ENROLLED AGENT 2026 CORE EXAM TEST QUESTIONS AND
ANSWERS GUARANTEE A+
✔✔Ways Alternative minimum tax is triggered - ✔✔NOL deductions in a business,
interest deductions on home equity loans, large itemized deductions for SALT, foreign
tax credits, passive income or loss, certain installment of sale income, unreimbursed
employee expenses, exemptions for dependents, Child & education tax credits, interest
income on certain tax-exempt bonds, exercise of incentive stock options
✔✔These types of expenses might be hard to prove to IRS auditors - ✔✔cash
expenses
✔✔With Cash expenses, small items such as tips, shared transit, waitress tips, parking
lots, postage, etc may be okay, but this might trigger suspicion - ✔✔purchase of larger
items
✔✔In order for an expense to qualify as deductible, the expense must be: - ✔✔ordinary
and necessary for the business, not extravagant, and primarily for business (not
personal)
✔✔What's the number one thing that causes suspicion when auditing small
businesses? - ✔✔Personal expenses being disguised as business deductions
✔✔True or false: Commuting costs are tax deductible - ✔✔false
✔✔Government-imposed fines, bribes and kickbacks, referral payments to get a client
or customer, if illegal under state or federal law, and political contributions or payments
to purely social organizations are all examples of - ✔✔Expenses that are never
deductible
✔✔True or false: value of services are tax deductible - ✔✔false
✔✔True or false: payments to relatives (or to businesses owned by relatives) are
suspect - ✔✔true
✔✔T/F The tax code not only dictates what is considered deductible, but also when you
can deduct something - ✔✔true
✔✔_______ Expenses are everyday costs of running your business. I.e. monthly
phone, rent, utilities - ✔✔Current
✔✔When are current expenses deductible? - ✔✔In the year that they're incurred
, ✔✔_____ Expenses are costs that will provide benefit to the business beyond the
current tax year. I.e. machinery, computers, furniture must be deducted over multiple
years. - ✔✔Capital
✔✔______ is the term used to refer to costs that will provide benefit to the business
beyond the current tax year - ✔✔Capitalized
✔✔What's the rationale behind why capital expenses are expensed over multiple
years? - ✔✔costs are spread out to match the business revenue they help earn
✔✔Criteria for if a repair is a capital cost - ✔✔adds to the asset's value, appreciably
lengthens the time the asset can be used, or adapters the asset to a different use
✔✔In order to receive the foreign income exclusion you must do this - ✔✔you must
claim it each year to get it.
✔✔This is any expense related to the use of real estate or any other kind of property
that's not owned by your business but's used in the operation of your business. It can
also be called a lease payment. - ✔✔rent
✔✔True or false: Rent is 100% deductible IF it's used 100% for business. If there's
personal usage, you must reduce your percentage by the personal use percentage -
✔✔true
✔✔First option for deducting start-up costs - ✔✔You can deduct up to $5,000 of your
start-up costs the first year you are in business. Anything over $5,000 must be
amortized over the following 15 years. There are additional restrictions if your start up
costs exceed $50K for the year
✔✔Second option for deducting start-up costs - ✔✔You can deduct ("amortize" in tax
lingo) your start up costs pro rata over 15 years.
✔✔Third option for deducting start-up costs - ✔✔No deductions taken for start up costs;
instead you recover these expenses when you sell the business or close down
operations.
✔✔T/F: you can get up to an additional $5,000 deduction for small business
organizational expenses. This deduction is only for business entities- meaning
corporations, partnerships, and LLCs, not Sole-proprietors. - ✔✔true
✔✔T/F: Tax professionals, lawyers, and business consultant fees are always deductible
in the year they are incurred - ✔✔sometimes, the deduction must be made over future
years.
ANSWERS GUARANTEE A+
✔✔Ways Alternative minimum tax is triggered - ✔✔NOL deductions in a business,
interest deductions on home equity loans, large itemized deductions for SALT, foreign
tax credits, passive income or loss, certain installment of sale income, unreimbursed
employee expenses, exemptions for dependents, Child & education tax credits, interest
income on certain tax-exempt bonds, exercise of incentive stock options
✔✔These types of expenses might be hard to prove to IRS auditors - ✔✔cash
expenses
✔✔With Cash expenses, small items such as tips, shared transit, waitress tips, parking
lots, postage, etc may be okay, but this might trigger suspicion - ✔✔purchase of larger
items
✔✔In order for an expense to qualify as deductible, the expense must be: - ✔✔ordinary
and necessary for the business, not extravagant, and primarily for business (not
personal)
✔✔What's the number one thing that causes suspicion when auditing small
businesses? - ✔✔Personal expenses being disguised as business deductions
✔✔True or false: Commuting costs are tax deductible - ✔✔false
✔✔Government-imposed fines, bribes and kickbacks, referral payments to get a client
or customer, if illegal under state or federal law, and political contributions or payments
to purely social organizations are all examples of - ✔✔Expenses that are never
deductible
✔✔True or false: value of services are tax deductible - ✔✔false
✔✔True or false: payments to relatives (or to businesses owned by relatives) are
suspect - ✔✔true
✔✔T/F The tax code not only dictates what is considered deductible, but also when you
can deduct something - ✔✔true
✔✔_______ Expenses are everyday costs of running your business. I.e. monthly
phone, rent, utilities - ✔✔Current
✔✔When are current expenses deductible? - ✔✔In the year that they're incurred
, ✔✔_____ Expenses are costs that will provide benefit to the business beyond the
current tax year. I.e. machinery, computers, furniture must be deducted over multiple
years. - ✔✔Capital
✔✔______ is the term used to refer to costs that will provide benefit to the business
beyond the current tax year - ✔✔Capitalized
✔✔What's the rationale behind why capital expenses are expensed over multiple
years? - ✔✔costs are spread out to match the business revenue they help earn
✔✔Criteria for if a repair is a capital cost - ✔✔adds to the asset's value, appreciably
lengthens the time the asset can be used, or adapters the asset to a different use
✔✔In order to receive the foreign income exclusion you must do this - ✔✔you must
claim it each year to get it.
✔✔This is any expense related to the use of real estate or any other kind of property
that's not owned by your business but's used in the operation of your business. It can
also be called a lease payment. - ✔✔rent
✔✔True or false: Rent is 100% deductible IF it's used 100% for business. If there's
personal usage, you must reduce your percentage by the personal use percentage -
✔✔true
✔✔First option for deducting start-up costs - ✔✔You can deduct up to $5,000 of your
start-up costs the first year you are in business. Anything over $5,000 must be
amortized over the following 15 years. There are additional restrictions if your start up
costs exceed $50K for the year
✔✔Second option for deducting start-up costs - ✔✔You can deduct ("amortize" in tax
lingo) your start up costs pro rata over 15 years.
✔✔Third option for deducting start-up costs - ✔✔No deductions taken for start up costs;
instead you recover these expenses when you sell the business or close down
operations.
✔✔T/F: you can get up to an additional $5,000 deduction for small business
organizational expenses. This deduction is only for business entities- meaning
corporations, partnerships, and LLCs, not Sole-proprietors. - ✔✔true
✔✔T/F: Tax professionals, lawyers, and business consultant fees are always deductible
in the year they are incurred - ✔✔sometimes, the deduction must be made over future
years.
