unlike a divorce, an annulment is retroactive. Amended returns must be filed for any
open years affected by the annulment.
What is the IRS definition of a "custodial parent"? - Answer -The custodial parent is the parent in whose
home a child lived for the greater part of the year, i.e., the parent that the child lived with the most days
during the year.
Are tips taxable, or are they considered gifts? - Answer -All tips are taxable. Tips are received as a
gratuity for services performed. Tips go beyond the stated amount of the bill and are given voluntarily.
What information is reported on Form W-2? - Answer -Form W-2 reports wages, salaries, tips, and
federal income tax withheld as well as Social Security and Medicare taxes withheld.
, How does the IRS define permanent disability? - Answer -The IRS defines "permanent disability" as a
disability that is expected to last at least a year and keeps an individual from any gainful activity. Special
exceptions apply to disabled persons who work in a sheltered workshop.
How is tax-exempt interest income reported? - Answer -Tax-exempt interest income must be reported
on a taxpayer's Form 1040, but it is not taxable at the federal level. Municipal bond interest is earned
from bonds issued by states, cities, or counties.
Is interest from a Certificate of Deposit taxable? - Answer -Interest from a certificate of deposit (CD) is
taxable in the year it is earned. A bank or credit union will usually issue a Form 1099-INT that states the
interest each year, unless the amount is under $10.
The amount of the standard deduction depends on: - Answer -Filing status, age of the taxpayer, whether
or not the taxpayer is blind, and whether the taxpayer is a dependent on someone else's return.
What are personal property taxes? Where are these taxes reported? - Answer -Taxes on personal
property include DMV fees and property tax on real estate. Personal property taxes are deductible on
Schedule A, subject to certain limitations.
What is a tax credit, and how does it affect an individual's tax return? - Answer -A tax credit is a dollar-
for-dollar reduction in tax. Tax credits can be deducted directly from taxes owed.
What is a pension? Is pension income taxable? - Answer -A pension is a series of payments made to an
employee or survivor (the beneficiary of a deceased employee's pension) after the employee retires
from work. Pension income is taxable as retirement income.
What types of gifts are exempt from gift tax reporting? - Answer -Gifts under the annual gift limit
($15,000 in tax year 2021), payments of medical expenses, payments of tuition, donations to qualified
charities, donations to political organizations, and gifts to a U.S. citizen spouse.
Are state sales taxes deductible? - Answer -Yes. Taxpayers may deduct either (1) sales tax or (2) state
and local income tax as an itemized deduction on Schedule A, (but not both).
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