Angie has a 60% ownership interest in a business entity.She is in the 33% tax bracket.The entity incurs $20,000 of meals and lodging expense for Angie,which she believes qualify for exclusion under § 119.Which of the following statements is correct?
A)If the entity is a partnership,the effect of the $20,000 expenditure by the partnership on Angie's tax liability is an increase of $6,600.
B)If the entity is a sole proprietorship,the effect of the $20,000 expenditure by the sole proprietorship on Angie's tax liability is $0.
C)If the entity is a C corporation,the effect of the $20,000 expenditure by the corporation on Angie's tax liability is $0.
D)Only a.and c.are correct.
E)a. ,b. ,and c.are correct.

Question

Quizplus · Accepted Answer

If the entity is a partnership or a C corporation, the meals and lodging expense will flow through to Angie as income, and the exclusion of the expense afforded by § 119 will offset that income. Therefore, the effect on her tax liability will be 0. In a partnership, Angie's distributive share of any income or loss will be included on her personal tax return, and her 60% ownership interest in the entity means that she will receive 60% of the $20,000 expense as a reduction in her taxable income. Since Angie is in the 33% tax bracket, this will result in a tax savings of $6,600.

Angie Has a 60% Ownership Interest in a Business Entity