EA Agent Exam Part 1
Sole Proprietor - ANS-An unincorporated business that is owned by one individual.
-The owner of the business accepts all risks and includes business income/expenses on
his personal tax return (Schedule C)
Partnership - ANS-A relationship between 2+ people who carry on a business
-Partners must file an annual information return to report operational
income/deductions/gains/losses but do not pay income tax. Instead, any profits or
losses "pass through" to its partners. They then include their respective shares of the
partnership on their personal tax returns
Qualified Joint Venture - ANS-This is for an unincorporated business jointly owned by a
married couple who does not elect for their taxes to be classified as a partnership.
Corporation - ANS-A person or group of people incorporated by charter from the
Secretary of State
1) Associations, joint stock companies, insurance companies, and trusts/partnerships
that operate as associations or corporations.
2) The profit is taxed to the corporation when earned and then is taxed to the
shareholders when distributed as dividends.
3) Corporation can avoid double taxation by electing treatment as an S Corporation.
Limited Liability Company - ANS-An entity formed under state law by filing articles of
organization as an LLC.
1) LLC members are not personally liable for its debts
2) An LLC may elect classification for federal tax income tax purposes as a
partnership/corporation or a disregarded entity form its owner.
3) unless otherwise elected, the IRS treats a multi-member LLC as a partnership for tax
purposes. If they fill out FORM 2553 they are classified as an S CORP and if they fill out
FORM 8832 they are classified as a CORPORATION
,Trust - ANS-A trust is a separate legal entity for federal tax purposes. A taxpayer may
create a trust while alive or upon death means of a will
Estate - ANS-An estate comes into being upon the death of an individual.
1) a decedents estate is separate legal entity for federal tax purposes
2) An estate consists of real and/or personal property of the deceased person
Employer Identification Number (EIN) - ANS-A business must obtain an employer
identification number (EIN) by filing Form SS4 if the business meets ONE of the
following conditions:
1) Has one or more employees
2) Files returns for employment or excise taxes
3) Maintains a qualified retirement plan
4) Operates as a corporation, partnership, is a nonprofit, estate or trust.
Types of Employees - ANS-Independent Contractor
Common-law employees
Statutory employees
Statutory non employees
Independent Contractor - ANS-People such as lawyers, contractors, subcontractors,
and auctioneers who follow an independent trade, business, or profession in which
services are offered to public.
Common-law employees - ANS-Anyone who performs the services for a person is an
employee of that person if the employer has the right to control what will be done and
how it will be done.
Statutory employees - ANS-If someone who works for an individual is not an employee
under the common law rules discussed above, the employer must not withhold federal
income tax from the employees pay, unless backup withholdings apply.
Examples are: A commission driver who delivers beverages, food, laundry. A full-time
life insurance sales agent who sells for 1 company. A home worker who works by
guidelines of the person for whom the work is done. A full-time traveling or city
, salesperson that works on an individuals behalf and turns in orders to the latter from
wholesalers, retailers, contractors, or operators of hotels, restaurants, etc.
Statutory non employees - ANS-Direct sellers, qualified real estate agents, and certain
companion sitters, by law, considered non employees. They are treated as self
employed for tax purposes.
Self-Employment Tax - ANS-A Social Security and Medicare tax primarily for individuals
who work for themselves. The self-employed MUST pay SE tax and file Schedule SE
(Form 1040) if the following applies:
1) Net earnings from SE were $400 or more
2) Church employee income of 108.28 or more
Payroll Taxes - ANS-Income Tax
FICA Taxes
FUTA Taxes
Income Tax - ANS-Employers generally must withold federal income tax from wages.
They use form W-4 to figure out how much was withheld.
FICA Taxes - ANS-Social Security and Medicare taxes pay for beneifts that workers and
their families receive under the FICA (Federal Insurance Contributions Act).
Social Security in 2015 was 6.2%
Medicare tax in 2015 was 1.45%
Additional Medicare Tax for high income employees (200k+) is .9% additional.
FUTA Taxes - ANS-This pays unemployed workers who lost their job. Federal
Unemployment Tax Act. Employees do not pay or have this witheld from their pay.
Employers must file federral unemployment tax on Form 940.
Estimated Taxes - ANS-Required to pay employment tax obligations.
Must pay on the 15th day of the 4th, 6th, 9th and 12th month of corporate year.
Electronic Federal Tax Payment System (EFTPS) - ANS-All taxpayers must use electric
funds transfer to make all federal tax deposits. Those who don't will fill out FORM 941
Required Forms - ANS-Form I-9 - the employer must verify that each new employee is
legally eligible to work in the US
Sole Proprietor - ANS-An unincorporated business that is owned by one individual.
-The owner of the business accepts all risks and includes business income/expenses on
his personal tax return (Schedule C)
Partnership - ANS-A relationship between 2+ people who carry on a business
-Partners must file an annual information return to report operational
income/deductions/gains/losses but do not pay income tax. Instead, any profits or
losses "pass through" to its partners. They then include their respective shares of the
partnership on their personal tax returns
Qualified Joint Venture - ANS-This is for an unincorporated business jointly owned by a
married couple who does not elect for their taxes to be classified as a partnership.
Corporation - ANS-A person or group of people incorporated by charter from the
Secretary of State
1) Associations, joint stock companies, insurance companies, and trusts/partnerships
that operate as associations or corporations.
2) The profit is taxed to the corporation when earned and then is taxed to the
shareholders when distributed as dividends.
3) Corporation can avoid double taxation by electing treatment as an S Corporation.
Limited Liability Company - ANS-An entity formed under state law by filing articles of
organization as an LLC.
1) LLC members are not personally liable for its debts
2) An LLC may elect classification for federal tax income tax purposes as a
partnership/corporation or a disregarded entity form its owner.
3) unless otherwise elected, the IRS treats a multi-member LLC as a partnership for tax
purposes. If they fill out FORM 2553 they are classified as an S CORP and if they fill out
FORM 8832 they are classified as a CORPORATION
,Trust - ANS-A trust is a separate legal entity for federal tax purposes. A taxpayer may
create a trust while alive or upon death means of a will
Estate - ANS-An estate comes into being upon the death of an individual.
1) a decedents estate is separate legal entity for federal tax purposes
2) An estate consists of real and/or personal property of the deceased person
Employer Identification Number (EIN) - ANS-A business must obtain an employer
identification number (EIN) by filing Form SS4 if the business meets ONE of the
following conditions:
1) Has one or more employees
2) Files returns for employment or excise taxes
3) Maintains a qualified retirement plan
4) Operates as a corporation, partnership, is a nonprofit, estate or trust.
Types of Employees - ANS-Independent Contractor
Common-law employees
Statutory employees
Statutory non employees
Independent Contractor - ANS-People such as lawyers, contractors, subcontractors,
and auctioneers who follow an independent trade, business, or profession in which
services are offered to public.
Common-law employees - ANS-Anyone who performs the services for a person is an
employee of that person if the employer has the right to control what will be done and
how it will be done.
Statutory employees - ANS-If someone who works for an individual is not an employee
under the common law rules discussed above, the employer must not withhold federal
income tax from the employees pay, unless backup withholdings apply.
Examples are: A commission driver who delivers beverages, food, laundry. A full-time
life insurance sales agent who sells for 1 company. A home worker who works by
guidelines of the person for whom the work is done. A full-time traveling or city
, salesperson that works on an individuals behalf and turns in orders to the latter from
wholesalers, retailers, contractors, or operators of hotels, restaurants, etc.
Statutory non employees - ANS-Direct sellers, qualified real estate agents, and certain
companion sitters, by law, considered non employees. They are treated as self
employed for tax purposes.
Self-Employment Tax - ANS-A Social Security and Medicare tax primarily for individuals
who work for themselves. The self-employed MUST pay SE tax and file Schedule SE
(Form 1040) if the following applies:
1) Net earnings from SE were $400 or more
2) Church employee income of 108.28 or more
Payroll Taxes - ANS-Income Tax
FICA Taxes
FUTA Taxes
Income Tax - ANS-Employers generally must withold federal income tax from wages.
They use form W-4 to figure out how much was withheld.
FICA Taxes - ANS-Social Security and Medicare taxes pay for beneifts that workers and
their families receive under the FICA (Federal Insurance Contributions Act).
Social Security in 2015 was 6.2%
Medicare tax in 2015 was 1.45%
Additional Medicare Tax for high income employees (200k+) is .9% additional.
FUTA Taxes - ANS-This pays unemployed workers who lost their job. Federal
Unemployment Tax Act. Employees do not pay or have this witheld from their pay.
Employers must file federral unemployment tax on Form 940.
Estimated Taxes - ANS-Required to pay employment tax obligations.
Must pay on the 15th day of the 4th, 6th, 9th and 12th month of corporate year.
Electronic Federal Tax Payment System (EFTPS) - ANS-All taxpayers must use electric
funds transfer to make all federal tax deposits. Those who don't will fill out FORM 941
Required Forms - ANS-Form I-9 - the employer must verify that each new employee is
legally eligible to work in the US
