Problem:
In January, Don and Steve each invested $ 100,000 of cash to form a corporation to conduct business as a retail golf equipment store. On January 5, they paid Bill, an attorney, to draft the corporate charter, file the necessary forms with the state, and write the bylaws.
They leased a building and began to acquire inventory, furniture, display equipment, and office equipment in February. They hired a sales staff and clerical personnel in March and conducted training sessions during the month.
They had a successful opening on April 1, and sales increased steadily during the summer months. The weather turned cold during October, and all local golf courses closed October 15, which resulted in a significant decline in sales. Don and Steve expect business to be very good during the Christmas season and then to decline during from January 1 to February 28.
The corporation accrued bonuses to Don and Steve on December 31, payable on April 15 of the following year. The corporation hired a bookkeeper during February, but he does not know much about taxation. Don and Steve have hired you as a tax consultant and have asked you to identify the tax issues they should consider.