Enrolled Agent Practice Exam Questions Part 1 Questions and Answers 100% Pass

Enrolled Agent Practice Exam Questions Part 1 Questions and Answers 100% Pass Which of the following is income in respect of a decedent? A) Cash received from a grandmother's estate. B) Royalties received on the deceased father's published book; the right to receive these royalties was distributed from the father's estate. C) Certificate of deposit received as a gift. D) Both cash received from a grandmother's estate and royalties received on the deceased father's published book; the right to receive these royalties was distributed from the father's estate. - B) Royalties received on the deceased father's published book; the right to receive these royalties was distributed from the father's estate. Income in respect of a decedent is the amount that is earned by the taxpayer but not received prior to his or her death nor accrued prior to his or her death if on the accrual method, so it is not included in the decedent's final return. Income in respect of a decedent is included in the recipient's (e.g., the estate's) income in the year received or accrued. Which of the following recipients of money must include the funds received in his total income? A) A car pool driver who is given moneterm-0y by his passengers for highway tolls. B) An elected official who is given money by a real estate developer to influence his vote. 2 | P a g e Emily Charlene © 2025, All Rights Reserved. C) A homeowner who is given a subsidy by a public utility for the purchase of a new hot water heater. D) A taxpayer who inherits one hundred silver dollars in a bequest. - B) An elected official who is given money by a real estate developer to influence his vote. A bribe is income. In fact, all income from illegal activities, such as money from dealing illegal drugs, must be included on a taxpayer's 1040, either on Line 8 (from Schedule 1) or on Schedule C. Monies received from car pool passengers are reimbursements. A subsidy paid by a public utility for energy conservation is excluded from income. A bequest is also excluded from income even if the bequest is cash. Minnie's tax return shows the following income: -$800 wages -$6,490 unemployment compensation -$1,000 alimony received under the terms of a divorce decree finalized before 2019 -$8,000 rental income from apartment buildings she owns What is Minnie's earned income for the purpose of determining how much she can contribute to an IRA? A) $800 B) $7,290 C) $1,800 D) $16,290 - C) $800 Generally, compensation is the amount earned from working. Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts individuals receive for providing personal services. 3 | P a g e Emily Charlene © 2025, All Rights Reserved. For IRA purposes, compensation includes amounts considered taxable alimony and nontaxable combat pay. Minnie's earned income for the purpose of determining how much she can contribute to an IRA is $1,800. Only wages of $800 and taxable alimony of $1,000 count as compensation for IRA purposes, so they set the limit for the allowable contribution amount. Qualified dividends are subject to one of three maximum tax rates. Which three tax rates are used for qualified dividends? A) 15% / 25% / 37% B) 0% / 15% / 20% C) 15% / 28% / 37% D) 18% / 20% / 25% - B) 0% / 15% / 20% Qualified dividends are subject to the same 0%, 15% or 20% maximum tax rate that applies to net capital gain. Qualified dividends are subject to the 20% tax rate if the regular tax rate that would apply is 37%. Qualified business income (QBI) is: A) the amount of qualified items of income and gain from a qualified trade or business. B) the net amount of qualified items of income, gain, deduction and loss from a qualified trade or business. C) the amount of qualified items of income and gain from a qualified trade or business, only to the extent included in taxable income. D) the net amount of qualified items of income, gain, deduction and loss from a qualified trade or business, only to the extent included or allowed in the determination of taxable income for the year. - 4 | P a g e Emily Charlene © 2025, All Rights Reserved. D) the net amount of qualified items of income, gain, deduction and loss from a qualified trade or business, only to the extent included or allowed in the determination of taxable income for the year. Qualified business income (QBI) is the net amount of qualified items of income, gain, deduction and loss from a qualified trade or business. Qualified items of gain or loss are taken into account to determine QBI or qualified business loss only to the extent included or allowed in the determination of taxable income for the year. Exception: Disallowed losses or deductions allowed in the taxable year are generally taken into account for purposes of computing QBI except to the extent the losses or deductions were disallowed, suspended, limited, or carried over from taxable years ending before January 1, 2018 Lucille bought a house in 2000 and lived in it until she sold it in 2020. She had a gain of $300,000 from the sale of her house. Shortly after the sale, she married Michael, who coincidentally also sold his primary residence in 2020 after ten years of ownership. He had a gain of $100,000 from the sale of his home. Can Lucille and Michael exclude their entire gains from their income? A) Yes, because they are married. B) Yes, because they each met the use and ownership tests independently. C) No, because they were not married when they sold their houses. D) No, because they cannot exclude more than $250,000 for Lucille's home. - D) No, because they cannot exclude more than $250,000 for Lucille's home. The $500,000 maximum exclusion for certain joint returns does not apply because Lucille and Michael do not jointly meet the use test for the same home. The ownership and use tests are met independently (for their own homes). The maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. 5 | P a g e Emily Charlene © 2025, All Rights Reserved. They cannot exclude the entire gain of $300,000 on Lucille's home as a result, as the exclusion for that home is limited to $250,000. Taxpayers who are married and file a joint return for the year can exclude up to $500,000 of the gain on the sale of a main home if all of the following are true: -Either spouse meets the ownership test. -Both meet the use test. -During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home. If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Which of the following is true regarding a nonbusiness bad debt? A) It is deductible as a short-term capital loss. B) It is not deductible. C) It is deductible only if you itemize. D) It is deductible as a long-term capital loss. - A) It is deductible as a short-term capital loss. All non-business bad debts are short term capital losses and are claimed on Form 8949. The amount of time the money has been owed to you does not matter. Elton declared bankruptcy in the current year. Included in the liabilities discharged in the bankruptcy was a $15,000 personal loan Elton had received from his friend, Edward, two years ago. How would Edward treat this for tax purposes? 6 | P a g e Emily Charlene © 2025, All Rights Reserved. A) Ordinary loss on Form 4797 B) Long-term capital loss on Schedule D C) Short-term capital loss on Schedule D D) Investment expense subject to 2% miscellaneous itemized deduction limitation - C) Short-term capital loss on Schedule D All non-business bad debts are short term capital losses and are claimed on Schedule D. The amount of time the money has been owed to you does not matter. Form 4137 requires that: A) All employers are represented on separate lines. B) All tips are included. C) The current social security and Medicare tax rate is used. D) All of the above. - D) All of the above. Use Form 4137 only to figure the social security and Medicare tax owed on tips you did not report to your employer. Including any allocated tips shown on your Form(s) W-2 that you must report as income. Complete a separate line for each employer. Indicate all tips on the form, including tips already reported. Scholarships and fellowships awarded to degree candidates are not taxable unless they are used for: A) Tuition B) Room and board C) Books 7 | P a g e Emily Charlene © 2025, All Rights Reserved. D) Supplies required for the course of study - B) Room and board For degree candidates; scholarships and fellowships are considered taxable income to the extent the proceeds are used for room, board or travel. How do non-deductible contributions to an IRA affect the taxpayer's basis in the IRA? A) Non-deductible contributions increase basis. B) Non-deductible contributions have no effect on basis. C) Non-deductible contributions decrease basis. D) Non-deductible contributions decrease basis but not below zero. - A) Non-deductible contributions increase basis. Non-deductible contributions increase basis. Ordinarily, a taxpayer has no cost basis in his traditional IRA and all distributions are fully taxable. If a taxpayer made non-deductible contributions to his IRA, any distribution might have a component that is a return of taxpayer's capital. So, a taxpayer who made non-deductible contributions to his IRA will have a cost basis in his IRA. Further nondeductible contributions will increase his basis. There is a penalty for not reporting tips to an employer as required. The penalty