Have You Completed The Needed Tax Requirements If Your Business Is Closing?

Businesses close their doors for many reasons, some of which may include:

  • An owner retirement
  • A lease expiration
  • Staffing shortages
  • Partner conflicts
  • Increased supply costs

Even in the midst of closing your doors, tax obligations are still important to think about. Often, closing businesses forget they need to file a final income tax return, and filing depends on your business type. We’re here to assist and answer any questions about your tax requirements. Below are a few of the basic requirements for each.

Sole Proprietorships. You’ll need to file the usual Schedule C, Profit or Loss from Business, with your individual return for the year you close the business. You also may need to report self-employment tax.

Partnerships. A partnership must file Form 1065, U.S. Return of Partnership Income, for the year it closes. You also must report capital gains and losses on Schedule D. Indicate that this is the final return and do the same on Schedules K-1, Partner’s Share of Income, Deductions, Credits, Etc.

All Corporations. Form 966, Corporate Dissolution or Liquidation, must be filed if you adopt a resolution or plan to dissolve a corporation or liquidate any of its stock.

C Corporations. File Form 1120, U.S. Corporate Income Tax Return, for the year you close. Report capital gains and losses on Schedule D. Indicate this is the final return.

S Corporations. File Form 1120-S, U.S. Income Tax Return for an S Corporation, for the year of closing. Report capital gains and losses on Schedule D. The “final return” box must be checked on Schedule K-1.

All Businesses. Other forms may need to be filed to report sales of business property and asset acquisitions if you sell your business.

Duties Involving Workers
If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits, and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in full personal liability for what’s known as the Trust Fund Recovery Penalty.

If you’ve paid any contractors at least $600 during the calendar year in which you close your business, you must report those payments on Form 1099-NEC, Nonemployee Compensation.

More Tax Issues To Consider
If your business has a retirement plan for employees, you’ll want to terminate the plan and distribute benefits to participants. There are detailed notice, funding, timing, and filing requirements that must be met by a terminating plan. Also, complex requirements related to flexible spending accounts, Health Savings Accounts, and other programs for your employees are important to note, too.

We can assist you with many other complicated tax issues related to closing your business, including debt cancellation, use of net operating losses, freeing up any remaining passive activity losses, depreciation recapture, and possible bankruptcy issues.

We can advise you on the length of time you need to keep business records. You also must cancel your Employer Identification Number and close your IRS business account.

If your business is unable to pay all the taxes it owes, we can explain the available payment options to you. Contact us to discuss these issues and get answers to any questions.

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