In both good times and bad, a number of small businesses close their doors every year. If yours is one of them, take note: The Internal Revenue Service requires owners to take a number of specific actions during the year a business closes.
The most important step involves filing business and employment tax returns. You must file an annual business tax return for the year the company ceases operations. In addition, final employment tax returns must be filed for all employees, and final federal tax deposits must be made, either by using the Electronic Federal Tax Payment System or by filing IRS Form 8109-B.
Near the top of the annual tax return, you’ll find boxes for partnerships, C and S corporations, limited liability companies, and trusts. One box indicates the return being filed is a final tax return. Be sure to check this box and to repeat this same procedure on Schedule K-1s. Also, attach a statement to your business tax return with the name and address of the person who will be storing all of your payroll records, in case the IRS needs to access them.
The IRS provides a checklist of actions that usually need to be taken to close a business. Here are the primary ones:
- 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.
- Report capital gains or losses.
- Report partners’ and shareholders’ shares.
- File final employee pension/benefit plan.
- Issue payment information to subcontractors.
- Report information from 1099s issued.
- Report corporate dissolution or liquidation.
- Consider allowing S corporation election to terminate.
- Report business asset sales.
- Report the sale or exchange of property used in your trade or business.
You might be wondering whether you need to cancel your employer identification number. EINs are assigned to business entities permanently and are never reused or reassigned to other businesses; therefore, they cannot be canceled. Instead, you should close your business account with the IRS by writing to Internal Revenue Service, Cincinnati, OH, 45999.
In your letter explain why you are closing your business account and include a copy of the EIN assignment notice you received with your EIN if you still have it. If not, clearly write the complete legal name of the business entity, its mailing address, and the EIN.
Note that your account cannot be closed if you have made any federal tax deposits or payments, if you are still liable for any business taxes, or if a business tax return is still due. In this case, you must file the appropriate returns before your account can be closed.
Finally, keep in mind that there may also be specific state and local government requirements related to closing your business. Use the State and Local Government on the Net Web site to help you find the appropriate government offices you may need to contact.
Don Sadler is a freelance writer and editor specializing in business and finance.