How Closing a Business Impacts Your Taxes

How Closing a Business Impacts Your Taxes

 

If you own your own business, at some point you may need to close up shop permanently. When this happens, you can’t just skip over areas that relate to the IRS regarding your taxes. There are several procedures you must follow with the IRS, depending on the type of business you have, when you decide to close your doors.

Sole Proprietorship

Many business owners are sole proprietors, and they do not employ anybody else under them. A sole proprietorship is the easiest business to close. If you have a sole proprietorship, all you have to do is file your Schedule C form as usual and let the IRS know that this is the last Schedule C they’ll be receiving from you. 

Having Business Assets

If you owned assets that were part of your business, then you’ll need to tell the IRS about these assets and the sale of these assets. You’ll also need to give the IRS information about these assets including the purchase price, date put into service, and any depreciation of the assets. This information is used to determine the market value of the asset. When the value is determined, you will know if you have a taxable gain or loss affecting your liability. 

Companies with Employees

If you have employees in your company, you’re going to need to file your federal payroll tax for the last quarter the company was in operation first. Next, you’ll need to pay your quarterly taxes and notify the IRS that this will be the last form from you. Any retirement plans that you’ve had for your employees will need to be dealt with yourself by notifying the appropriate people that you’ll be stopping contributions.

Necessary Tax Forms

For sole proprietors, a Schedule C form is sufficient to close your business. If you have assets, you’ll need to file those individually with Form 8594 along with a Schedule C. Businesses with employees need to send out W-2 forms to all employees and file a Form 941 along with a Schedule C. If your payroll deposits are less than $1,000 dollars, you’ll need to file a Form 944.

 

If you’re closing a business and need help fulfilling any final tax obligations or filing the correct paperwork, don’t hesitate to make an appointment with R.A. Michael and Associates. We have been in business for over two decades and offer free consultations. Give us a call at (844) 780-1100 today.