QBI calculationOn January $1,2023,$ Jessica, a small business owner who does engineering, comes to your accounting

firm to seek help in determining whether she should hire some employees. The owner provides you with

the following facts:

$$ The business is a single$-$member LLC $($disregarded entity so taxed as a Sole Proprietorship$).$

$$ No current employees

$$ Projected Business Information:

o Business Revenue: $$1,200,000$

o General Business Expenses: $$200,000$

o Net Business Income: $$1,000,000$

$$ Projected Personal Information:

o Spouse$$s wage: $$50,000$ from teaching a boring non$-$tax course at GMU

o Always take the Standard Deduction

o $$0$ Personal Exemptions

The owner proceeds to tell you they are very proud of the business they built but are now tired of

working ~$100$ hours per week and would like to spend more time with their husband. The owner

estimates they are twice as efficient as a new hire would be$.$ Thus, assuming each employee hired works

$40$ hours per week, then that would reduce the owner$$s hours by $20$ hours per week. The owner figures

$5$ employees would be the maximum that it would be worth, since $200$ employee hours per week is

equivalent to $100$ boss hours. Market rates for new hires in this industry are $$100,000$ per year.

This is the boss$$s big problem; it isn$$t worth it to her to lose $$100,000$ in cash flows to save $20$ hours per

week of her time. $$I$$d be willing to give up $$50,000$ in cash flows to hire someone to save me $20$ hours

per week of my time, but not a penny more,$$ she tells you. $$I know I$$d get a tax deduction for paying

employee wages, so it won$$t cost me the full $$100,000$ in lost cash flows, but I wasn$$t sure if that new

QBI deduction would make it worth hiring any employees, and if it does how many employees I should

hire?$$ This is what I really could use your help with.

Provide a deliverable that includes:

$1.$ A one$-$page memo $($Microsoft Word$)$ with:

a$.$ Your recommendation as to how many employees, if any, Jessica should hire. Be sure to

include why you made this recommendation.

b$.$ A summary table comparing what the business income, taxable income, tax liability,

after$-$tax cash flows, and change in after$-$tax cash flows would be if she hires $0,1,2,3,4,$

vs$.5$ employees. Below is an example of a summary table:

Business

Income Taxable Income Tax Liability

After Tax

Cash Flows

Change in After

Tax Cash Flows

$0$ Employees n$/$a

$1$ Employee

$2$ Employees

$3$ Employees

$4$ Employees

$5$ Employees

QBI Project

$2|$ P a g e

$2.$ A spreadsheet $($Microsoft Excel$)$ showing all your work and calculations.

a$.$ Be sure to include clearly labeled supporting calculations for each of the six scenarios

$($i$.$e$.,0,1,2,3,4,$ vs$.5$ employees$).$

b$.$ Be sure to include how you derived calculations for:

i$.$ The qualified business income $($QBI$)$ deduction for $2023,$

ii$.$ Standard deduction for $2023,$

iii. Taxable income,

iv$.$ Tax rate,

v$.$ Tax liability,

vi$.$ After$-$tax cash flows, and

vii. Change in after$-$tax cash flows.

Note: For this problem, ignore payroll and state taxes, focus just on Federal Income Tax and the

Qualified Business Income Tax Deduction. Also assume they take the standard deduction and that

the Federal income tax is a flat $40\%($i$.$e$.,$ don$$t use the $10\%-->37\%$ rate tables$).$