Question

Leah Sarah is employed at Cleveland Inc. at an annual salary of $45K. Leah received $35K in salary in 2017 from Cleveland Inc., a prosperous company. They credited the unpaid salary to Leah Sarah's account. Leah only had to stop by the payroll office to receive her money. In January 2018, Leah Sarah requested and received the remaining $10K of her salary. How much income must Leah Sarah report on her 2017 income tax return?

Answer 1

Leah Sarah should report her full annual salary of $45K as her income on her 2017 income tax return as the $10K received in 2018 was for services rendered in 2017.

Step-by-step explanation:

The student's question pertains to what amount of income Leah Sarah must report on her 2017 income tax return. Under typical tax principles, individuals must report income in the year it is earned, regardless of when it is received. In Leah Sarah's case, although she received the remaining $10K in January 2018, the entire $45K salary was earned in 2017 when she was employed by Cleveland Inc. Therefore, Leah should report her full annual salary of $45K as her income on her 2017 income tax return, as the $10K was not a payment for services rendered in 2018 but a delayed payment for services performed in 2017.