You previously provided tax advice to Chandler and Monica Bing, owners of Bing Bakery, Inc.

$($Bing$),$ related to their newly created corporation, Bing Bakery, Inc. $($Bing$).$ Since you did such a

thorough job before, they are seeking additional tax advice from you now.

As a reminder, on May $17,2022,$ Chandler and Monica Bing incorporated and began operating

Bing Bakery, Inc. $($Bing$).$ Bing sells various baked goods online to customers throughout the U$.$S$.$

Bing$$s mission is to provide high quality baked goods to customers in a convenient manner

without sacrificing taste and freshness. Monica leads the operations side of the business as the

head chef, and Chandler leads the administrative side of the business as the CEO of the company.

It is now June $15,2022,$ and the Bings are trying to determine if an S election should be made for

Bing or not. They have heard that if an S election is desired that it needs to be made by a certain

date in order to be effective for the current year. As a result, they have come to you with the

following thoughts$/$questions:

$1.$ They have heard that S corporations are $$flow$-$through entities$,$ and they are unsure

what that means. In determining whether an S election should be made or not, the Bing$$s

are especially curious about the impact on their overall tax liability $($in consideration of

both entity and individual tax$).$ Specifically, they are requesting that you compute the

estimated overall tax liability if they maintain C corporation status vs$.$ if an S election is

made.

$2.$ Other than differences in taxation, they are also wanting to know if there are any

limitations for S corporations. And if there are, is this something they should be concerned

about?

$3.$ Finally, they are concerned that it may be too late for an S election to go into effect for

their initial tax return for $2022.$ If they do decide to make an S election, is it too late to be

effective for Bing$$s $2022$ return?

The Bings also provided the following additional information:

$$ They estimate that Bing$$s $2022$ taxable income $($net of allowable business deductions$)$ will

be approximately $$90,000.$

$$ The Bings$$ individual marginal income tax rate is $24\%,$ and their dividend tax rate is $15\%.$

In addition, they are subject to net investment income tax.

$$ Bing will distribute all after$-$tax earnings to the Bings, the only shareholders of Bing,

annually.

$$ Bing does not generate qualified business income $($QBI$).$

Based on the information provided, the Bings request that you prepare a tax research memo to

address their questions so that they can make an informed decision as to whether to elect S

status or not. Download the authoritative guidance, $$Sec$.11.$ Tax Imposed Download Sec. $11.$ Tax Imposed," $$Sec$.1361.$ S Corporation Defined, Download Sec. $1361.$ S Corporation Defined," $$Sec$.1362.$ Election Download Sec. $1362.$ Election," $$Sec$.1363.$ Effect Of Election on Corporation, Download Sec. $1363.$ Effect Of Election on Corporation," and $$Sec$.1411.$ Imposition on Tax. Download Sec. $1411.$ Imposition on Tax." You will need to read through the guidance, determine how it applies to the tax memo that you are writing, and reference any pertinent authoritative guidance in your memo.