Menu
HARIK THOMPSON CPAs
  • Home
    • About Harik Thompson
    • Team
      • Patricia Bell Harik
      • Kevin Thompson
      • Shylesh Viswanathan
    • Affiliation
  • Services & Industries
    • Accounting Services
    • Business Consulting
    • Entertainment Industry
    • Estates and Trusts
    • Financial Planning
    • International Taxation
    • Tax Strategies
  • Insights & News
    • Santa Monica Office Announcement
    • Principal Announcement
  • Client Resources
    • Client Portal
    • Tax Forms & Resources
  • Payments
  • Contact
  • Home
    • About Harik Thompson
    • Team
      • Patricia Bell Harik
      • Kevin Thompson
      • Shylesh Viswanathan
    • Affiliation
  • Services & Industries
    • Accounting Services
    • Business Consulting
    • Entertainment Industry
    • Estates and Trusts
    • Financial Planning
    • International Taxation
    • Tax Strategies
  • Insights & News
    • Santa Monica Office Announcement
    • Principal Announcement
  • Client Resources
    • Client Portal
    • Tax Forms & Resources
  • Payments
  • Contact

The Tax Implications of Closing a Business

6/8/2022

 
The decision to close a business's doors for good is never an easy one. However, it's important to keep abreast of compliance requirements before you say goodbye. That's why you should take time to visit the closing a business page of IRS.gov. It's designed to help you navigate the process of shutting down. ​
It includes guidance on:
  • What forms to file.
  • How to report revenue received in your final year of business.
  • How to report expenses incurred before closure.

Closing even a simple sole proprietorship requires a fair amount of paperwork. For example, you may have to file the following:
  • Form 4797, Sales of Business Property, for each year you sell or exchange property used in your business. You also need to file this form 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.

There will likely be additional requirements for partnerships and corporations.
Other steps when closing a business
  • File a final tax return and related forms. The return you need to file depends on the type of business you were running.
  • Take care of employees. You'll need to pay any final wages or compensation, making final federal tax deposits and reporting employment taxes.
  • Take stock of any pensions, benefit plans, health savings accounts and other tax-favored health plans. There are strict rules about how these are handled.
  • Pay any taxes owed. Tax payments may be due next filing season, even if that is after the business closes.
  • Report payments to contract workers. If you paid contractors at least $600 for services, including parts and materials, during the calendar year you go out of business, you must report those payments.
  • Cancel your EIN and close your IRS business account. You have to formally notify the IRS so it can close your IRS business account.
  • Keep business records. How long you need to keep records depends on what's recorded in each document. For example, keep property records until the period of limitation expires for the year you dispose of the property. Employment tax records must be kept for at least four years.

Taking care of employees
These tasks are among the most important. If you have one or more employees, you must pay them any final wages and compensation owed. You must also make final federal tax deposits and report employment taxes.

The following forms are mandatory:
  • 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 when final wages were paid. 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 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.

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. 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.
​
This is just a summary. Be sure to work closely with a qualified tax professional to make sure you are meeting all the requirements.

Comments are closed.

    Newsletter articles are posted every 2 weeks. ​

    If you would like to have our e-newsletter delivered directly to your inbox, please sign up. Your information is confidential; you can unsubscribe at any time. Subscribe.

    Categories

    All
    1040-X
    1099 Form
    2024 Numbers
    401Ks And IRAs
    Alternative Minimum Tax
    Annuities
    Appeals
    Apprenticeships
    ASC 606
    Audits
    Automation
    Backup Withholding
    Blockchain
    Bonuses
    Business Accounting
    Business Closure
    Business Deductions
    Business Structure
    Business Taxes
    Business Tips
    Capital Gains
    Cash And Accrual
    Charitable Gifts
    Clean Vehicle Tax Credit
    Commercial Real Estate Vacancies
    Compensation
    Consulting
    Coronavirus Relief Package
    Credit Score
    Crowdfunding
    Debt To Income Ratio
    Deductions
    Depreciation
    Digital Assets
    Dividends
    Dollar Cost Averaging
    Earned Income Tax Credit
    Economic Injury Disaster Loan
    EIN Employee ID Numbers
    EITC
    Employee Classification
    Employee Leave
    Employee Overpayment
    Employee Pay
    Employee Retention Credit
    Employee Taxes
    Employment Taxes
    Estate Planning
    Estates And Trusts
    Estate Taxes
    Executor
    Family Businesses
    Family Leave
    FATCA
    Federal Excise Tax
    Filial Responsibility
    Financial Planning
    Flood Insurance
    Foreign Earned Income
    Fraud
    Fringe Benefits
    Gift Taxes
    Health Care
    Health Savings Account
    HIPAA
    Hiring Compliance
    Hiring Help
    Hiring Tax Credits
    Hobby Vs. Business
    Home Energy Tax Credit
    Home Office
    Homeowners' Deductions
    Income Tax
    Independent Contractors
    Inflation
    Innocent Spouse Rule
    Insurance
    Intangible Assets
    Intestate
    Inventory Management
    Investing
    IRAs
    IRS Disagreements
    IRS Representation
    Isabilities-act
    Key Performance Indicators
    Layoffs
    Lease Accounting
    Leave
    Legacy
    Life Insurance
    Loans
    Managing Employees
    Market Capitulation
    Medicaid Trust
    Medical And Dental Deductions
    Medicare
    Mortgages
    Net Pay
    News
    Nonprofit Entities
    On-Call Pay
    Overtime Exemption
    Pandemic Planning
    Paycheck Protection Program
    Payroll
    Payroll Goals
    Payroll Taxes
    Pensions
    Personal Accounting
    PPP Loan
    Prenup
    Profit Sharing
    Property Taxes
    Quarterly Tax Returns
    Real Estate Taxes
    Record Keeping
    Recovery Rebate Credit
    Referral Program
    Refinance
    Rehiring Staff
    Remote Employees
    Reputation
    Retirement
    Reverse Mortgage
    SBA Loans
    Scams
    Schedule K-2 And K-3
    S Corporations
    Sick Leave Rules
    Social Security
    State And Local Taxes
    Student Loans
    Succession Plan
    Supplemental Wages
    Supply Chain Risks
    Taxable And Nontaxable Income
    Tax Changes
    Tax Debt
    Tax Deductions
    Taxes
    Tax Implications
    Tax Planning
    Tax Tips
    Unemployment Tax
    Unmarried Partners
    W 2 Form
    Wages And Overtime
    Wildfire Solution
    Wills And Trusts
    Withholding
    Work Opportunity Tax Credit
    Year End Tax Considerations

    RSS Feed

Proudly powered by Weebly