Question

Alan died on december 27, 2021. his wife, allison, has not remarried. on january 31, 2022, allison received a check from party central, inc. and a letter explaining that the check represents a final payment for contract work alan did in 2021. what is the correct and most favorable method of reporting this income?

a. as ordinary income on allison's 2022 individual tax return.
b. as income paid to alan's estate, reported on form 1041.
c. on the couple's jointly filed 2021 return.
d. on a 2021 final tax return for alan that allison files on his behalf.

Answer 1

The most favorable method for Allison to report the final payment for contract work done by her deceased husband Alan is to include it on the couple's jointly filed 2021 tax return.

Step-by-step explanation:

The correct option : c

This is premised on the idea that income earned by a deceased person prior to their death should be included on the final joint return with the surviving spouse for the year in which the deceased person passed away. In this case, since Alan performed the work in 2021 and passed away the same year, his income should be reported on the joint return for that year. This is since income is typically reported in the year it is earned, not when it is paid.

Option A is incorrect because the income was earned in 2021 and thus should be reported in that tax year. Option B is typically reserved for income earned by the estate after the date of death, and this income was earned by Alan before his death. Lastly, option D is incorrect as filing a separate tax return for Alan would not be the most favorable, given that joint filing often provides better tax benefits.