Closing the doors for good on your business can be difficult and stressful, but it's important to remember your tax responsibilities should be a priority on your to-do list. There are several steps to take and, depending on what type of business you're running, the complexity of your liabilities may vary. You also have to consider how you're closing up shop, including the financial details involved.
While it may seem like going down the tax checklist is a technicality, particularly if you're insolvent, it's important to correctly close everything out. Performing some simple duties will keep the IRS appraised of your business status and can prevent you from having future complications. Regardless of the circumstances surrounding your business closing, getting everything finalized with the government is essential not only to future ventures but your personal stability, as well.
First and foremost, be sure to file your annual tax return the year you shut down. Also, you're responsible for filing final employment tax returns for any employees. The IRS should also be informed of who will be keeping your payroll records and the location where those records can be found.
Your annual tax return will have a section where you'll need to indicate the type of business you had. An S corporation, for instance, will have a corresponding box for you to check. You will also want to mark the box that indicates this is a final filing year for your business. If you're disposing of property used or owned by the business, this, too, will need to be reported.
There's a chance that rather than closing your business, you've sold it to another party. If this is the case, there are a few things to keep in mind. First, each business asset, when sold as part of the business, should be counted individually for the purpose of calculating gains and losses; this includes real property or, for instance, inventory available to customers. Your interest in a corporation, partnership or joint venture is a capital asset as well, and must be tabulated separately.
If you're in the unfortunate position of having to declare bankruptcy, you have some options when considering any tax liabilities. First, federal taxes you owe may be able to be included in the bankruptcy. You may also explore other options, such as making a payment plan with the IRS or submitting for an Offer in Compromise. If you do intend to include your debt in a bankruptcy, make sure all of your return filings have been completed, and that any current taxes are paid throughout the proceeding.
It may be necessary to call on the services of a licensed tax professional, particularly if you need to negotiate a formal resolution with the IRS. A tax professional will ensure that everything is filed accurately and completely, and can determine the best approach for a formal resolution with the IRS based on your circumstances. Saying goodbye to your business can be tough, but handling your tax issues up front will prevent it from being harder than it needs to be.