It’s Closing Time: IRS Rules For Closing Your Business

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If you’re faced with closing a business, the IRS has regulations in place to ensure you meet your full tax obligations for that business. You’ll need to inform the IRS of your closure plans and issue the proper forms to any employees you may have.

Required Forms

The types of forms you’ll need depend entirely on your business structure. If you were the sole owner of the business, you will only need to file the Schedule C attachment with your tax return and indicate “final return” by checking the appropriate box at the top of the form.

If you had business assets, you’ll need to list them individually on Form 8594 “Asset Acquisition Statement” and include that form along with your final Schedule C.

If you had employees, you’ll need to complete a final Form 941 (“Employer’s Quarterly Tax Return”). If your payroll tax deposits were $1000.00 or less, you’ll need to file Form 944 instead. Be sure to issue final W2s to your employees, and complete your final Schedule C if your business was a sole proprietorship.

Closing Out a Company With Employees

  • Pay your federal payroll tax for the last quarter your company was in business
  • Mark “final return” on the 941 form
  • If you’ve been funding a retirement plan for your workers, you’ll need to close that program by either notifying the program administrator or by continuing to fund contributions until the end of the calendar year.

Closing a Company With Business Assets

If you own assets that were purchased solely for business use, you’ll need to inform the IRS of these assets and their subsequent sale.

  • List information about each asset, including date of sale, date it was placed in service, the original purchase price, and the amount of depreciation over the years.
  • This information will be used to determine the Fair Market Value of each asset. Once you deduct the FMV from the sale price, you will either have a taxable gain or taxable loss.

The decision to close a business is rarely an easy one. By understanding the necessary IRS procedures for closing a business, you’ll remain in compliance with the IRS, and you’ll be able to freely move on to your next business venture.

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