EA Agent Exam Part 1 || WITH 100% CORRECT
SOLUTIONS!!!
Sole Proprietor correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers 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) correct answers 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 correct answers Independent Contractor
Common-law employees
Statutory employees
Statutory non employees
Independent Contractor correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers Income Tax
FICA Taxes
FUTA Taxes
Income Tax correct answers Employers generally must withold federal income tax from
wages. They use form W-4 to figure out how much was withheld.
, FICA Taxes correct answers 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 correct answers 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 correct answers 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) correct answers All taxpayers must use
electric funds transfer to make all federal tax deposits. Those who don't will fill out FORM
941
Required Forms correct answers Form I-9 - the employer must verify that each new employee
is legally eligible to work in the US
Form W-4 - Employers use the filing status and wit holding allowances shown on this form
the calculate the amount of income tax to withhold from employee's wages.
Form W-2 - Wage and Tax Statement correct answers After the calender year is over, each
employer must furnish copies of Form W-2 to each employee who earned wages during the
year.
Form W-2G - Certain Gambling Winnings correct answers An organization conducting
gaming activities must report certain gambling transactions to taxpayers and IRS. This
reflects winnings and federal tax withholding.
Form 1098 - Mortgage Interest Statement correct answers A person engaged in a trade or
business that receives at least $600 of mortgage interest on any one mortgage in the calendar
year must report the mortgage interest on Form 1098 to the payor or IRS.
Form 1098-E - Student Loan Interest Statement correct answers A person that receives
interest payments of $600 or more during the year on one or more qualified student loans
must furnish this statement to each student.
Form 1098-T - Tuition Statement correct answers An eligible educational institution must
provide each entolled student with reportable transactions on this form in order to report
certain amounts billed.
Form 1099-B - Proceeds from Broker and Barter Exchange Transactions correct answers In
general, a securities broker must report and provide a form 1099-B for each person for whom
the broker has sold stocks/bonds/etc for cash.
SOLUTIONS!!!
Sole Proprietor correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers 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) correct answers 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 correct answers Independent Contractor
Common-law employees
Statutory employees
Statutory non employees
Independent Contractor correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers 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 correct answers Income Tax
FICA Taxes
FUTA Taxes
Income Tax correct answers Employers generally must withold federal income tax from
wages. They use form W-4 to figure out how much was withheld.
, FICA Taxes correct answers 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 correct answers 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 correct answers 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) correct answers All taxpayers must use
electric funds transfer to make all federal tax deposits. Those who don't will fill out FORM
941
Required Forms correct answers Form I-9 - the employer must verify that each new employee
is legally eligible to work in the US
Form W-4 - Employers use the filing status and wit holding allowances shown on this form
the calculate the amount of income tax to withhold from employee's wages.
Form W-2 - Wage and Tax Statement correct answers After the calender year is over, each
employer must furnish copies of Form W-2 to each employee who earned wages during the
year.
Form W-2G - Certain Gambling Winnings correct answers An organization conducting
gaming activities must report certain gambling transactions to taxpayers and IRS. This
reflects winnings and federal tax withholding.
Form 1098 - Mortgage Interest Statement correct answers A person engaged in a trade or
business that receives at least $600 of mortgage interest on any one mortgage in the calendar
year must report the mortgage interest on Form 1098 to the payor or IRS.
Form 1098-E - Student Loan Interest Statement correct answers A person that receives
interest payments of $600 or more during the year on one or more qualified student loans
must furnish this statement to each student.
Form 1098-T - Tuition Statement correct answers An eligible educational institution must
provide each entolled student with reportable transactions on this form in order to report
certain amounts billed.
Form 1099-B - Proceeds from Broker and Barter Exchange Transactions correct answers In
general, a securities broker must report and provide a form 1099-B for each person for whom
the broker has sold stocks/bonds/etc for cash.
