Enrolled Agent Part 1 Flashcards || QUESTIONS &
ANSWERS 100% SOLVED!!
On which Schedule would a self-employed farmer report their income and loss? correct
answers Schedule F
What types of income are reported on Schedule E (Form 1040)? correct answers Income from
rental real estate, royalties, partnerships, S corps, trusts, and estates.
What are some situations that make discharged debt non-taxable? correct answers (1)
bankruptcy (2) insolvency (3) amounts cancelled as a gift or bequest (4) certain student loan
cancellations (5) qualified principal residence indebtedness
What is the Section 121 exclusion, as it pertains to the sale of a personal residence? correct
answers Taxpayers may exclude up to $250,000 in capital gains from the sale of a main home
($500,000 if married filing jointly)
What is the normal extended due date for individual tax returns? correct answers October 15
What IRS forms are used by an individual taxpayer to report the gain or loss from the sale of
stock? correct answers Schedule D and Form 8949. Form 8949 reports the details of each
capital asset transaction. Schedule D is used to report the net short-term and long-term totals
of the gains and losses.
When a taxpayer takes a distribution from a retirement plan, which form does the retirement
plan send to the taxpayer to report the distribution? correct answers Form 1099-R,
Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans
What is an instalment sale? correct answers A type of sale that occurs over the course of
several years. Gain on sale can be reported when instalment payments are collected, rather
than at the time of the sale. The most common type of instalment sale is the sale of real
estate.
Can a taxpayer with an amount due efile their return and still pay a balance due by personal
check or money order? correct answers Yes, a taxpayer can efile their return and submit a
check payable to the United States Treasury with a form 1040-V and mail it to the IRS. As
long as the payment is postmarked by the orginal due date of the return, the payment will be
considered timely.
What is a barter transaction? correct answers Bartering is the exchange of goods or services.
A barter exchange is an organization whose members contract with each other (or with the
barter exchange) to exchange property or services
What is "Community Income" as it relates to married couples filing separate tax returns?
correct answers Community income is considered to belong equally to both spouses. This can
affect federal tax reporting for separate returns (MFS), especially when spouses are domiciled
in a community property state.
,What is a Qualified domestic relations order (QDRO), and how does it affect a taxpayer's
retirement plan reporting? correct answers A Qualified domestic relations order (QDRO) is a
type of property settlement incident to divorce. A QDRO allows a taxpayer roll over tax free
all or part of a distribution from a qualified retirement plan that they receive from an ex-
spouse under a QDRO.
How does an annulment affect a taxpayer's filing status? correct answers An annulment is a
voiding of the marriage contract. Unlike a divorce, an annulment is retroactive. Amended
returns must be filed for any open years affected by the annulment.
What is the IRS definition of a "custodial parent"? correct answers The custodial parent is the
parent in whose home a child lived for the greater part of the year, i.e., the parent that the
child lived with the most days during the year.
Are tips taxable, or are they considered gifts? correct answers All tips are taxable. Tips are
received as a gratuity for services performed. Tips go beyond the stated amount of the bill
and are given voluntarily.
What information is reported on Form W-2? correct answers Form W-2 reports wages,
salaries, tips, and federal income tax withheld as well as Social Security and Medicare taxes
withheld.
How does the IRS define permanent disability? correct answers The IRS defines "permanent
disability" as a disability that is expected to last at least a year and keeps an individual from
any gainful activity. Special exceptions apply to disabled persons who work in a sheltered
workshop.
How is tax-exempt interest income reported? correct answers Tax-exempt interest income
must be reported on a taxpayer's Form 1040, but it is not taxable at the federal level.
Municipal bond interest is earned from bonds issued by states, cities, or counties.
Is interest from a Certificate of Deposit taxable? correct answers Interest from a certificate of
deposit (CD) is taxable in the year it is earned. A bank or credit union will usually issue a
Form 1099-INT that states the interest each year, unless the amount is under $10.
The amount of the standard deduction depends on: correct answers Filing status, age of the
taxpayer, whether or not the taxpayer is blind, and whether the taxpayer is a dependent on
someone else's return.
What are personal property taxes? Where are these taxes reported? correct answers Taxes on
personal property include DMV fees and property tax on real estate. Personal property taxes
are deductible on Schedule A, subject to certain limitations.
What is a tax credit, and how does it affect an individual's tax return? correct answers A tax
credit is a dollar-for-dollar reduction in tax. Tax credits can be deducted directly from taxes
owed.
What is a pension? Is pension income taxable? correct answers A pension is a series of
payments made to an employee or survivor (the beneficiary of a deceased employee's
, pension) after the employee retires from work. Pension income is taxable as retirement
income.
What types of gifts are exempt from gift tax reporting? correct answers Gifts under the
annual gift limit ($15,000 in tax year 2021), payments of medical expenses, payments of
tuition, donations to qualified charities, donations to political organizations, and gifts to a
U.S. citizen spouse.
Are state sales taxes deductible? correct answers Yes. Taxpayers may deduct either (1) sales
tax or (2) state and local income tax as an itemized deduction on Schedule A, (but not both).
Can an individual taxpayer deduct foreign income taxes? correct answers Yes. Foreign
income taxes may be claimed either as an itemized deduction or as a non-refundable tax
credit. Taxpayers may choose whichever method gives them the best tax result.
Are gambling losses deductible? correct answers Yes. Gambling losses are deductible as an
itemized deduction, but only up to the amount of gambling winnings. Losses in excess of
winnings are not deductible.
What is the ACA Marketplace? correct answers The term "Marketplace" refers to state
Marketplaces, and a federally-facilitated Marketplace; governmental agencies or state entities
that make qualified health plans available to individuals and small businesses.
What is the Premium Tax Credit? correct answers The PTC is a refundable tax credit for
certain people who enroll in a qualified health plan offered through the Marketplace.
What is combat zone pay? Is it taxable? correct answers Combat pay is earned in a combat
zone. Members of the U.S. Armed Forces who serve in a combat zone may exclude combat
pay and hazardous duty pay from their taxable income. It is not taxable.
With regards to retirement accounts, what is a "lump sum distribution?" correct answers A
lump-sum distribution is the distribution or payment within one tax year of an employee's
entire balance from all qualified pension, stock bonus, or profit-sharing plan.
What are capital expenditures? correct answers Capital expenditures are material amounts
spent to acquire or improve assets with useful lives of more than one year. These
expenditures are generally not expensed, but are instead added to the basis of the property,
and depreciated over time. For example, a new roof or a new in-ground pool added to a rental
property would be a capital expenditure.
What portion of a taxpayer's medical expenses are deductible on Schedule A? correct answers
A taxpayer may deduct only the amount of their total medical expenses that exceed 7.5% of
their adjusted gross income.
Are funeral expenses deductible? correct answers An individual taxpayer may not deduct
funeral or burial expenses.
How should a minister report the amounts received as a housing allowance? correct answers
A minister's housing allowance (sometimes called a parsonage) is excludable from gross
income for income tax purposes but not for self-employment tax purposes.
ANSWERS 100% SOLVED!!
On which Schedule would a self-employed farmer report their income and loss? correct
answers Schedule F
What types of income are reported on Schedule E (Form 1040)? correct answers Income from
rental real estate, royalties, partnerships, S corps, trusts, and estates.
What are some situations that make discharged debt non-taxable? correct answers (1)
bankruptcy (2) insolvency (3) amounts cancelled as a gift or bequest (4) certain student loan
cancellations (5) qualified principal residence indebtedness
What is the Section 121 exclusion, as it pertains to the sale of a personal residence? correct
answers Taxpayers may exclude up to $250,000 in capital gains from the sale of a main home
($500,000 if married filing jointly)
What is the normal extended due date for individual tax returns? correct answers October 15
What IRS forms are used by an individual taxpayer to report the gain or loss from the sale of
stock? correct answers Schedule D and Form 8949. Form 8949 reports the details of each
capital asset transaction. Schedule D is used to report the net short-term and long-term totals
of the gains and losses.
When a taxpayer takes a distribution from a retirement plan, which form does the retirement
plan send to the taxpayer to report the distribution? correct answers Form 1099-R,
Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans
What is an instalment sale? correct answers A type of sale that occurs over the course of
several years. Gain on sale can be reported when instalment payments are collected, rather
than at the time of the sale. The most common type of instalment sale is the sale of real
estate.
Can a taxpayer with an amount due efile their return and still pay a balance due by personal
check or money order? correct answers Yes, a taxpayer can efile their return and submit a
check payable to the United States Treasury with a form 1040-V and mail it to the IRS. As
long as the payment is postmarked by the orginal due date of the return, the payment will be
considered timely.
What is a barter transaction? correct answers Bartering is the exchange of goods or services.
A barter exchange is an organization whose members contract with each other (or with the
barter exchange) to exchange property or services
What is "Community Income" as it relates to married couples filing separate tax returns?
correct answers Community income is considered to belong equally to both spouses. This can
affect federal tax reporting for separate returns (MFS), especially when spouses are domiciled
in a community property state.
,What is a Qualified domestic relations order (QDRO), and how does it affect a taxpayer's
retirement plan reporting? correct answers A Qualified domestic relations order (QDRO) is a
type of property settlement incident to divorce. A QDRO allows a taxpayer roll over tax free
all or part of a distribution from a qualified retirement plan that they receive from an ex-
spouse under a QDRO.
How does an annulment affect a taxpayer's filing status? correct answers An annulment is a
voiding of the marriage contract. Unlike a divorce, an annulment is retroactive. Amended
returns must be filed for any open years affected by the annulment.
What is the IRS definition of a "custodial parent"? correct answers The custodial parent is the
parent in whose home a child lived for the greater part of the year, i.e., the parent that the
child lived with the most days during the year.
Are tips taxable, or are they considered gifts? correct answers All tips are taxable. Tips are
received as a gratuity for services performed. Tips go beyond the stated amount of the bill
and are given voluntarily.
What information is reported on Form W-2? correct answers Form W-2 reports wages,
salaries, tips, and federal income tax withheld as well as Social Security and Medicare taxes
withheld.
How does the IRS define permanent disability? correct answers The IRS defines "permanent
disability" as a disability that is expected to last at least a year and keeps an individual from
any gainful activity. Special exceptions apply to disabled persons who work in a sheltered
workshop.
How is tax-exempt interest income reported? correct answers Tax-exempt interest income
must be reported on a taxpayer's Form 1040, but it is not taxable at the federal level.
Municipal bond interest is earned from bonds issued by states, cities, or counties.
Is interest from a Certificate of Deposit taxable? correct answers Interest from a certificate of
deposit (CD) is taxable in the year it is earned. A bank or credit union will usually issue a
Form 1099-INT that states the interest each year, unless the amount is under $10.
The amount of the standard deduction depends on: correct answers Filing status, age of the
taxpayer, whether or not the taxpayer is blind, and whether the taxpayer is a dependent on
someone else's return.
What are personal property taxes? Where are these taxes reported? correct answers Taxes on
personal property include DMV fees and property tax on real estate. Personal property taxes
are deductible on Schedule A, subject to certain limitations.
What is a tax credit, and how does it affect an individual's tax return? correct answers A tax
credit is a dollar-for-dollar reduction in tax. Tax credits can be deducted directly from taxes
owed.
What is a pension? Is pension income taxable? correct answers A pension is a series of
payments made to an employee or survivor (the beneficiary of a deceased employee's
, pension) after the employee retires from work. Pension income is taxable as retirement
income.
What types of gifts are exempt from gift tax reporting? correct answers Gifts under the
annual gift limit ($15,000 in tax year 2021), payments of medical expenses, payments of
tuition, donations to qualified charities, donations to political organizations, and gifts to a
U.S. citizen spouse.
Are state sales taxes deductible? correct answers Yes. Taxpayers may deduct either (1) sales
tax or (2) state and local income tax as an itemized deduction on Schedule A, (but not both).
Can an individual taxpayer deduct foreign income taxes? correct answers Yes. Foreign
income taxes may be claimed either as an itemized deduction or as a non-refundable tax
credit. Taxpayers may choose whichever method gives them the best tax result.
Are gambling losses deductible? correct answers Yes. Gambling losses are deductible as an
itemized deduction, but only up to the amount of gambling winnings. Losses in excess of
winnings are not deductible.
What is the ACA Marketplace? correct answers The term "Marketplace" refers to state
Marketplaces, and a federally-facilitated Marketplace; governmental agencies or state entities
that make qualified health plans available to individuals and small businesses.
What is the Premium Tax Credit? correct answers The PTC is a refundable tax credit for
certain people who enroll in a qualified health plan offered through the Marketplace.
What is combat zone pay? Is it taxable? correct answers Combat pay is earned in a combat
zone. Members of the U.S. Armed Forces who serve in a combat zone may exclude combat
pay and hazardous duty pay from their taxable income. It is not taxable.
With regards to retirement accounts, what is a "lump sum distribution?" correct answers A
lump-sum distribution is the distribution or payment within one tax year of an employee's
entire balance from all qualified pension, stock bonus, or profit-sharing plan.
What are capital expenditures? correct answers Capital expenditures are material amounts
spent to acquire or improve assets with useful lives of more than one year. These
expenditures are generally not expensed, but are instead added to the basis of the property,
and depreciated over time. For example, a new roof or a new in-ground pool added to a rental
property would be a capital expenditure.
What portion of a taxpayer's medical expenses are deductible on Schedule A? correct answers
A taxpayer may deduct only the amount of their total medical expenses that exceed 7.5% of
their adjusted gross income.
Are funeral expenses deductible? correct answers An individual taxpayer may not deduct
funeral or burial expenses.
How should a minister report the amounts received as a housing allowance? correct answers
A minister's housing allowance (sometimes called a parsonage) is excludable from gross
income for income tax purposes but not for self-employment tax purposes.
