Problem
Andrew is the sole owner of a small LLC, specializing in manufacturing ready-to-eat ramen noodle packages. Andrew sent you the following income/expenses items a week ago:
1. Income from the business: $800 k
2. Expenses:
a. Warehouse: $200k purchased on 12/31/2022
b. New production machinery: $100k purchased on 12/31/2022
c. Employee salary: 200k (1 full-time manager = 50k, 15 part-time contractors, 10k each)
d. Andrew needs to meet with a few bosses from HEB and Walmart to advertise his products. Below are the expenses associated with those client meetings that Andrew documented.
i. Diamond Club and Bar tickets for both Andrew and clients = 20k
ii. Food and Drinks = 10k
e. Utilities: 30k
A. Assuming there are no depreciation expenses (no §179, no bonus, and no MACRS) in 2022, 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? Show details calculation and explanation.
C. Based on the purchase date of the warehouse and the machinery, we observe that Andrew is planning some strategy here to reduce his tax liability in 2022. What is the type of that tax strategy? Explain how it helps Andrew to reduce his tax liability in 2022.