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    Tax calculation for S Corporation

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    The Cardinal Wholesale Company is an S corporation that began business on March 1, 2005. Robert, a calendar year taxpayer, owns 100% of the Cardinal stock. He has $400,000 taxable income from other sources each year. Robert will work approximately 30 hours a week for the corporation. Cardinal sells swimming pool supplies, and its natural business year ends in September. Approximately 80% of Cardinal's gross receipts occur in June through September.

    a. What tax year should Cardinal elect, assuming that Robert anticipates the company will produce a net profit for all years?

    b. What tax year should Cardinal elect, assuming it will lose $10,000 a month for the first 12 months and an average of $5,000 a month for the next 12 months? In the third year, the corporation will earn taxable income.

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    STEP 1

    What tax year should Cardinal elect, assuming that Robert anticipates the company will produce a net profit for all years?

    There is not any choice according to the law the year-end selected should be 31st December. A different year ending can be chosen if a specific business purpose is proved to the IRS. In spite of the seasonality a special purpose has not been proved yet.

    The benefit if the S corporation to Robert is that he will not have to pay self-employment tax on the 30 hours that he works in the company.

    This material is taken from the website http://www.soleproprietormagazine.com" What must be included on the Form 2553 election?
    Name and address of corporation
    Corporation's Employer Identification Number (EIN)
    Date incorporated and state of incorporation
    Date the S corporation ...

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