Enrolled Agent Exam Prep Part 2 With
Correct Questions And Answers
Net Earnings Required To Pay Self-Employment Tax ...ANSWER...$400
Requirement to be treated as a Qualified Joint Venture ...ANSWER...- Married Tax
Payers
- Filing Joint Return
Is a joint undertaking merely to share expenses a Partnership. ...ANSWER...No, unless
the co-owners provide substantial series to the tenants, not considered a partnership for
tax purposes. Instead, each individual would divide the income and expenses based on
ownership percentages, and each would report his respective share on its Schedule E
of its individual return
Who signs a Partnership Return. ...ANSWER...General Partner only, a limited partner
cannot.
What is a Limited Liability Partnership (LLP) ...ANSWER...Generally used for specific
professional services, such as a law firm. It allows each partner to actively participate in
the management affairs but still provides limited liability protection to each partner. LLP
would not be liable for the debt or malpractice of other partners and would be at risk for
his interest in the partnership's assets.
S Corporation Requirements ...ANSWER...- Be a domestic corporation
- Have only allowable shareholders (partnerships, corporations, and nonresident aliens
are not eligible).
- No more than 100 shareholders
- Have only one class of stock ( voting and nonvoting stocks are not considered to be
separate classes of stock, as long as they have identical rights to distribution and
liquidation proceeds.)
- not be an ineligible type of corporation (certain financial institutions, insurance
companies, and domestic international sales corporations are not eligible for S
corporation status)
Personal Service Corporation Tax Rate ...ANSWER...Flat 35%
,Characteristics of a farming business ...ANSWER...Businesses that are primarily
engaged in crop production, animal production, or forestry and logging. They may
include stock, dairy, fish, fruit, and tree farms, as well as plantations, ranches, timber
farms, and orchards.
Special tax treatment offered to the highly unpredictable business of
farming ...ANSWER...- different schedule for paying estimated taxes
- may postpone gain or income in certain cases
- can deduct a higher percentage of mileage expenses
- given special tax considerations when disaster strikes.
What Form is used to request tax-exempt status ...ANSWER...Form 1023 - Application
for Recognition of Exemption.
Which organizations are treated as tax-exempt by default ...ANSWER...Churches,
including synagogues, temples, and mosques.
What form does a business entity use to choose how they will be classified for tax
purposes. ...ANSWER...Form 8832 - Entity Classification Election
When does an election to change an LLC;s classification need to be
made ...ANSWER...No more than 75 days prior to the date of election is filed; nor can it
take effect later than 12 months after the date election is filed.
Also, Once a business entity makes an election to change its classification, it generally
cannot change the election again within five years. (60 months).
The 60-month limitation does not apply if the previous election was made by a newly
formed eligible formed eligible entity and was effective on the date of formation.
When is new EIN required ...ANSWER...- When a sole proprietor or partnership deices
to incorporate
- When a sole proprietor takes on a partner and becomes a partnership
- When a partnership becomes a sole partnership (for example, when one partner dies)
- When a sole proprietor files for bankruptcy under Chapter 7 or Chapter 11
- When a taxpayer terminates one partnership and begins another partnership
- When a business establishes a pension, profit sharing, or retirement plan
Does a single-member LLC need a separate EIN ...ANSWER...Not unless the business
is required to file employment or excise tax returns.
How long must taxpayer keep records ...ANSWER...As long as they are needed for the
administration for any provision of the Internal Revenue Code to support income and
deductions until the statue of limitations for a related tax return has expired.
,Generally, a taxpayer must keep records for at least three years from when a tac return
was due or was filed, whichever is later. If a business has employees, it must keep all
employment tax tax records for at least four years.
When a business receives a cash payment of more than $10,000 what form is
required ...ANSWER...Form 8300 - Report of Cash Payments Over $10,000 Received
in a Trade or Business. (Report is due January 31 of the year following the reportable
transaction).
Taxpayer uses this form to provide his correct taxpayer identification number (TIN) to
any individual or entity who is required to file an information return with the
IRS. ...ANSWER...Form W-9
What form must a new employee complete informing the employer of the employees
marital status, the number of withholding allowances the employee is claiming, and any
additional amount to use when deducting federal income tax from the employee's
pay. ...ANSWER...Form W-4
Note: if not provided the employee must withhold taxes as if the employee was single
and no withholding allowances
In 2014, what portion of the employees wages are subject to Social Security
Tax ...ANSWER...$117,000
What are the thresholds for the additional 0.9% Medicare Tax ...ANSWER...MFJ -
>$250,000
MFS - > $125,000
Single, HOH, or QW > $200,000
What does a business do if it does not have a Social Security number or taxpayer
identification number for a payee such as an independent contractor ...ANSWER...It
must withhold federal income taxes at a 28% rate. U.S. source income received by a
foreign person (a nonresident alien) is subject to a withholding rate of 30%.
If a business does not deposit its trust taxes in a timely manner, the IRS may asses a
Trust Fund Recovery Penalty (TFRP) in what amount. ...ANSWER...The amount of the
penalty is equal to the unpaid balance of the trust fund taxes.
Who can the TFRP be assessed against ...ANSWER...- The responsible party for
collecting or paying withheld income and employment taxes, or for paying collecting
excise taxes. (A responsible person may also include a person who signs checks for the
company or who otherwise has authority to spend business funds, such as a
bookkeeper. ie- a person who must have or should have been aware of the taxes
outstanding and intentionally disregarded the law or been plainly indifferent to its
requirements.)
, -willfully fails to collect or pay them
Federal Unemployment (FUTA) Tax ...ANSWER...The standard FUTA tax rate is 6% on
the first $7,000 of each employee's wages. However, the employer may receive a credit
of 5.4% when it files Form 940, Employer's Annual Federal Unemployment Tax Return,
resulting in a net FUTA tax rate of 0.6%.
What primary characteristics does the IRS use to evaluate the relationship between a
business and worker it mays for services ...ANSWER...- Behavioral Control
- Financial Control
- Type of Relationship (Relates to how the worker and the business owner perceive
their relationship.)
What form can be filed with the IRS to determine whether a worker is an employee or
independent contractor ...ANSWER...Form SS-8: Determination of Worker Status for
Purposes of Federal Employment Taxes and Income Tax Withholding
Who are Statutory Employees ( They are issued W-2's but report income and allowable
expenses on Schedule C) ...ANSWER...- Full Time life insurance salespeople
- Traveling salespeople
- Certain commissioned truck drivers
- Directors of corporations
- Officers of nonprofit organizations
- Certain home workers who perform work on materials or goods furnished by the
employer
Who are Statutory Non-employees ...ANSWER...- Direct Sellers
- Licensed Real Estate Agents
(Payments for their services are directly related to sales, rather than to the number of
hours worked, and
Services are performed under a written contract providing that they will not be treated
as employees for federal Tax purposes.)
Compensation for a statutory non-employee is reported on Form 1099-MISC. The
taxpayer then reports the income on Schedule C
Rules Relating to Employing Family Members ...ANSWER...- If the parent's business is
a sole proprietorship or a partnership: If the child is under 18, payments are not subject
to Social Security and Medicare Taxes; If the child is under 21, payments are not
subject to FUTA tax.
- Parent working for child: Payments sub jest to income, Social Security, and Medicare
taxes, but not FUTA tax. However, FUTA tax is applicable if the spouse works for a
corporation or a partnership in which the employing spouse is a partner.
Correct Questions And Answers
Net Earnings Required To Pay Self-Employment Tax ...ANSWER...$400
Requirement to be treated as a Qualified Joint Venture ...ANSWER...- Married Tax
Payers
- Filing Joint Return
Is a joint undertaking merely to share expenses a Partnership. ...ANSWER...No, unless
the co-owners provide substantial series to the tenants, not considered a partnership for
tax purposes. Instead, each individual would divide the income and expenses based on
ownership percentages, and each would report his respective share on its Schedule E
of its individual return
Who signs a Partnership Return. ...ANSWER...General Partner only, a limited partner
cannot.
What is a Limited Liability Partnership (LLP) ...ANSWER...Generally used for specific
professional services, such as a law firm. It allows each partner to actively participate in
the management affairs but still provides limited liability protection to each partner. LLP
would not be liable for the debt or malpractice of other partners and would be at risk for
his interest in the partnership's assets.
S Corporation Requirements ...ANSWER...- Be a domestic corporation
- Have only allowable shareholders (partnerships, corporations, and nonresident aliens
are not eligible).
- No more than 100 shareholders
- Have only one class of stock ( voting and nonvoting stocks are not considered to be
separate classes of stock, as long as they have identical rights to distribution and
liquidation proceeds.)
- not be an ineligible type of corporation (certain financial institutions, insurance
companies, and domestic international sales corporations are not eligible for S
corporation status)
Personal Service Corporation Tax Rate ...ANSWER...Flat 35%
,Characteristics of a farming business ...ANSWER...Businesses that are primarily
engaged in crop production, animal production, or forestry and logging. They may
include stock, dairy, fish, fruit, and tree farms, as well as plantations, ranches, timber
farms, and orchards.
Special tax treatment offered to the highly unpredictable business of
farming ...ANSWER...- different schedule for paying estimated taxes
- may postpone gain or income in certain cases
- can deduct a higher percentage of mileage expenses
- given special tax considerations when disaster strikes.
What Form is used to request tax-exempt status ...ANSWER...Form 1023 - Application
for Recognition of Exemption.
Which organizations are treated as tax-exempt by default ...ANSWER...Churches,
including synagogues, temples, and mosques.
What form does a business entity use to choose how they will be classified for tax
purposes. ...ANSWER...Form 8832 - Entity Classification Election
When does an election to change an LLC;s classification need to be
made ...ANSWER...No more than 75 days prior to the date of election is filed; nor can it
take effect later than 12 months after the date election is filed.
Also, Once a business entity makes an election to change its classification, it generally
cannot change the election again within five years. (60 months).
The 60-month limitation does not apply if the previous election was made by a newly
formed eligible formed eligible entity and was effective on the date of formation.
When is new EIN required ...ANSWER...- When a sole proprietor or partnership deices
to incorporate
- When a sole proprietor takes on a partner and becomes a partnership
- When a partnership becomes a sole partnership (for example, when one partner dies)
- When a sole proprietor files for bankruptcy under Chapter 7 or Chapter 11
- When a taxpayer terminates one partnership and begins another partnership
- When a business establishes a pension, profit sharing, or retirement plan
Does a single-member LLC need a separate EIN ...ANSWER...Not unless the business
is required to file employment or excise tax returns.
How long must taxpayer keep records ...ANSWER...As long as they are needed for the
administration for any provision of the Internal Revenue Code to support income and
deductions until the statue of limitations for a related tax return has expired.
,Generally, a taxpayer must keep records for at least three years from when a tac return
was due or was filed, whichever is later. If a business has employees, it must keep all
employment tax tax records for at least four years.
When a business receives a cash payment of more than $10,000 what form is
required ...ANSWER...Form 8300 - Report of Cash Payments Over $10,000 Received
in a Trade or Business. (Report is due January 31 of the year following the reportable
transaction).
Taxpayer uses this form to provide his correct taxpayer identification number (TIN) to
any individual or entity who is required to file an information return with the
IRS. ...ANSWER...Form W-9
What form must a new employee complete informing the employer of the employees
marital status, the number of withholding allowances the employee is claiming, and any
additional amount to use when deducting federal income tax from the employee's
pay. ...ANSWER...Form W-4
Note: if not provided the employee must withhold taxes as if the employee was single
and no withholding allowances
In 2014, what portion of the employees wages are subject to Social Security
Tax ...ANSWER...$117,000
What are the thresholds for the additional 0.9% Medicare Tax ...ANSWER...MFJ -
>$250,000
MFS - > $125,000
Single, HOH, or QW > $200,000
What does a business do if it does not have a Social Security number or taxpayer
identification number for a payee such as an independent contractor ...ANSWER...It
must withhold federal income taxes at a 28% rate. U.S. source income received by a
foreign person (a nonresident alien) is subject to a withholding rate of 30%.
If a business does not deposit its trust taxes in a timely manner, the IRS may asses a
Trust Fund Recovery Penalty (TFRP) in what amount. ...ANSWER...The amount of the
penalty is equal to the unpaid balance of the trust fund taxes.
Who can the TFRP be assessed against ...ANSWER...- The responsible party for
collecting or paying withheld income and employment taxes, or for paying collecting
excise taxes. (A responsible person may also include a person who signs checks for the
company or who otherwise has authority to spend business funds, such as a
bookkeeper. ie- a person who must have or should have been aware of the taxes
outstanding and intentionally disregarded the law or been plainly indifferent to its
requirements.)
, -willfully fails to collect or pay them
Federal Unemployment (FUTA) Tax ...ANSWER...The standard FUTA tax rate is 6% on
the first $7,000 of each employee's wages. However, the employer may receive a credit
of 5.4% when it files Form 940, Employer's Annual Federal Unemployment Tax Return,
resulting in a net FUTA tax rate of 0.6%.
What primary characteristics does the IRS use to evaluate the relationship between a
business and worker it mays for services ...ANSWER...- Behavioral Control
- Financial Control
- Type of Relationship (Relates to how the worker and the business owner perceive
their relationship.)
What form can be filed with the IRS to determine whether a worker is an employee or
independent contractor ...ANSWER...Form SS-8: Determination of Worker Status for
Purposes of Federal Employment Taxes and Income Tax Withholding
Who are Statutory Employees ( They are issued W-2's but report income and allowable
expenses on Schedule C) ...ANSWER...- Full Time life insurance salespeople
- Traveling salespeople
- Certain commissioned truck drivers
- Directors of corporations
- Officers of nonprofit organizations
- Certain home workers who perform work on materials or goods furnished by the
employer
Who are Statutory Non-employees ...ANSWER...- Direct Sellers
- Licensed Real Estate Agents
(Payments for their services are directly related to sales, rather than to the number of
hours worked, and
Services are performed under a written contract providing that they will not be treated
as employees for federal Tax purposes.)
Compensation for a statutory non-employee is reported on Form 1099-MISC. The
taxpayer then reports the income on Schedule C
Rules Relating to Employing Family Members ...ANSWER...- If the parent's business is
a sole proprietorship or a partnership: If the child is under 18, payments are not subject
to Social Security and Medicare Taxes; If the child is under 21, payments are not
subject to FUTA tax.
- Parent working for child: Payments sub jest to income, Social Security, and Medicare
taxes, but not FUTA tax. However, FUTA tax is applicable if the spouse works for a
corporation or a partnership in which the employing spouse is a partner.
