The Cardinal Wholesale Company is an S corporation that began business on March 1, 2017. 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 that 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.