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Tax Filing Requirements for Closing a Business

19 Feb 2021 3:10 PM | Anonymous

BizBoost News
Volume 10, Issue 17
For distribution 2/8/21; publication 2/11/21

Tax Filing Requirements for Closing a Business

You’re not alone if you have considered shuttering your business recently, The pandemic has placed a huge strain on businesses in certain industries, and many business owners who were just holding on before the crisis are having to face life-changing decisions. 

If you do decide to close your business, there are many considerations. Here are a few steps for you to consider from a tax standpoint. 

If you have employees, the first step is to pay them any final wages and compensation.  You will need to file the proper employment tax forms (both federal and state) and also provide the employees with a W-2 by the due date of your final Form 941.  Any forms you file (i.e., Form 940, 941) should be marked as final. 

If you paid any contract workers over $600 you will also need to provide Form 1099-NEC to them and file Form 1096 and transmit the 1099 forms to the Internal Revenue Service.

A tax return for the year the business closed must also be filed.  For businesses taxed as a partnership (Form 1065), S corporation (Form 1120S) or corporation (Form 1120), a tax return marked final will need to be completed.  The corresponding state versions of these returns should also be filed and marked final.  There is no box to mark Schedule C final for a sole proprietorship, but a return must still be filed for the year of closure.  Additional forms may be necessary depending on whether or not the business was sold.

After filing the final tax returns, the next step is to cancel your employer identification number (EIN) and business account with the IRS. Send the IRS a letter with the complete legal name of the business, employer identification number and reason the account is being closed to the address below:

Internal Revenue Service
Cincinnati, OH  45999

This will prevent Internal Revenue Service from requesting returns that are no longer required.

Don’t forget the state(s) you are registered to do business in.   You may need to dissolve your company with the state depending on the state your business is organized in and how it is structured.  For example, if you have a California LLC you’ll want to make sure it is properly dissolved with the state since you will be responsible for the $800 fee until this is completed.

The Internal Revenue Service has recently released Publication 5447 summarizing the steps to take in closing a business.  Making sure you wind up business affairs properly will eliminate any unpleasant tax surprises in the future.

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Our latest blog article: “Tax Filing Requirements for Closing a Business” is available now. Subscribe here: [link]

If you have decided it is time to close your business, it entails more than shutting off the lights and closing your bank account. Learn more in our latest blog article: [link]  

Business Tip: When closing a business, don’t forget the state(s) you are registered to do business in. You may need to dissolve your company with the state depending on the state your business is organized in and how it is structured. Learn more here! [link]

 DID YOU KNOW….   When closing a business, if you paid any contract workers over $600 you will need to provide Form 1099-NEC to them and file Form 1096 and transmit the 1099 forms to the Internal Revenue Service. Learn more here: [link]

The Internal Revenue Service has recently released Publication 5447 addressing the steps to take in closing a business.  Making sure you wind up business affairs properly will eliminate any unpleasant tax surprises in the future. Learn more in our latest blog article: [link]

Do you know the tax filing requirements to close a business and avoid penalties? Learn what steps to take to close a business in our latest blog article, available now: [link]

The first step to closing a business, if you have employees, is to pay them any final wages and compensation.  You will need to file the proper employment tax forms (both federal and state) and also provide the employees with a W-2 by the due date of your final Form 941.  Find out more here: [link]

Tax filing requirements for closing a business require many steps. Make sure to check out our latest blog article so that you can avoid any unpleasant tax surprises! Sign up for our newsletter here: [link]

©2019, Virginia Society of Tax & Accounting Professionals, formerly The Accountants Society of Virginia, 
is a 501(c)6 non-profit organization.

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