At the start of 2022, Ms. Davis decided to jump into the coffee roasting business. InJanuary 2022, she purchased an old factory building in the east of Champaign for $300,000 (land is valued at 100,000 and building is valued at $200,000). The building is ideal because it can be used for roasting as well as selling coffee beans. In February, she purchased two commercial coffee roasters for $100,000 and other equipment needed for the roasting process ($25,000), as well as initial roasting supplies ($5,000) and furniture ($20,000). She hired two employees to assist with the initial roasting setup and planning process, for whom she paid a total of $5,500 in salaries during February and March. She also paid $7,500 in marketing costs prior to her opening day. Ms. Davis officially opened for business on April 1st. Ms. Davis' intuition that the demand for coffee beans in central Illinois would spike in
2022 turned out to be right and by the end of 2022, the roastery business was a huge success. Her annual sales revenue came in at $750,000. Over the year, she hired a total of five employees, paying each a salary of $50,000 (since the opening day of the business). The total purchases of coffee beans were $210,000 and she also incurred other costs over the year: gasoline costs of $6,750, electricity costs of $8,000, repairs and maintenance costs of $5,000, insurance costs of $15,000, legal and accounting fees of $12,500, and marketing costs of $11,000. The business also donated $4,320 of roasted coffee (FMV: $4,320, Cost: $2,000) to the Illinois Food Bank (in total for 2022).
Following the great initial success of her business, Ms. Davis decided to move to Champaign to further grow her business. In May of 2022, she decided to sell her condo in Chicago and buy a home in Champaign where she could focus on her business. Ms. Davis purchased her Chicago condo in December 2019 for $500,000 and sold it in May 2022 for $700,000. She used the proceeds from the sale of her condo to purchase a house in Champaign. She used the spare bedroom in her house (350 square feet) exclusively for managing the business. Ms. Davis is having so much fun operating the coffee roastery and is pleased with how successful the business was in its first year. Given the increasing demand for sustainable products, Ms. Davis decided to "go green" and make significant investments in green technologies to run her business. In September 2022, she purchased a brand-new electric vehicle (2022 Audi Q5 TFSI e Quattro) for $60,000 to travel to potential customers and suppliers. The car was delivered in late September. She used the new car
exclusively for business purposes. She traveled to and from suppliers and customers (10,000 miles).
Given the increasing demand for sustainable products, Ms. Davis would like to make additional investments in "green" technologies in 2023. She read in the news that there are significant tax credits available for solar photovoltaic (PV) panels and that the roof of the factory building would be an ideal place to install the solar panels. She met with an energy consultant and the related costs would be as follows: $100,000 for new solar PV panels, $10,000 for labor costs for installing the panels, and $11,000 for wiring and mounting equipment. The costs are for 200-kW solar PV panels with a capacity factor of 20% which meet the labor requirements issued by the Treasury Department. The consultant suggested either installing and placing in service all panels in 2023 or installing and placing in service half of the solar panels in 2023 and the rest in 2025 (i.e., half of the $100,000 and associated costs for installation in 2023 and the other half in 2025). Either way, Ms. Davis is also considering installing a battery for storing
unused energy from solar panels ($15,000) in 2023. Ms. Davis' long-term plan is to use 50 percent of the energy generated from her solar panels and sell the remaining 50 percent to neighboring businesses. She has some interest from her neighbors but does not have any firm commitments. In assessing her options, she is okay with the assumption that 25 percent of the energy generated is sold if she places half of the system in service in 2023 and 50 percent starting from 2025 when the full installation is complete. Having said that, she also noted that she doesn't know what the future might hold and thus is okay with you focusing more of your efforts on options that provide immediate benefits.

1. Given the significance of the investments for her business, she first would like to better understand 
2. 
   
3. a) what tax incentives are available for businesses to invest in solar panels,
4. b) what the requirements and limitations are, and 
5. c) what the tax accounting treatment of the investments (e.g., depreciation) is.

Other items that may be relevant:• Ms. Davis is divorced (divorced in 2016), and her children are adults (over 25 years) who do not have the same principal residence as Ms. Davis.
• Ms. Davis paid $7,000 in interest on her home mortgage loan (loan value of $400,000).
• She made cash contributions to qualifying charities of $5,000.
• She paid $3,500 per quarter in estimated tax payments for federal purposes and $1,200 per quarter in estimated tax payments for the state of Illinois (all payments were made in 2022).
• She paid $8,000 in Illinois real property taxes (condo and home). Questions you should address (but feel free to address any other issues you
think are important):
Please determine Ms. Davis' net income from her coffee roastery business for 2022. (note: in addition to the expenses noted above, Ms. Davis did also pay the employer share of employment taxes for her five employees. She forgot to give you that information but is hoping you can compute it for her when estimating the business' net income(this is the question)

Answer rating: 100% (QA)

SOLUTION To determine Ms Davis net income from her coffee roastery business for 2022 we need to calc... View the full answer