Enrolled Agent Exam – businesses
UPDATED ACTUAL Questions and
CORRECT Answers
True or false: Foreign income you earned from wages or self-employment or any source from
anywhere in the world is taxable for American citizens and most residents with certain
exceptions - CORRECT ANSWER - True
First exception for excluding foreign income - CORRECT ANSWER - An American
residing outside the U.S. for most of the year can exclude $104,800 (2018; adjusted annually for
inflation) on your income taxes
These are the two caveats of being Able to exclude foreign income as an American living outside
the U.S. - CORRECT ANSWER - 1. Must pay social security tax on all your foreign
earnings and 2. you must pay income tax on any foreign investment income you make while
living outside the country
2nd exception to paying foreign income tax - CORRECT ANSWER - if you pay taxes in
another country on income not covered by the foreign tax exclusion, you may get a tax credit in
the U.S. for the taxes you paid abroad.
Examples of things that are not considered income - CORRECT ANSWER - gifts and
inheritance, prize and lottery winnings, fringe benefits, return of capital, loans, consignments
Gifts and Inheritances - CORRECT ANSWER - Individuals may receive property as gifts
or from a decedent's estate (an inheritance)
While the receipt of property is most certainly real income to the recipient, the value of gifts and
inheritances are excluded from gross income because these transfers are subject to the Federal
Gift and Estate tax
What types are fringe benefits are considered taxable? - CORRECT ANSWER - vacation
pay, bonuses, etc.
, T/F Getting back what you put into a business doesn't have any tax consequences - CORRECT
ANSWER - true
T/F if the business has to pay back a loan, it's not considered income - CORRECT
ANSWER - True
These are goods held by your business that belong to others and are neither income nor inventory
- CORRECT ANSWER - consignments
What is one of the most common forms of tax shelters? - CORRECT ANSWER - Rental
property
How does the rental property tax shelter work? - CORRECT ANSWER - Cash and non
cash deductions, interest, depreciation, and insurance exceed rental income
T/F with rental properties, any appreciation of the property is not taxable until the property is
sold - CORRECT ANSWER - true
Telltale signs of tax schemes - CORRECT ANSWER - transactions with tax reduction
motives that have minimal or no economic sense, usually promise large tax deferrals, deductions
or write offs beyond investment costs, often more complicated than people would like to admit
Moral of Tax schemes - CORRECT ANSWER - don't buy in if they don't have a
reasonably good chance of turning a profit - with tax savings as a bonus
Theory behind Alternative Minimum tax - CORRECT ANSWER - If someone who takes a
lot of tax deductions or tax credits should still have to pay a minimum amount of income taxes.
True or false: All taxpayers must figure their income tax under both the regular (marginal) tax
rates and the AMT rates and pay whichever is less. - CORRECT ANSWER - false
UPDATED ACTUAL Questions and
CORRECT Answers
True or false: Foreign income you earned from wages or self-employment or any source from
anywhere in the world is taxable for American citizens and most residents with certain
exceptions - CORRECT ANSWER - True
First exception for excluding foreign income - CORRECT ANSWER - An American
residing outside the U.S. for most of the year can exclude $104,800 (2018; adjusted annually for
inflation) on your income taxes
These are the two caveats of being Able to exclude foreign income as an American living outside
the U.S. - CORRECT ANSWER - 1. Must pay social security tax on all your foreign
earnings and 2. you must pay income tax on any foreign investment income you make while
living outside the country
2nd exception to paying foreign income tax - CORRECT ANSWER - if you pay taxes in
another country on income not covered by the foreign tax exclusion, you may get a tax credit in
the U.S. for the taxes you paid abroad.
Examples of things that are not considered income - CORRECT ANSWER - gifts and
inheritance, prize and lottery winnings, fringe benefits, return of capital, loans, consignments
Gifts and Inheritances - CORRECT ANSWER - Individuals may receive property as gifts
or from a decedent's estate (an inheritance)
While the receipt of property is most certainly real income to the recipient, the value of gifts and
inheritances are excluded from gross income because these transfers are subject to the Federal
Gift and Estate tax
What types are fringe benefits are considered taxable? - CORRECT ANSWER - vacation
pay, bonuses, etc.
, T/F Getting back what you put into a business doesn't have any tax consequences - CORRECT
ANSWER - true
T/F if the business has to pay back a loan, it's not considered income - CORRECT
ANSWER - True
These are goods held by your business that belong to others and are neither income nor inventory
- CORRECT ANSWER - consignments
What is one of the most common forms of tax shelters? - CORRECT ANSWER - Rental
property
How does the rental property tax shelter work? - CORRECT ANSWER - Cash and non
cash deductions, interest, depreciation, and insurance exceed rental income
T/F with rental properties, any appreciation of the property is not taxable until the property is
sold - CORRECT ANSWER - true
Telltale signs of tax schemes - CORRECT ANSWER - transactions with tax reduction
motives that have minimal or no economic sense, usually promise large tax deferrals, deductions
or write offs beyond investment costs, often more complicated than people would like to admit
Moral of Tax schemes - CORRECT ANSWER - don't buy in if they don't have a
reasonably good chance of turning a profit - with tax savings as a bonus
Theory behind Alternative Minimum tax - CORRECT ANSWER - If someone who takes a
lot of tax deductions or tax credits should still have to pay a minimum amount of income taxes.
True or false: All taxpayers must figure their income tax under both the regular (marginal) tax
rates and the AMT rates and pay whichever is less. - CORRECT ANSWER - false
