Shirley Jensen terminated her employment on May 31, 20X0, after earning taxable employment income of $20,000. On June 1, 20X0, she opened a proprietorship retail store. She has been informed that the taxation year for the business should be the calendar year. However, she is aware that an election can be made that permits her to use a non-calendar fiscal year. She has indicated that for administrative reasons, the desirable fiscal year end is May 31 of each year. Before she makes a decision, Jensen wants to know the tax implications of choosing one method over the other.
Her profits from the retail store for the next few years are estimated to be as follows:

Income tax rates for each year are assumed to be 24% on the first $43,000 of income, 32% on the next $44,000, 40% on the next $48,000, and 45% on income over $135,000. Jensen will have no other sources of income in each of the years, except the employment income of $20,000 in 20X0.
Required:
With the information provided, outline the tax consequences to Jensen for each alternative method of determining business income for each of the three taxation years. Which method will you recommend?

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20X0seven months 20X1 20X2 December 3 May 31 $50.000 85,000 90,000 85,000 90,000