Business Entities and Considerations — Enrolled Agent — SEE Part 2 (Businesses) Practice Test

This Enrolled Agent — SEE Part 2 (Businesses) Business Entities and Considerations practice set has 190 practice questions based on the official exam materials, each with an instant explanation.

Sample questions

Three questions from the Business Entities and Considerations bank with the correct answer and an explanation. The practice quiz above draws 30 questions at random from the same bank.

1. On which form does an individual who owns an unincorporated business as a sole proprietor generally report the profit or loss from that business?

   • Schedule C (Form 1040), Profit or Loss From Business — Correct answer
   • Form 1065, U.S. Return of Partnership Income
   • Form 1120, U.S. Corporation Income Tax Return
   • Form 1120-S, U.S. Income Tax Return for an S Corporation

   Explanation: A sole proprietorship is not a separate taxable entity from its owner; the owner reports the business's income and expenses on Schedule C (Form 1040) and the net result flows to the owner's Form 1040. Forms 1065, 1120, and 1120-S are the entity returns for partnerships, C corporations, and S corporations, respectively. See Pub 334.

   Handbook: Business Entities and Considerations — Sole Proprietorship Reporting (Schedule C)

2. A sole proprietor with net earnings from self-employment above the filing threshold generally computes and reports self-employment tax on ______.

   • Schedule SE (Form 1040) — Correct answer
   • Form 941, Employer's Quarterly Federal Tax Return
   • Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
   • Schedule K-1 (Form 1065)

   Explanation: Self-employment tax (Social Security and Medicare on self-employment earnings) is figured on Schedule SE (Form 1040) under IRC §1401–1402. Forms 941 and 940 are employer employment-tax and FUTA returns; Schedule K-1 (Form 1065) reports a partner's share of partnership items. See Pub 334.

   Handbook: Business Entities and Considerations — Self-Employment Tax (Schedule SE)

3. All of the following business entities are generally treated as pass-through entities whose income is taxed to the owners rather than the entity EXCEPT:

   • A C corporation — Correct answer
   • A general partnership
   • An S corporation
   • A sole proprietorship

   Explanation: A C corporation is a separate taxpayer that pays entity-level income tax on Form 1120 (IRC §11); its shareholders are then taxed again on dividends, producing 'double taxation.' Partnerships (Form 1065), S corporations (Form 1120-S), and sole proprietorships (Schedule C) are pass-through/flow-through arrangements where income is generally taxed to the owners. See Pubs 334 and 542.

   Handbook: Business Entities and Considerations — Pass-Through vs Entity-Level Taxation