Drilling holes in the exhaust is kind of a waste. Just wait and save up for a real slip-on muffler at least.
If you're only going with the K&n filter, you won't need a 140 main jet.
Stock is 122.5 or something close. Start with a 125. Maybe a 128 or 130 should cover the intake.
EDIT: (Second thought, just slap a 130-135 on there. Worst case, you'll be a tad rich but that just helps the bike run a little cooler.)
Be sure to order the K&N filter for the GS500. That's the one you want.
Everyone, even stock, should do the needle shim. So go ahead and plan on that too. It's not hard at all.
http://www.gz250bike.com/forum/showthread.php?t=16