I'm going to disagree with almost everything already written. The SKS is a very good battle rifle. I use one in tactical competition and go against pretty much everything you can imagine, from AR's to Thompson 45's to M1's and AK's. The SKS holds it's own just fine.
The SKS is absolutely worth upgrading, just because you can get one cheap, doesn't mean it's a poor rifle. This seems to be a common misconception. You have an AK so you know what it's like. My feeling is that a modified SKS will outperform an AK in every case except mag capacity. Ergonomics of the SKS, especially with a stock like the Tapco T6 is a lot better than any AK except the Saiga and it will come back on target faster as well. Plus unless you have the proper licensing the AK will only be a semi auto and that puts it behind the SKS, in my book.
Cost wise, it's a wash. A modified SKS will be the same or even more expensive than a cheap AK but less expensive than a really good AK.
I really recommend the Tapco T6 stock over anything else. It fits great and is really good functionally and ergnomically. The Tapco 20 round mags are designed specifically to fit that stock. It can be used in any other stock, but the stock will probably need some modification, most magwells are too narrow for the Tapco 20 and if it's squeezed, the mag will probably not feed properly. It's all in the Tapco instructions, which apparently very few people read.
The Tapco 20's are excellent mags, mine never fail and I normally have two clamped together for instant reloads. I'll challenge anyone who thinks loading with stripper clips is faster than mags to a match. I'll win every time, no question about it. I carry four mags clamped in pairs, and two individuals with a different cartridge load for longer range targets. Try that with strippers in a competitive arena and you'll be real disappointed.
There is a bolt modification that can be done easily and safely so that mags can be removed and loaded without opening the bolt. Let me know if you're interested in that.
You need to get the foreign parts count down to 10, the previously posted link to the 922r rules should explain that well.
The Tapco T6 including the handguard is two parts, NOT three as Tapco says. The pistol grip is an ADDED part, not a replacment part, plus it's an evil feature which you need to consider if using a Yugo SKS (removing the bayo should cancel out the pistol grip addition). The Tapco mag is three parts (body, follower and floorplate). Add the operating rod and gas piston and you have a total of 7 USA parts, and that ought to do the trick.
If you plan on using the handguard as an optic mount, then get a whole gas tube/handguard replacement, becuase the handguard needs to be real snug on the tube or the optic will flop around and drive you insane. The handguard that comes with the T6 stock may or may not be a snug fit on the original gas tube, plus it's a PITA to remove.
You can get a receiver cover optic mount as well. The only one worth considering is from DC Engineering. It's expensive, but it's totally righteous. I love mine. I currently have a NcStar holosight on it and it's a wicked combination. I can make the 100 yard headshot on a IDPA target all day long with it. I've used Aimpoint ML-2's and other than waterfastness, I think NcStar holds it own as a non magnifying optic and at a fraction of the cost. I also have the TS200 rear peep sight, which is also a great sight, but I can't take the headshot with it reliably.
Next, think seriously about trading the Yugo for a good Chinese. The Chinese gets rid of the gas selector switch, all the grenade crap and has a chromed bore that's easier to clean. It's really likely to have a trigger that's twice as good as the Yugo's. You won't be shooting grenades so the seemingly desirable "beefiness" of the Yugo is utterly irrelevent, and I think the Chinese versions are more elegant and never fail. Almost all Chinese were made specifically for export to the US, while almost all Yugo's are battle veterans. Therefore almost any Chinese will be in better condition with less use, than any Yugo.