Are you closing the doors of your business this year? In your mind, you’ve probably been ready to move on for some time now. But there may be some loose ends you need to tie up first. Of course, the simpler your business structure, the simpler it will be to close up shop. While this is not an exhaustive list of closing procedures, here are some very general steps you’ll take.
The Internal Revenue Service needs to hear about your closing business
- Review the Business Closing Checklist from the IRS.
- File an annual return for the year you go out of business. The type of return you file depends on the structure of your business (corporation, sole proprietorship, etc.)
- Mark the check-box at the top of each return indicating that it’s a final return for your business.
- File final employment payroll tax returns if you have employees.
- Attach a statement to the final return showing the name of the person keeping the payroll records and where they’ll be kept for safekeeping.
- Don’t forget to make your final deposits for your payroll taxes (941 deposits, etc.)
- Decide what to do about your federal Employer Identification Number (EIN). While you can’t cancel the EIN assigned to you, you can close the business account. The IRS won’t reassign the EIN number, but actually reserves this number if you re-establish your business. Write to the Internal Revenue Service, Cincinnati, Ohio 45999, stating your reason for closing the account. Include the EIN Assignment Notice you received when you started your business, if you have it. Otherwise, include the complete legal name of the business entity, the EIN, and the business address.
Your state would like to hear that you’re closing a business too
Your particular state will likely require some action on your part. I can’t speak to everything that every state or territory would require (that would make a very long article), but I will say you should file a final business tax return with your state as soon as possible. Don’t wait until your normal filing date to file the final return, because the due date for final tax returns is often based on the date your business terminates — it might be due before the tax year even ends! Here are some additional to-dos:
- Contact your state’s Secretary of State office for details on properly administering the closing of your business, or at minimum check out their website.
- If your business is a corporation, you’ll most likely have additional work in the form of a Notification of Dissolution or Surrender.
- Find out about state requirements specific to your type of business. (For example, if you own a restaurant, you may need to transfer or dispose of a liquor license if you have one.) Contact your state to find out more information.
Other things to mark off your closing a business checklist
- Of course, settle your accounts payable and accounts receivable.
- Review your business closing procedures with your business lawyer.
- Notify your accountant as soon as you decide your business is closing and allow them to direct you.
- Close your business bank accounts, but wait until all checks and payments have cleared and there’s no activity on all accounts before you give your banker the go-ahead!
Some of these details may be available in your accounting software to help speed up the process.