Enrolled Agent Exam Sample Questions: Part 1 Individuals

This section will explore 21 MCQ examples that resemble the questions you'll encounter in Part 1 of the Enrolled Agent exam. By reviewing these sample questions, you will become better prepared to address key topics such as income reporting, itemized deductions, retirement plans, and education credits. Additionally, this process will help you grasp these subjects more efficiently, allowing for smoother navigation through complex tax matters.

Enrolled agent exam sample questions for Part 1

Preparing for the Enrolled Agent (EA) exam requires thorough knowledge and practice. The exam, especially Part 1: Individuals, covers critical tax concepts like income reporting, deductions, and IRS procedures.

Practicing with Enrolled Agent exam sample questions is one of the best ways to reinforce your understanding of these topics and improve your chances of success. By tackling multiple-choice questions that simulate the actual exam format, you’ll familiarize yourself with the exam structure and enhance your ability to manage time and reduce exam-day stress.

Engaging regularly with EA exam practice questions can significantly boost your confidence, helping you achieve higher scores and pass rates. The more questions you practice, the better equipped you'll be to navigate the complex tax scenarios presented in the exam.

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Preliminary Work with Taxpayer Data

1. A taxpayer qualifies for the Foreign Earned Income Exclusion but receives Social Security benefits. How should the taxpayer report these benefits?

1. a) Social Security benefits are excluded under the Foreign Earned Income Exclusion.
2. b) Social Security benefits are reported and may be taxable regardless of the exclusion.
3. c) Social Security benefits are only taxed if the taxpayer is a resident of the foreign country.
4. d) Social Security benefits are not reported on Form 1040 when a taxpayer lives abroad.

Answer: b)

2. A taxpayer who is married but legally separated as of December 31 files their tax return. What filing statuses can they potentially use?

1. a) Married Filing Jointly or Married Filing Separately
2. b) Married Filing Jointly or Single
3. c) Married Filing Separately or Head of Household
4. d) Head of Household or Qualifying Widow(er)

Answer: c)

Filing Status and Residency

1.A dual-status taxpayer worked in the U.S. for the first part of the year and in a foreign country for the rest. How should they report their income?

1. a) Report U.S. source income and foreign income on separate tax returns.
2. b) Report U.S. source income for the entire year and worldwide income for the non-resident period.
3. c) Report worldwide income for the entire year.
4. d) Only report foreign income if the taxpayer’s foreign income exceeds $100,000.

Answer: b)

2. What is the residency requirement for a taxpayer to qualify for the Earned Income Tax Credit (EITC)?

1. a) The taxpayer must live in the U.S. for the entire year.
2. b) The taxpayer must live in the U.S. for at least 330 days.
3. c) The taxpayer must live in the U.S. for more than half the year.
4. d) The taxpayer must live in the U.S. for 12 months before the tax year begins.

Answer: c)

Taxable and Nontaxable Income

1. If a taxpayer receives a nonqualified deferred compensation distribution, how is it taxed?

1. a) It is taxed at the capital gains rate.
2. b) It is taxed as ordinary income and subject to additional penalties if it violates IRC Section 409A.
3. c) It is excluded from income if the taxpayer has not retired.
4. d) It is treated as investment income and taxed accordingly.

Answer: b)

2. A taxpayer receives damages from a personal injury lawsuit. Under what conditions would this settlement be partially taxable?

1. a) Only if damages exceed $100,000.
2. b) If the damages are for punitive reasons or emotional distress and are not tied to a physical injury,
3. c) If the damages are from a settlement with a foreign government.
4. d) If the damages are for lost wages.

Answer: b)

Capital Gains and Losses

1. A taxpayer sells an investment property they inherited five years ago. How is the basis of this property determined for capital gains purposes?

1. a) The basis is the purchase price paid by the decedent.
2. b) The basis is the fair market value on the date the property was inherited.
3. c) The basis is the lower original cost or fair market value at the time of sale.
4. d) The basis is the assessed value used for property taxes.

Answer: b)

2. How are capital gains taxed when a taxpayer sells securities in a “wash sale”?

1. a) The capital gains are taxed at ordinary income rates.
2. b) The capital gains are deferred until the repurchase period ends.
3. c) The capital gains are disallowed and added to the basis of repurchased securities.
4. d) The capital gains are taxed only if the taxpayer holds the securities for more than 30 days.

Answer: c)

Adjustments to Gross Income

1. How is a taxpayer's student loan interest deduction phased out?

1. a) The deduction is phased out based on MAGI, and the maximum deduction is $2,500.
2. b) The deduction is phased out based on gross income, and the maximum deduction is $5,000.
3. c) The deduction is only available to taxpayers under age 30.
4. d) The deduction is available to all taxpayers regardless of income.

Answer: a)

2. Can a self-employed taxpayer deduct the total amount of their health insurance premiums?

1. a) No, only a percentage is deductible.
2. b) Yes, unless they are eligible for a subsidized health plan through their spouse’s employer.
3. c) health insurance premiums are only deductible if paid through a corporation.
4. d) regardless of whether they have access to another health plan.

Answer: b)

Individual Tax Credits

1. A taxpayer with two dependent children has a modified AGI of $420,000. How does this affect their Child Tax Credit?

1. a) The Child Tax Credit is fully available.
2. b) The Child Tax Credit is reduced by $50 for each $1,000 over $400,000.
3. c) The taxpayer is ineligible for the Child Tax Credit.
4. d) The Child Tax Credit is not phased out based on AGI.

Answer: b)

2. A taxpayer received an advance premium tax credit but earned more than expected. What happens when they reconcile their income on their tax return?

1. a) The taxpayer must repay the total amount of the advance premium tax credit.
2. b) The taxpayer must repay part of the credit if their income exceeds the allowed amount.
3. c) The taxpayer can keep the credit regardless of income.
4. d) The taxpayer only needs to repay the credit if their income exceeds $200,000.

Answer: b)

Rental and Royalty Income

1. If a taxpayer rents out part of their home while living in the other part, how should they report income and expenses related to the rental portion?

1. a) All rental income and expenses are reported on Schedule C.
2. b) Rental income and expenses are reported on Schedule E, and expenses must be allocated between personal and rental use.
3. c) Rental income is not taxable if the property is also used as a personal residence.
4. d) The taxpayer cannot deduct expenses if they live in the home.

Answer: b)

2. How does the IRS define a passive activity, and how does this affect the deduction of rental losses?

1. a) A passive activity is one in which the taxpayer materially participates, and losses are deductible against ordinary income.
2. b) A passive activity is one in which the taxpayer does not materially participate, and losses are generally deductible against passive income.
3. c) A passive activity is any rental activity; losses are deductible against ordinary income.
4. d) A passive activity is one in which the taxpayer does not materially participate, and losses are always fully deductible.

Answer: b)

IRA Contributions and Deductions

1. A taxpayer contributes to both a Roth IRA and a traditional IRA. What is the maximum total contribution for 2023?

1. a) $6,500 combined
2. b) $7,500 combined
3. c) $6,500 to each IRA
4. d) $7,500 to each IRA

Answer: a)

2. What are the tax implications of an early withdrawal from a Roth IRA, including contributions and earnings?

1. a) Contributions and earnings are taxed.
2. b) Contributions are tax-free, but earnings may be taxed and subject to a penalty.
3. c) Contributions and earnings are both tax-free.
4. d) Only the penalty applies, regardless of the taxpayer’s age.

Answer: b)

Foreign Financial Reporting

1. A U.S. citizen living abroad has $400,000 in foreign bank accounts. What are the reporting requirements under FATCA?

1. a) The taxpayer must file Form 8938 only if their foreign financial assets exceed $1 million.
2. b) The taxpayer must file Form 8938 and an FBAR if the accounts exceed the reporting thresholds.
3. c) The taxpayer must not file forms if their foreign income is excluded.
4. d) The taxpayer must file an FBAR but not Form 8938.

Answer: b)

2. A taxpayer with foreign income claims the Foreign Tax Credit. How does this differ from the Foreign Earned Income Exclusion?

1. a) The Foreign Tax Credit reduces U.S. tax on foreign income, while the Foreign Earned Income Exclusion excludes a portion of foreign income from taxation.
2. b) The Foreign Tax Credit excludes all foreign income from U.S. tax.
3. c) The Foreign Tax Credit applies to investment income, while the Foreign Earned Income Exclusion applies to earned income.
4. d) The Foreign Tax Credit is only available to U.S
5. Basis of Assets

3. A taxpayer converts their residence into a rental property. How is the basis for depreciation calculated?

1. a) The basis is the fair market value at the conversion time.
2. b) The basis is the original cost of the property plus any improvements made.
3. c) The basis is the lower original cost or fair market value at the time of conversion.
4. d) The basis is reduced by any depreciation taken on the property while it was a personal residence.

Answer: c)

Gift and Estate Taxes

1. How does the annual exclusion for gifts affect the lifetime gift tax exemption?

1. a) Gifts under the annual exclusion count towards the lifetime exemption.
2. b) Gifts under the annual exclusion are not taxable and do not count towards the lifetime exemption.
3. c) The annual exclusion is subtracted from the lifetime exemption each year.
4. d) There is no annual exclusion for gifts.

Answer: b)

2. A taxpayer passes away and leaves a large estate. How is the estate’s tax liability determined?

1. a) The estate’s liability is determined based on the amount of income earned during the decedent’s last year.
2. b) The estate’s liability is based on the value of assets minus any debts and expenses.
3. c) The estate’s liability is based on the income of the beneficiaries receiving the assets.
4. d) The estate’s liability is calculated by using the adjusted basis of the decedent’s assets.

Answer: b)

Summing up Enrolled agent exam part 1 sample questions

In conclusion, practicing the Enrolled Agent exam sample questions for Part 1 is essential for mastering the tax topics related to individuals. By working through these 21 multiple-choice questions, you’ll better understand the exam structure and improve your ability to manage time during the test.

Regular practice with MCQs strengthens your knowledge and boosts your confidence, ensuring you're well-prepared to pass Part 1 of the EA exam.

Ready for the exam? Find out more about the EA exam centers in India to plan your test location and schedule effectively.