Closing down your business is hard and heart breaking and if you are at the point that you are actually reading this post then people have probably been nagging you for money and you are at the end of your rope. You worked hard to create opportunity for yourself as an entrepreneur but if the best option going forward is to close the doors you are going to want to do it do it carefully and deliberately to minimize the myriad of potential negative after effects. Trust me on this I know. Unfortunately the services that I provide tend to serve as a major catalyst in forcing that which for many is a MAJOR LIFE DECISION to either close a business or re-dedicate stakeholder resources (time, money and/or risk appetite) towards keeping an operation viable. Although I’ve been involved with many small business successes I’ve also been involved with many business closures. Through that process I’ve come up with a check list of action items requiring attention after your accountant quits.
When closing a business typical actions are taken. You must file an annual return for the year you go out of business. If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes. Also attach a statement to your return showing the name of the person keeping the payroll records and the address where those records will be kept.
The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return. If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.
You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business. If you do not have a pre-printed envelope in which to send your taxes, refer to the IRS’ Where To File page for a list of addresses. Below is a list of typical actions to take when closing a business, depending on your type of business structure:
Make final federal tax deposits
File final quarterly or annual employment tax form.
Issue final wage and withholding information to employees
Report information from W-2s issued.
File final tip income and allocated tips information return.
Report capital gains or losses.
Report partner’s/shareholder’s shares.
File final employee pension/benefit plan.
Issue payment information to sub-contractors.
Report information from 1099s issued.
Report corporate dissolution or liquidation.
Consider allowing S corporation election to terminate.
Form 1120S, Instructions (PDF)
Report business asset sales.
Report the sale or exchange of property used in your trade or business.
- Contact local and state agencies. There may be requirements relating to state and local governments as well. You can use the State and Local Government on the Net to link to the state and/or local government(s) that apply to your business.
Visit the Small Business Administration (SBA) Web site for a map to help you locate the relevant SBA resources closest to you . The SBA also provides advice on closing a business.