Business Entities

# EA Part 2 — Business Entities Exam: IRS Enrolled Agent — Part 2: Businesses Exam Format: 100 multiple-choice questions | 3.5 hours | Passing score: 105 (scaled 40–130) Last Updated: June 2026 --- ## Sole Proprietorships A sole proprietorship is the simplest business form — the owner and the business are the same legal entity. Tax reporting: Schedule C (Form 1040). Net profit from Schedule C is subject to: - Income tax (reported on Form 1040) - Self-employment (SE) tax (Schedule SE) SE tax: 15.3% on net SE income up to Social Security wage base ($176,100 for 2025); 2.9% Medicare above that amount. Taxpayer deducts 50% of SE tax as an above-the-line adjustment. Business expenses: All ordinary and necessary business expenses deductible (§162): - Advertising, rent, supplies, wages, utilities - Business portion of vehicle expenses (standard mileage or actual) - Home office (if exclusive regular use) --- ## Partnerships ### General Rules A partnership is an association of two or more persons carrying on business as co-owners for profit. Tax reporting: Form 1065 (partnership return); each partner receives Schedule K-1. No entity-level tax: Income, losses, deductions, and credits pass through to partners. ### Types of Partnerships | Type | Partner Liability | |---|---| | General Partnership (GP) | All partners: unlimited personal liability | | Limited Partnership (LP) | General partners: unlimited; limited partners: limited to investment | | Limited Liability Partnership (LLP) | Partners protected from other partners' wrongful acts | | Limited Liability Limited Partnership (LLLP) | General partners also have limited…