Federal Tax Research 10th Edition by Roby Sawyers,William Raabe,Gerald Whittenburg,Steven Gill

Exercise 30

Rex incurred $8,000 of employment-related meal and entertainment expenses during the year. Rex'semployer is trying to determine whether to reimburse Rex directly for the expenses (and claim the $4,000 deduction on its corporate tax return) or to pay him additional salary (in which case Rex would claim theunreimbursed expenses as a miscellaneous itemized deduction on his personal 1040 form). Rex has $5,000 of other miscellaneous itemized deductions and $100,000 of adjusted gross income before any additional salary. Assuming that both Rex and his employer have a 35 percent marginal tax rate, which option is best for the company and for Rex