What are the tax consequences to Juan of the repayment

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Problem - In 2018, Juan entered into a contract to write a book. The publisher advanced Juan $50,000, which was to be repaid out of future royalties. If the book was not completed by the end of 2019, however, Juan would be required to repay the publisher for the advance. Juan did not complete the book in 2019, and in accordance with the agreement, he repaid the $50,000 to the publisher in 2020. Juan is a cash basis taxpayer. What are the tax consequences to Juan of the repayment under the following assumptions?

a. Juan's marginal tax rate was 15% in 2018 and 35% in 2020.

b. Juan's marginal tax rate was 35% in 2018 and 12% in 2020.

Reference no: EM132672259

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