Nuts and Bolts of Closing Up Shop 🖋
Below we explain how corporations and LLCs close up shop. The processes can be slightly cumbersome, so we are happy to handle these issues for you.
Corporate Filing Requirements
You must file Form 966, Corporate Dissolution or Liquidation, if you adopt a resolution or plan to dissolve the corporation or liquidate any of its stock.
You must also file your corporation’s final income tax return. Remember to check the “final return” box, which is near the top of the front page of the return, below the name and address.
For a C corporation you must:
File Form 1120, U.S. Corporate Income Tax Return, for the year you close the business.
Report capital gains and losses on Schedule D (Form 1120).
For an S corporation you must:
File Form 1120-S, U.S. Income Tax Return for an S Corporation for the year you close the business.
Report capital gains and losses on Schedule D (Form 1120-S).
Check the "final return" box on Schedule K-1, Shareholder's Share of Income, Deductions, Credits, Etc.
Regardless of the type of corporation, you may also need to file these forms when you file your Form 1120 or 1120-S:
Form 4797, Sales of Business Property, for each year you sell or exchange property used in the 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.
Partnership (and LLC) Filing Requirements
You must file Form 1065, U.S. Return of Partnership Income, for the year you close your business.
When you file, you must:
Report capital gains and losses on Schedule D (Form 1065).
Check the “final return” box (it’s near the top of the front page of the return, below the name and address).
Check the same box on Schedule K-1, Partner's Share of Income, Deductions, Credits, Etc.
You may also need to file these other forms with your Form 1065:
Form 4797, Sales of Business Property, for each year your partnership sells or exchanges property used in the business. You also need to file this form if closing your business causes 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.
Employment Taxes
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. If you don’t withhold or deposit employee income, Social Security and Medicare taxes, the Trust Fund Recovery Penalty may apply.
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. You should provide Forms W-2 to your employees by the due date of your final Form 941 or Form 944. Generally, you furnish copies B, C and 2 to the employees. You file Form W-3, Transmittal of Income and Tax Statements to transmit Copy A to the Social Security Administration.
Pay Any Taxes You Owe
The IRS or State can block dissolution if you don't.
Report Payments to Contract Workers
If you have paid any contractors at least $600 for services (including parts and materials) during the calendar year in which you close your business, you must report those payments. Use Form 1099-NEC, Nonemployee Compensation.
Use Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to send paper copies of all Forms 1099 to us. Some filers must file Forms 1099 electronically.
Cancel Your EIN and Close Your IRS Business Account
To cancel your EIN and close your IRS business account, you need to send IRS a letter that includes:
- The complete legal name of the business
- The business EIN
- The business address
- The reason you wish to close the account
If you kept the notice, the IRS sent you when they assigned your EIN, you should enclose a copy of it with your EIN cancellation letter. Send both documents to:
Internal Revenue Service
Cincinnati, OH 45999
Keep Your Records
How long you need to keep your business records depends on what’s recorded in each document.
Property records: Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property. The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.
Employment tax records: Keep all records of employment taxes for at least four years.
