Austin is the sole owner of a small LLC, specializing in manufacturing hand sanitizer. Austin sends you the following income/expenses items a week ago: Income from the business: $1 million Expenses: o Factory: $300k purchased on 9/30/2020. o Machine: $150k purchased on 7/31/2020 o Employee salary: $300k (1 full-time factory manager = $50k, 15 part-time contractors, $10k each. In addition, Austin also hire his dad working as a vice-manager at the factory and pay his dad $100k. Through some research, you know that the average salary for that same position is about $45k) o Due to COVID-19, the year 2020 is a crazily profitable year for Austin's business. For that reason, Austin decided to host an employee appreciate year-end party to celebrate. Austin believes that he would need to host a quite a "kick-ass" party because his annual pay for the employees are quite low. In addition, a fun and special party would be helpful to boost employee morale. Austin decides to rent out a small yacht for a night of 12/30/2020 and host the company party on there. Below is the cost of the party: Yacht rental = $30k . Food and Drinks served on board at the party = $20k o Utilities: $30K a) Assume there is no depreciation expenses allowed (which also mean no Section 179, and no Bonus depreciation) in 2020, calculate Andrew's AGI. Show details calculation and explanation. b) How would your answer in a) change if we now account for asset depreciation expenses (including 179, Bonus depreciation, and MACRS)? Show details calculation and explanation. c) It seems like Austin is practicing some tax strategy in the year of 2020. Identify at least 1 strategy that Austin used in 2020 and explain how it helps Austin to reduce his tax liability in 2020? Austin is the sole owner of a small LLC, specializing in manufacturing hand sanitizer. Austin sends you the following income/expenses items a week ago: Income from the business: $1 million Expenses: o Factory: $300k purchased on 9/30/2020. o Machine: $150k purchased on 7/31/2020 o Employee salary: $300k (1 full-time factory manager = $50k, 15 part-time contractors, $10k each. In addition, Austin also hire his dad working as a vice-manager at the factory and pay his dad $100k. Through some research, you know that the average salary for that same position is about $45k) o Due to COVID-19, the year 2020 is a crazily profitable year for Austin's business. For that reason, Austin decided to host an employee appreciate year-end party to celebrate. Austin believes that he would need to host a quite a "kick-ass" party because his annual pay for the employees are quite low. In addition, a fun and special party would be helpful to boost employee morale. Austin decides to rent out a small yacht for a night of 12/30/2020 and host the company party on there. Below is the cost of the party: Yacht rental = $30k . Food and Drinks served on board at the party = $20k o Utilities: $30K a) Assume there is no depreciation expenses allowed (which also mean no Section 179, and no Bonus depreciation) in 2020, calculate Andrew's AGI. Show details calculation and explanation. b) How would your answer in a) change if we now account for asset depreciation expenses (including 179, Bonus depreciation, and MACRS)? Show details calculation and explanation. c) It seems like Austin is practicing some tax strategy in the year of 2020. Identify at least 1 strategy that Austin used in 2020 and explain how it helps Austin to reduce his tax liability in 2020
