Question of the Week
Six Tasks to Complete When Closing a Business
Happy Friday, all!
I have a client closing up one business to start a new one, and we’ve been working through the mechanics of what it takes to shut her business down. So I thought it might be insightful and helpful to provide a checklist. Here are six tasks you need to complete when closing your business.
1. File your final income tax returns
You need to let the IRS know that you are no longer operating. And you do that by filing a final return for the business. For Partnerships (Form 1065) and S-Corps (Form 1120S), you’ll check the box indicating it’s the final return. Unfortunately, there’s no box for Sole Proprietors on their Schedule C.
Partnerships and S-Corps are also required to file the return by the 15th day of the third month after you close the business. So you may have to file a partial-year return to stay compliant.
2. File your final employment tax returns
If you have employees, you want to pay their final wages and file the final wages returns (Forms 941/940). These returns are due quarterly annually, so don’t lose track of when you need to file them. Also, don’t forget to send the withholding on the employee’s income to the IRS.
3. Report payments to contractors
You may be used to filing your 1099-NECS at the end of the beginning of the year, but if you close the business early, you should report those payments after you close.
4. Pay any taxes or other liabilities you owe
Before you shut down, ensure that the business doesn’t have outstanding debts, taxes, or otherwise, that may come back to bite you down the road.
5. Cancel your EIN and close your IRS business account
After you’ve verified you filed and paid your taxes, you can shut things down by sending the IRS a letter with:
- The complete legal name of the business
- The business EIN
- The business address
- The reason you wish to close the account
If you kept your EIN letter (and hopefully you did), you send a copy of that with the closing letter to:
Internal Revenue Service
Cincinnati, OH 45999
6. Keep your records in a safe place
The IRS can audit you for the previous three tax years, so you’ll want to hang on to your business records until you’re out of that time frame. A safer rule of thumb would be to hold on to them for the next seven years, just in case. With digital storage, it shouldn’t take as much space or effort.
Quote of the Week
“Your life does not get better by chance. It gets better by change.” – Jim Rohn
Task of the Week
Sometimes endings can be sad or bittersweet. And there’s nothing wrong with that. Sometimes focusing on the next right step makes it a little easier. So, I hope this guide will help you do just that.