Charles Jordan files his income tax return on a calendar-year basis. He is a 3% partner of a partnership reporting on a June 30 fiscal-year basis. Jordan's share of the partnership's ordinary income was $24,000 for the fiscal year ended June 30, Year 1, and $72,000 for the fiscal year ended June 30, Year 2.

How much should Jordan report on his Year 1 return as his share of taxable income from the partnership?

a. $24,000

b. $36,000

c. $48,000

d. $72,000

e. None of the above

D. $72,000

A) $24,000

Explanation:

Assuming that this is the first year that the partnership is in business, Jordan must include in his year 2 tax return all the income received between July 1 and June 30 year 2, and part of the income received between July 1 and December 31 year 2.

The problem is that we are not told how much he received between July and December year 2. If Jordan is paid a salary, then we should include half of $72,000, but we are not given any specific details.

We can also assume that he only receives money at the end of the partnership's fiscal year, so he only received $24,000 during year 2.

We have two possible options:

option 1, total income = $24,000 option 2, total income = $24,000 + ($72,000 / 2) = $60,000

Since option 2 is not given as a possible answer, I will go for option 1.

The IRS establishes that income must be considered during the taxable year that results in the least deferral of income, i. e. you must pay your taxes as soon as possible.