Posted by The TaxAdvocate Group, LLC

How To Go Out of Business

How To Go Out of Business

There are many reasons you may wish to close your business.  At The TaxAdvocate Group, LLC., you can get the help you need to tie up all loose ends and close up shop, properly.

    The first step to closing your company is making sure you are legally entitled to make the decision.  Sole proprietors can decide by themselves that they should close, but if you are in a partnership, limited liability company (LLC), or a corporation, your co-owners must agree to the decision to dissolve the entity.  The power in making this decision is outlined in your required articles of organization that you created when you opened the business. This final decision to close should be recorded for record keeping purposes, and outlined according to the decision guidelines followed.

    You will then dissolve your existing employer identification number.  If you own a partnership or sole proprietorship, you may not be required to formally dissolve your business, unless you are doing business under another name.  If you have a D.B.A. you will want to dissolve it.   If you own a corporation or LLC, you should dissolve immediately after making the decision and getting your affairs in order.  The EIN never actually gets disposed of, but the IRS will deactivate the account on a suspension basis, and the number can be automatically reactivated if you decide to re-open. If you fail to legally dissolve your LLC or corporation you will continue to be liable for taxes and filings.  To protect your finances and reputation, ensure that you cancel all licenses and permits that you will no longer need.  

    You will also need to take care of your tax responsibilities.  If you are a sole proprietor of a business that is not incorporated, you can report your business closing by paying your existing income taxes and marking your return as final.  If you sold the business, you will need to report this as well, which can be a little more complicated, because you may have a taxable gain.  The TaxAdvocate Group, LLC. can help you file the correct paperwork and figure out your liability.

     Filing a final income tax return is different for each type of business.  For the sole proprietor, you will file your final business return the same way you filed previous years, with your income and expenses.  The same will go for a partnership or LLC, and you will indicate that this will be your final return.  As a corporation, you will similarly mark the return as your final return, then file income and loss as you have in previous years.  However, with a corporation, you will also need to file a Corporate Dissolution or Liquidation form, and the deadline to file is 2 ½ months after you close your business, regardless of the typical tax filing date.

    If you had employees, you will also need to file a final employer’s federal tax return and a final unemployment return.  When filing these, you will also submit a statement showing the location of the individual or company who will be holding the payroll records from the closing business.  You will want to keep all your business records for at least seven years.  

The Worker Adjustment and Retraining Notification Act requires employers with 100 or more employees to provide at least sixty days advance written notice of the closing of a company.  You are required to give final paychecks to your employees by their last day of work, or by the next scheduled payday, according to Pennsylvania state laws.  Your employees will also need their W-2 statements by the due date of the following year after closing, and all contractors must receive a 1099-MISC.  If your employees had benefits directly connected with the job, like a pension plan, you will close the plan.  Depending on the type of plan you provided, you will have different timelines in which to do this, as well as different methods of doing so.

    The Internal Revenue Service will still collect income or payroll taxes when a corporate dissolution occurs.  The remaining assets of the corporation are still vulnerable to liens or levies, should the corporation continue to owe the IRS or other creditors.  You will need to notify all lenders and creditors of your plans to dissolve the business.  You should settle your remaining debt before closing.  If you are unable to pay your debts, you may want to consider filing for bankruptcy.

If you are closing your business through bankruptcy, additional rules apply.  A Chapter 7 personal bankruptcy will take care of your personal debts, and often the debts that are keeping you from paying your business debts.  If accepted, your debt is discharged, and your nonessential assets are paid to distribute financially among your debtors.  If you are an LLC or other corporation, you will file for bankruptcy differently.  You can wait until your LLC or corporation status is no longer valid and then use the business assets to pay your debts before dissolving your corporation.  However, you will be responsible for the debt of the business.  You can receive tax refunds while in bankruptcy, but they may be delayed.

Closing a business is complicated, and making sure you are doing so with thought to financial responsibility is essential and when you close your business, you want to be free of all financial obligations.



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