Free EA Exam Practice Questions — All 3 Parts

Explanation: To be claimed as a qualifying relative, the individual's gross income for the year generally must be less than the threshold amount referenced in IRS guidance ($5,200 for the year addressed in the material). The $15,750 figure relates to the single filing threshold for taxpayers, not the qualifying relative gross income test, and there is in fact a specific dollar limit, not an unlimited allowance.

Explanation: The Digital Assets checkbox requires every taxpayer to indicate "Yes" or "No" as to whether, during the tax year, they received digital assets as a reward, award, or payment, or sold, exchanged, gifted, or otherwise disposed of a digital asset or a financial interest in one. Simply holding a digital asset without any of these triggering activities does not require a "Yes" answer, and this checkbox is unrelated to e-filing methods.

Explanation: Checking the Presidential Election Campaign box directs $3 (per spouse, if applicable) of general government funds to the campaign fund; it does not increase the taxpayer's tax liability or decrease their refund. The taxpayer's own tax or refund amount is unaffected.

Explanation: Form 1040-NR is for nonresident aliens, not for U.S. citizen or resident seniors. Seniors (generally age 65 or older) may use either the standard Form 1040 or Form 1040-SR, which has larger print and a standard deduction chart built in. Form 1040-NR is unrelated to age and applies based on residency status for tax purposes.

Explanation: Form 1040-X, Amended U.S. Individual Income Tax Return, is used to correct previously filed Form 1040, 1040-SR, or 1040-NR returns. Form 1040-NR is for original nonresident filings, Form 4868 is for filing extensions, and Form 2120 is the Multiple Support Declaration used in dependency situations.

Explanation: Publication 17, "Your Federal Income Tax," is the IRS's comprehensive general guide for individual taxpayers, covering most topics tested on the individual portion of the EA exam. Publication 501 covers exemptions, standard deduction, and filing information specifically; Publication 519 covers aliens; and Publication 504 covers divorced or separated individuals. While related, none of these is the general all-purpose guide.

Explanation: The Standard Deduction Chart is published in the Form 1040/1040-SR instructions and cross-references filing status with the number of boxes checked for age 65 or older and/or blind to determine the correct standard deduction. Form 1040-X is for amended returns, Form W-7 is for ITIN applications, and Publication 519 addresses aliens, not standard deduction amounts generally.

Explanation: An Individual Taxpayer Identification Number (ITIN) is for individuals who need a U.S. taxpayer identification number but are not eligible for an SSN, such as certain nonresident or resident aliens. It is obtained by filing Form W-7. Form W-7A is for adoption taxpayer identification numbers, Form SS-5 is the Social Security Administration's application for an SSN, and Form 8332 releases a dependency exemption claim by a custodial parent.

Explanation: The green card test is met when an individual is a lawful permanent resident of the United States at any time during the calendar year, which is documented by the Permanent Resident Card (commonly called a "green card"). A driver's license and Social Security card do not establish immigration status, and Form W-7 is used to apply for an ITIN, not to prove green card status.

Explanation: A taxpayer must provide more than half of a qualifying relative's total support to claim them as a dependent (absent a multiple support agreement). Since Tasha provided 60% of her father's support, which exceeds 50%, she is the only one eligible to claim him as a dependent; a multiple support agreement is unnecessary because one person already provided more than half.

Explanation: IRS recordkeeping guidance (Pub. 583 and Pub. 334) requires taxpayers to keep supporting documents -- receipts, invoices, bank and credit card records -- for all business income and expenses, regardless of dollar amount, in order to substantiate the amounts reported on a tax return. There is no de minimis dollar threshold below which records are unnecessary, so choices A, B, and C all describe thresholds or conditions that do not reflect actual IRS requirements.

Explanation: Under IRC §6041, payments of $600 or more in rent made in the course of a trade or business to a non-corporate landlord are reported in Box 1 of Form 1099-MISC. Beacon's payments to Carl total $14,400 for the year, well above the $600 threshold, and rent payments use 1099-MISC rather than 1099-NEC (choice B, which is reserved for nonemployee compensation for services), Form 941 (choice C, an employer's quarterly payroll tax return), or Form W-2 (choice D, used only for employees).

Explanation: When a business begins mid-year and adopts the calendar year as its tax year, its first tax year is a short period running from the business start date through the end of that calendar year -- here, September 15, 2024 through December 31, 2024. Income and expenses for that short period are reported on a return covering only that partial year; the business does not report a full 12 months of activity for its first year, and it does not use a fiscal year running September to September since it elected the calendar year.

Explanation: Schedule C asks filers to select the North American Industry Classification System (NAICS) code that most accurately describes their principal business activity; taxpayers should choose the closest available match even if no code precisely fits their business, rather than leaving it blank or picking arbitrarily. The code has informational/statistical significance to the IRS (and can affect audit selection risk profiles) but does not itself change tax liability, so choice B's premise is incorrect.

Explanation: Under IRC §6041A, a business that pays $600 or more during the year to a non-employee for services must issue Form 1099-NEC to that payee. Lisa was paid $750 for carpentry services, exceeding the $600 threshold, so Cornerstone must issue her a 1099-NEC. Form 1099-MISC for rent (choice A) does not apply since this was payment for services, not rent. A W-2 (choice C) would only apply if Lisa were classified as an employee, which she is not (she is an independent contractor/sole proprietor). Choice D's stated threshold is incorrect; the reporting threshold is $600, not $1,000.

Explanation: Under the default classification rules of Reg. §301.7701-3, a domestic LLC with two or more members that does not file an entity classification election is automatically treated as a partnership for federal tax purposes. It would only be taxed as a C corporation or S corporation if an affirmative election were filed (Form 8832 or Form 2553, respectively), and it cannot be a sole proprietorship because it has more than one owner.

Explanation: Self-employment tax on net earnings from a sole proprietorship is computed and reported on Schedule SE, which calculates the combined Social Security and Medicare tax owed under IRC §1401, in addition to income tax reported via Schedule C. Schedule A (choice A) is for itemized deductions, Schedule D (choice B) is for capital gains and losses, and Schedule E (choice C) is for supplemental income such as rental real estate, royalties, and pass-through entities -- none of which report self-employment tax.

Explanation: Every business that pays wages and is liable for federal employment taxes, including federal unemployment tax (FUTA), must obtain an Employer Identification Number (EIN) under IRC §6109, regardless of entity type. Sole proprietorships are not exempt from this requirement once they have employees. Choices A and B incorrectly claim EINs are unnecessary for sole proprietorships or are limited to corporations, and choice C invents a revenue threshold that does not exist; the requirement is triggered by having employees and payroll tax obligations, not by revenue level.

Explanation: Under IRC §183(d), an activity is presumed to be engaged in for profit (i.e., a business rather than a hobby) if it produced a profit in at least 3 of the last 5 tax years (including the current year). This is a rebuttable presumption in the taxpayer's favor, not an absolute rule, and the IRS can still challenge it using the multi-factor test in the regulations. Choice A invents a revenue threshold that does not exist; choices C and D describe conditions that are not part of the actual presumption test.

Explanation: Federal employment tax deposits (withheld income tax, Social Security, and Medicare) generally must be made electronically through the Electronic Federal Tax Payment System (EFTPS); paper coupons and checks mailed with Form 941 are no longer an acceptable deposit method for most employers. IRS Direct Pay (choice C) is designed for individual taxpayer payments, not business payroll tax deposits, and a direct ACH transfer to the Federal Reserve (choice A) is not how the deposit system is structured.

Explanation: Enrolled Agents must renew enrollment every three years by filing Form 8554, Application for Renewal of Enrollment to Practice Before the Internal Revenue Service. Form 2848 is a Power of Attorney, Form 23 is the initial enrollment application, and Form 8867 is the Paid Preparer's Due Diligence Checklist, none of which relate to periodic EA renewal.

Explanation: Under the special relationship provisions of Circular 230, an individual always retains the right to represent themselves before the IRS in their own matters. A PTIN is required only for compensated preparation of a return for someone else, not for self-representation, and self-representation is not restricted at any stage of an IRS matter.

Explanation: Practice before the IRS specifically includes providing a client with written tax advice on one or more federal tax matters, in addition to communicating with the IRS, representing taxpayers at conferences, and preparing or filing documents with the IRS. State-only tax preparation, general financial planning, and pure bookkeeping without IRS-related advice fall outside this definition.

Explanation: There are exactly two paths to enrollment: (1) obtaining a PTIN and passing all three parts of the Special Enrollment Examination (SEE), then filing Form 23 within one year, or (2) qualifying based on at least five years of IRS employment experience interpreting and applying the Internal Revenue Code, filing Form 23 within three years of leaving that position. Neither path is satisfied by a CPA license or a college degree alone.

Explanation: Individuals who perform only clerical, mechanical, or administrative support functions, such as data entry, do not need a PTIN because they are not preparing a substantial portion of the return. Anyone participating in the preparation of all or a substantial portion of a return for compensation must obtain a PTIN, regardless of whether they work full-time, part-time, or occasionally, per IRS PTIN regulations.

Explanation: The PTIN requirement applies to paid tax return preparers. Volunteers, such as those in the VITA program, who prepare returns without compensation are not required to obtain a PTIN, since the IRS definition of preparer for PTIN purposes turns on being compensated for preparing all or a substantial portion of a return.

Explanation: Attorneys in good standing, along with CPAs and Enrolled Agents, hold full representation rights before the IRS and are subject to Circular 230, Subpart B. No additional EA credential is required. Choice C describes a limited-rights AFSP preparer, not an attorney. A PTIN is only required for compensated return preparation, not representation alone, per IRS Circular 230 and Publication 947.

Explanation: Appraisers have no right to represent taxpayers before the IRS but may appear as a witness regarding their valuation. Enrolled retirement plan agents may represent taxpayers within their area of expertise, full-time employees may represent their employer, and immediate family members (spouse, child, parent, sibling) may represent a taxpayer under the special relationship rules of Circular 230.

Explanation: Anyone disqualified by the IRS is barred from practicing before the IRS, as are corporations, partnerships, or other entities acting in their own right (only individuals may practice). CPAs, attorneys in good standing, and properly renewed Enrolled Agents all retain full practice rights and are not barred.

Explanation: The IRS may waive CE requirements for reasons such as health issues, active military duty, absence from the United States for employment, and other reasons evaluated on a case-by-case basis. This differs from the general rule that missed CE without a waiver results in inactive status.