mock exam part 1 ( EASY)

Which publication is the primary free IRS resource for individual taxpayers?

• A) Publication 501

• B) Publication 17

• C) Publication 504

• D) Publication 519

• B) Publication 17

What must an Enrolled Agent do when they discover an error on a prior year tax return prepared by another preparer?

• A) Immediately file an amended return

• B) Tell the client and explain consequences; NOT required to fix it but can amend if client wants

• C) Report the error to the IRS

• D) Ignore it if the client doesn't mention it

• B) Tell the client and explain consequences; NOT required to fix it but can amend if client wants

Under the Substantial Presence Test, a non-citizen was physically present in the U.S. for 120 days in 2025, 120 days in 2024, and 120 days in 2023. Do they meet the test for 2025 residency?

A. Yes, because their total actual physical presence days exceed 183 days.

B. No, because the weighted total formula equals 180 days, which is less than the 183-day requirement.

C. Yes, because they were present in the U.S. for more than 31 days in the current year.

D. No, because they were present for fewer than 183 days in 2025 alone.

B. No, because the weighted total formula equals 180 days, which is less than the 183-day requirement.

On December 31, 2025, James was legally married but had lived apart from his spouse for the last 8 months. He paid more than half the cost of keeping up his home, and his 8-year-old daughter lived with him for the entire year. He does not file a joint return.

What is James's most advantageous filing status?

A. Single

B. Married Filing Separately

C. Head of Household

D. Qualifying Surviving Spouse

C. Head of Household

What form is generally used to report wages subject to federal income tax withholding?

A. Form 1099-INT
B. Form W-2
C. Form 1040-ES
D. Form 1098

B. Form W-2

What is the purpose of Form W-4?

A. To report bank interest
B. To claim a tax refund
C. To tell the employer how much federal income tax to withhold
D. To report self-employment tax

C. To tell the employer how much federal income tax to withhold

A taxpayer’s spouse died in May 2023. The taxpayer has not remarried and maintains a home for their 10-year-old dependent child for the entire year. What is the taxpayer's allowable filing status for tax year 2025?

A. Single

B. Head of Household

C. Married Filing Jointly

D. Qualifying Surviving Spouse (QSS)

D. Qualifying Surviving Spouse (QSS)

Under the 2025 filing requirements, a Single filer under age 65 must file if their gross income is at least:

• A) $13,850

• B) $15,000

• C) $15,750

• D) $17,500

• C) $15,750

Maria received the following during 2025:

• Wages: $70,000

• Gift from her parents: $20,000

• Interest from a municipal bond: $1,500

• Jury duty pay: $800

• Life insurance proceeds received because of her spouse's death: $100,000

What amount must generally be included in Maria's gross income?

A. $70,800

B. $72,300

C. $91,500

D. $192,300

A. $70,800

Let's break it down:

✅ Wages: $70,000 → Taxable
✅ Jury duty pay: $800 → Taxable

Total gross income included:

$70,000 + $800 = $70,800

Items NOT included:

❌ Gift from parents: $20,000

• Gifts are generally not taxable income to the recipient.

• The donor may have gift tax reporting issues, but Maria does not include it in income.

❌ Municipal bond interest: $1,500

• Generally excluded from federal gross income.

❌ Life insurance proceeds: $100,000

• Death benefit proceeds are generally excluded from income.

Question 4 of 50

Which filing status generally provides the highest standard deduction for a taxpayer?

A. Single
B. Married filing jointly
C. Married filing separately
D. Head of household

B. Married filing jointly

John is 42 years old, single, and covered by a retirement plan at work. In 2025, he contributed $7,000 to a traditional IRA.

His modified adjusted gross income is $90,000.

Which statement is correct?

A. John can deduct the full $7,000 IRA contribution.

B. John cannot deduct any IRA contribution because he is covered by an employer plan.

C. John’s IRA deduction may be limited because he is covered by a workplace retirement plan and his income exceeds certain limits.

D. John must treat the $7,000 contribution as a Roth IRA contribution.

C. John’s IRA deduction may be limited because he is covered by a workplace retirement plan and his income exceeds certain limits.

Explanation

Because John:

• Is covered by an employer retirement plan, and

• Has a higher modified adjusted gross income (MAGI),

his traditional IRA deduction may be reduced or eliminated depending on the IRS income phaseout limits.

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Why the others are wrong:

❌ A. Full $7,000 deduction

• Not automatically allowed because he is covered by a workplace plan.

❌ B. No deduction because he is covered by a plan

• Incorrect. Coverage alone does not eliminate the deduction; income determines eligibility.

❌ D. Must treat it as Roth

• Incorrect. A taxpayer can make a traditional IRA contribution even if it is not deductible.

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What is the 2025 filing requirement threshold for a Married Filing Jointly couple (both under 65)?

• A) $31,500

• B) $31,800

• C) $32,550

• D) $33,100

Answer: A) $31,500

Table 1-1 is clear: MFJ, both under 65 = $31,500. Notice it's roughly double the Single threshold ($15,750 × 2 = $31,500).

An unmarried taxpayer supports their 72-year-old mother, who lives in her own apartment. The taxpayer pays 60% of the mother's living expenses. The mother’s gross income for 2025 is $3,000. Can the taxpayer claim Head of Household status?

A. No, because the mother does not live in the taxpayer’s household.

B. Yes, because a dependent parent does not need to live with the taxpayer to qualify the taxpayer for Head of Household.

C. No, because the mother’s income exceeds $1,350.

D. Yes, but only if the mother files a joint return.

B Yes, because a dependent parent does not need to live with the taxpayer to qualify the taxpayer for Head of Household.

Under IRS rules, a taxpayer can qualify for Head of Household status if they pay more than half the cost of maintaining a home that is the principal residence for a qualifying parent, even if the parent lives in their own apartment or a care facility rather than the taxpayer's home. Furthermore, the mother's gross income of $3,000 is below the $5,200 qualifying relative gross income limit for 2025

Which filing status explicitly disqualifies a taxpayer from claiming the Earned Income Tax Credit (EITC)?

A. Single

B. Head of Household

C. Married Filing Separately

D. Qualifying Surviving Spouse

C. Married Filing Separately

Filing as Married Filing Separately generally disqualifies a taxpayer from claiming the Earned Income Tax Credit (EITC) unless narrow "considered unmarried" living-apart exceptions are met.

A single taxpayer with self-employment income of $400 or more must file a return:

• A) Only if total income exceeds the threshold

• B) Regardless of total income

• C) Only if net self-employment income exceeds $430.13

• D) Only if filing status is HOH

• B) Regardless of total income

Key rule: Self-employment income of $400+ triggers a filing requirement independent of the gross income threshold. Even if someone had only $400 SE income and no other income, they'd have to file.

Lisa purchased stock on January 10, 2024 for $8,000. She sold the stock on February 15, 2025 for $11,000.

What type of gain did Lisa recognize?

A. Short-term capital gain of $3,000

B. Long-term capital gain of $3,000

C. Ordinary income of $3,000

D. Section 1231 gain of $3,000

B. Long-term capital gain of $3,000

Lisa:

• Purchased stock: January 10, 2024

• Sold stock: February 15, 2025

She held the stock for more than one year, so the gain is long-term capital gain.

Calculation:

Selling price: $11,000
Minus basis: $8,000
Capital gain: $3,000

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EA Exam Tip — Holding Period

Remember:

• 1 year or less → Short-term capital gain/loss

• More than 1 year → Long-term capital gain/loss

The exact dates matter. The holding period starts the day after purchase and includes the sale date.

What document is used to report interest income paid by banks?

A. Form 1099-INT
B. Form W-2
C. Schedule C
D. Form 1098

A. Form 1099-INT

Question 6 of 50

When is a taxpayer generally required to use a prior-year tax basis rather than a current-year estimate?

A. When actual records are unavailable and a reasonable estimate is permitted
B. When the taxpayer chooses the standard deduction
C. When filing jointly
D. When claiming a dependent

A. When actual records are unavailable and a reasonable estimate is permitted

Which statement is correct for 2025?

A. Mark cannot claim the child because only married taxpayers can claim children.

B. Mark may claim the child as a qualifying child and may be eligible for child-related tax benefits.

C. The child must file a separate tax return because Mark provided support.

D. Mark may only claim the child if the child earned less than $500.

B. Mark may claim the child as a qualifying child and may be eligible for child-related tax benefits.

A qualifying child generally must meet these tests:

1. Relationship test

   • Child, stepchild, sibling, or descendant ✔

2. Age test

   • Under age 19 at the end of the year (or under 24 if a full-time student) ✔

   • Child is age 10 ✔

3. Residency test

   • Lived with taxpayer more than half the year ✔

4. Support test

   • Child did not provide more than half of their own support ✔

5. Citizenship/residency test

   • U.S. citizen or qualifying resident ✔

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EA Exam Tip — Child Tax Credit

For a qualifying child, always check:

R-A-C-E-S

• Relationship

• Age

• Citizenship

• Existed in household (residency)

• Support

What is the general deadline for filing a 2025 individual tax return?

• A) March 15, 2026

• B) April 15, 2026

• C) May 15, 2026

• D) June 15, 2026

• B) April 15, 2026

General rule: Form 1040 due the 15th day of the 4th month following the end of the tax year. For calendar year 2025 returns, that's April 15, 2026. If it falls on a weekend or holiday, it shifts to the next business day.

For tax year 2025, what is the maximum amount of Foreign Earned Income that an eligible individual can exclude using Form 2555?

A. $120,000

B. $126,500

C. $130,000

D. $150,000

C. $130,000

For the 2025 tax year, the maximum Foreign Earned Income Exclusion (FEIE) amount under Form 2555 is $130,000 for qualifying individuals who meet either the bona fide residence test or the 330-day physical presence test.

A taxpayer received $3,000 in municipal bond interest, $1,500 in U.S. Treasury bond interest, and $500 in corporate bond interest. What amount is included in federal gross income?

A. $500

B. $2,000

C. $3,500

D. $5,000

B. $2,000

Municipal bond interest ($3,000) is generally exempt from federal income tax and is excluded from gross income. However, U.S. Treasury bond interest ($1,500) and corporate bond interest ($500) are both subject to federal income tax, bringing the total included in federal gross income to $2,000 ($1,500 + $500).

Which form provides an automatic 6-month extension to file?

• A) Form 2106

• B) Form 4868

• C) Form 8332

• D) Form 8868

Form 4868 is the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. It gives a 6-month automatic extension (to October 15, 2026 for 2025 returns).

Form 8868 is for trusts/estates/partnerships—not individuals.

Critical point: The extension is to file only, NOT to pay. You must estimate and pay with Form 4868 or face interest and penalties.

Question 8 of 50 — Self-Employment Tax

David is self-employed and has net profit from Schedule C of $100,000 for 2025.

Which statement is correct regarding self-employment tax?

A. David owes no self-employment tax because he is not an employee.

B. David calculates self-employment tax on 92.35% of his net earnings from self-employment.

C. David calculates self-employment tax on 100% of his gross receipts.

D. David pays self-employment tax only if he earns more than $200,000.

B. David calculates self-employment tax on 92.35% of his net earnings from self-employment.

Here's the process:

1. Start with Schedule C net profit.

2. Multiply by 92.35% to determine net earnings from self-employment.

3. Apply the self-employment tax rate (subject to the applicable Social Security wage base and Medicare rules).

Another important Part 1 concept:

• One-half of the self-employment tax is deductible as an adjustment to income on Form 1040.

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Why the other answers are wrong

❌ A. Self-employed individuals generally do owe self-employment tax if they have sufficient net earnings.

❌ C. Self-employment tax is not based on gross receipts; it's based on net earnings.

❌ D. There is no $200,000 threshold to owe self-employment tax. (The $200,000 figure is associated with withholding for the Additional Medicare Tax in certain situations, not the basic self-employment tax.)

Question 7 of 50

Which of the following is considered valid taxpayer identification for filing?

A. Employer identification number only
B. Valid Social Security number, ITIN, or ATIN as applicable
C. Driver’s license number
D. Passport number only

B. Valid Social Security number, ITIN, or ATIN as applicable

Which of these items would typically be verified before preparing a return?

A. Income documents, filing status, dependents, and prior-year information
B. Only the taxpayer’s refund amount
C. Only the taxpayer’s mailing address
D. Only estimated tax payments

A. Income documents, filing status, dependents, and prior-year information

Emily paid $4,500 in qualified tuition during 2025 for her first year of college. She is enrolled at least half-time in a degree program and has never claimed an education credit before.

Which education credit is she most likely eligible for, assuming all other requirements are met?

A. Lifetime Learning Credit only

B. American Opportunity Tax Credit

C. Earned Income Tax Credit

D. Child and Dependent Care Credit

B. American Opportunity Tax Credit

Emily qualifies because:

• She is in her first four years of postsecondary education.

• She is pursuing a degree or other recognized credential.

• She is enrolled at least half-time.

• She has not previously claimed the AOTC for four tax years.

• She paid qualified education expenses.

The Lifetime Learning Credit (LLC) is more flexible (no half-time or degree requirement), but the AOTC is generally the applicable and more beneficial credit in this fact pattern.

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EA Exam Tip: AOTC vs. LLC

American Opportunity Credit	Lifetime Learning Credit
First 4 years only	Unlimited years
Half-time enrollment required	No minimum enrollment
Degree/credential required	Degree not required
More generous maximum credit	Lower maximum credit

Is an automatic extension to file also an extension to pay?

• A) Yes, both are extended equally

• B) No; taxpayer must estimate and pay with the extension form

• C) It depends on the taxpayer's circumstances

• D) Only if the taxpayer requests it

• B) No; taxpayer must estimate and pay with the extension form

Question 9 Under a divorce decree finalized in 2021, a taxpayer paid $12,000 in alimony and $6,000 in child support in 2025. How much can the payor deduct on Schedule 1?

A. $0

B. $6,000

C. $12,000

D. $18,000

Under the Tax Cuts and Jobs Act, divorce or separation instruments executed on or after January 1, 2019, do not allow for an alimony deduction for the payor (nor is it taxable income to the recipient). Since this decree was finalized in 2021, the alimony is post-2018 and nondeductible. Additionally, child support is never deductible.

A taxpayer received $5,000 in worker’s compensation, $4,000 in state unemployment compensation, and $2,000 in jury duty pay turned over to their employer. What amount must initially be included in total gross income on Form 1040 / Schedule 1?

A. $4,000

B. $6,000

C. $9,000

D. $11,000

B. $6,000

Worker's compensation ($5,000) is completely tax-exempt and excluded from gross income. However, state unemployment compensation ($4,000) is fully taxable, and jury duty pay received and later turned over to an employer ($2,000) must initially be included in gross income (though it can later be claimed as an above-the-line deduction). This brings the total initial gross income inclusion to $6,000 ($4,000 + $2,000)

A U.S. citizen living abroad with their main place of business outside the U.S. receives an automatic extension to:

• A) June 15, 2026 (can request additional 4 months)

• B) August 15, 2026

• C) October 15, 2026

• D) December 15, 2026

• A) June 15, 2026 (can request additional 4 months)

• US citizen or resident living outside US/PR... Automatic 2-month extension to June 15, 2026. Can file 4868 to get additional 4 months to 10/15/2026."

  So:

  • Automatic: 2 months to June 15, 2026

  • Plus Form 4868: Additional 4 months to October 15, 2026

  Again: not an extension to pay.

What percentage of tax liability is the Failure to File penalty?

• A) 1% per month, up to 10%

• B) 2% per month, up to 20%

• C) 5% per month, up to 25%

• D) 10% per month, up to 50%

• C) 5% per month, up to 25%

• Failure to File: 5% per month, up to 25%

• If fraud: 15% per month, up to 75%

• If >60 days late: Smaller of $525 or 100% of unpaid tax (for 2025 returns)

• No penalty if no balance due

Key: the penalty accrues for each month or part of a month. If extended, penalties start on the original due date, not the extended date.

Under Section 127, what is the annual maximum tax-free educational assistance an employer can provide to an employee in 2025?

A. $2,500

B. $5,250

C. $7,000

D. $10,000

B. $5,250

Under Internal Revenue Code Section 127, an employer can provide up to $5,250 per year in tax-free educational assistance (which includes tuition, fees, books, and qualified student loan repayments) to an employee without it being included in the employee's taxable gross income.

What is the Failure to File penalty if the return is more than 60 days late (for 2025 returns)?

• A) 10% of unpaid tax or $325, whichever is greater

• B) The smaller of $525 or 100% of unpaid tax

• C) 25% of unpaid tax

• D) 50% of unpaid tax

If >60 days late, the smaller of $525 or 100% of unpaid tax for 2025 returns due in 2026."

Example: If taxpayer owes $300 and files 75 days late, the penalty is $300 (100% of $300, which is less than $525). If they owe $1,500, the penalty is $525 (the smaller amount).

This is a floor on the 5% monthly penalty—it ensures a minimum hit even for small underpayments.

What is the IRS individual taxpayer identification number primarily used for?

A. For individuals who are not eligible for a Social Security number but need to file a federal tax return
B. For corporations only
C. For payroll withholding only
D. For state tax returns only

A. For individuals who are not eligible for a Social Security number but need to file a federal tax return

For the 2025 tax year, what is the maximum gross income a candidate can earn to qualify as a Qualifying Relative?

A. $0

B. $1,350

C. $5,200

D. $15,750

C. $5,200

For the 2025 tax year, a person must have a gross income of less than $5,200 to satisfy the gross income test required to be claimed as a Qualifying Relative.

Question 11 of 50

Which of the following is generally included in gross income?

A. Most gifts received
B. Wages
C. Life insurance death benefits
D. Child support received

B. Wages