Candace J. Dixon
Here are the steps you need to take if you have to close your business along with IRS and SBA resources.
Make the Decision to Close Based on Your Organization Type
If you are a sole proprietor, you can make the decision on your own, but partnerships of any type require the co-owners to agree. You'll need to follow your articles of organization and document it with a written agreement.
Take Care of Final Wages & Employment Taxes
If you have employees, you must pay them any final wages and compensation owed to them. You must also provide a Form W-2, Wage and Tax Statement, to each of your employees for the calendar year in which you pay them their final wages. You should provide Forms W-2 to your employees by the due date of your final Form 941 or Form 944. Generally, you furnish copies B, C and 2 to the employees. You file Form W-3, Transmittal of Income and Tax Statements to transmit Copy A to the Social Security Administration. If your employees receive tips, you must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, to report final tip income and allocated tips.
Report Payments to Contract Workers
If you have paid any contractors at least $600 for services (including parts and materials) during the calendar year in which you close your business, you must report those payments using Form 1099-NEC, Nonemployee Compensation. Use Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to send paper copies of all Forms 1099. Some filers must file Forms 1099 electronically.
Employment Taxes
You must also make final federal tax deposits and report employment taxes. To report employment taxes, you may need to file the following forms:
Form 941, Employer’s Quarterly Federal Tax Return, or Form 944, Employer’s Annual Federal Tax Return, for the quarter in which you make final wage payments.
Check the box to tell the IRS your business has closed and enter the date final wages were paid on line 17 of Form 941 or line 14 of Form 944.
Attach a statement to the return showing the name of the person keeping the payroll records and the address where those records will be kept.
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, for the calendar year in which you paid final wages.
Check box "d" in the Type of Return section to show that the form is final.
If you don’t withhold or deposit employee income, Social Security and Medicare taxes, the Trust Fund Recovery Penalty may apply.
Terminate Employee Pension or Benefit Plans
If you provide a pension or benefit plan, Health Savings Accounts or similar programs for your employees, refer to these the IRS pages:
Retirement Topics - Termination of Plan
About Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
Pay Any Taxes You Owe
See the IRS page Paying Your Taxes for ways to pay any taxes you owe.
Cancel Your EIN and Close Your IRS Business Account
The IRS can't cancel your EIN. Once an EIN has been assigned to a business entity, it becomes the permanent federal taxpayer identification number for that entity; regardless of whether the EIN is ever used to file federal tax returns, it is never reused or reassigned. It will still belong to the business entity and can be used at a later date if necessary.
If you receive an EIN but later determine you don't need the number (for example, if the business never started up), the IRS can close your business account.
To close your business account, send a letter to the IRS that includes the complete legal name of the business, the EIN, the business address, and the reason you want to close your account. If you have a copy of the EIN Assignment Notice issued when your EIN was assigned, include that also, and mail the letter to:
Internal Revenue Service Cincinnati, OH 45999
The IRS can't close your business account until you have filed all your necessary returns and paid all of your taxes owed.
File a Final Return and Related Forms
You must file a final return for the year you close your business. The type of return you file and related forms you need depends on the type of business you have. A limited liability company (LLC) is a business organized under state law. An LLC may be classified for federal income tax purposes as a partnership, a corporation or an entity disregarded as separate from its owner.
Sole Proprietor
File Schedule C (Form 1040), Profit or Loss From Business with your individual tax return for the year you close your business.
You may also need to file the following forms when you file your individual tax return:
Form 4797, Sales of Business Property, for each year you sell or exchange property used in your business or if closing your business causes the business use of an eligible property under Section 179 to drop to 50% or less.
Form 8594, Asset Acquisition Statement, if you sell your business.
Schedule SE (Form 1040), Self-Employment Tax, if you have net earnings of $400 or more from your business.
Partnerships
Check the “final return” box near the top of the front page of the return below the name and address, check the same box on Schedule K-1, Partner's Share of Income, Deductions, Credits, Etc. and report capital gains and losses on Schedule D (Form 1065).
They may also need to file Form 4797, Sales of Business Property, for each year your partnership sells or exchanges property used in the business or if closing your business causes business use of an eligible property under Section 179 to drop to 50% or less, or Form 8594, Asset Acquisition Statement, if you sell your business.
Corporations & S-Corporations
Check the “final return” box near the top of the front page, below the name and address corporation’s final income tax return and and report capital gains and losses on Schedule D (Form 1120).
They also must file Form 966, Corporate Dissolution or Liquidation if they adopt a resolution or plan to dissolve the corporation or liquidate any of its stock. S-corporations check the "final return" box on Schedule K-1, Shareholder's Share of Income, Deductions, Credits, Etc. and report capital gains and losses on Schedule D (Form 1120-S). Either type of corporation may need to file these forms with their final returns: Form 4797, Sales of Business Property, for each year you sell or exchange property used in the business or if closing your business causes the business use of an eligible property under Section 179 to drop to 50% or less; and Form 8594, Asset Acquisition Statement, if you sell your business.
Keep Your Records
How long you need to keep your business records depends on the action, expense, or event the document records. Refer to the IRS page How Long Should I Keep Records? for more information.
Property records: Keep records relating to property until the period of limitations expires for the year in which you dispose of the property. The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.
Employment tax records: Keep records of employment taxes for at least four years.
Tax returns: Keep copies of your filed tax returns to help prepare future tax returns and file any amended returns.
Find Out Your State Obligations
Look up your state for information on filing dissolution documents to legally dissolve an LLC or corporation with the state you’re registered in, and cancel registrations, permits, licenses, business names and trade names.
Resources:
IRS pages:
Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C)
Publication 3402, Taxation of Limited Liability Companies
The CARES Act for taxpayers with net operating losses
Publication 5447, How to Close a Sole Proprietorship
Publication 5447-A, How to Close a Partnership
Publication 5447-B, How to Close a Corporation
SBA page: Close your business