Audry has an ownership interest in a business entity. She is in the 28% tax bracket. The entity incurs $30,000 of meals and lodging expense for Audry, which she believes qualify for exclusion treatment under § 119. Which of the following statements are correct?
A) If the entity is a partnership and Audry has a 60% interest, the effect of the $30,000 expenditure by the partnership on Audry's tax liability is an increase of $5,040.
B) If the entity is a sole proprietorship, the effect of the $30,000 expenditure by the sole proprietorship on Audry's tax liability is $8,400.
C) If the entity is a C corporation, the effect of the $30,000 expenditure by the corporation on Audry's tax liability is $0.
D) Only b. and c. are correct.
E) a., b., and c. are correct.

Question

Quizplus · Accepted Answer

If the entity is a sole proprietorship, the meals and lodging expense is not deductible by the business and is included in Audry's income. Since Audry is in the 28% tax bracket, the effect of the $30,000 expenditure on her tax liability is $8,400. If the entity is a C corporation, the meals and lodging expense is deductible by the corporation and is not included in Audry's income. Therefore, the effect of the $30,000 expenditure on her tax liability is $0.

Audry Has an Ownership Interest in a Business Entity