Two-Part Question:
A- Does PK qualify to make an S Corp election for its 2022 tax year? How will it change their taxes?
B- What forms, documents, and schedules are now required? Would you advise them taking this action?
On September 10th, 2012, Janet Morton and Kim Wong formed PK, Inc. (a C corporation) to sell pets and pet supplies. Pertinent information regarding PK is summarized as follows: - PK's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is pk@pki.com. - The employer identification number is 11-2354781, and the principal business activity code is 453910 . - Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized. - Both Janet and Kim are full-time employees of PK. Janet's Social Security number is 123-45-6789, and Kim's Social Security number is 987-65-4321. - PK is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. PK uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. - During 2022, the corporation distributed cash dividends of $266,000. PK's financial statements for 2022 are shown below. Interest income: State bonds $18,000 Certificates of deposit 20,000 Total income $$3,696,00038,000 Expenses Salaries-officers Janet Morton Kim Wong Salaries-clerical and sales Taxes (state, local, and payroll) Repairs and maintenance Interest expense: Loan to purchase state bonds $12,000 \begin{tabular}{lrr} \multicolumn{1}{l}{ Other business loans } & 207,000 & 219,000 \\ Advertising & 58,000 \\ Rental expense & 109,000 \\ Depreciation** & 106,000 \\ Charitable contributions & 55,000 \\ Employee benefit programs & 60,000 \\ Premiums on term life insurance policies*** & 42,000 \\ \hline \end{tabular} Total expenses * PK's ownership in each of these corporations was less than 20%. ** Depreciation for tax purposes is $168,000. Note: you are not provided enough detailed information to complete a Form 4562 (depreciation). Enter the tax depreciation on line 20 of Form 1120. *** The life insurance policies are on the lives of Janet Morton and Kim Wong. PK is the beneficiary. During 2022, PK made estimated tax payments of $74,000 each quarter to the IRS. On September 10th, 2012, Janet Morton and Kim Wong formed PK, Inc. (a C corporation) to sell pets and pet supplies. Pertinent information regarding PK is summarized as follows: - PK's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is pk@pki.com. - The employer identification number is 11-2354781, and the principal business activity code is 453910 . - Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized. - Both Janet and Kim are full-time employees of PK. Janet's Social Security number is 123-45-6789, and Kim's Social Security number is 987-65-4321. - PK is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. PK uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. - During 2022, the corporation distributed cash dividends of $266,000. PK's financial statements for 2022 are shown below. Interest income: State bonds $18,000 Certificates of deposit 20,000 Total income $$3,696,00038,000 Expenses Salaries-officers Janet Morton Kim Wong Salaries-clerical and sales Taxes (state, local, and payroll) Repairs and maintenance Interest expense: Loan to purchase state bonds $12,000 \begin{tabular}{lrr} \multicolumn{1}{l}{ Other business loans } & 207,000 & 219,000 \\ Advertising & 58,000 \\ Rental expense & 109,000 \\ Depreciation** & 106,000 \\ Charitable contributions & 55,000 \\ Employee benefit programs & 60,000 \\ Premiums on term life insurance policies*** & 42,000 \\ \hline \end{tabular} Total expenses * PK's ownership in each of these corporations was less than 20%. ** Depreciation for tax purposes is $168,000. Note: you are not provided enough detailed information to complete a Form 4562 (depreciation). Enter the tax depreciation on line 20 of Form 1120. *** The life insurance policies are on the lives of Janet Morton and Kim Wong. PK is the beneficiary. During 2022, PK made estimated tax payments of $74,000 each quarter to the IRS
