While closing a business can be an emotional time for a small business owner, it can also be equally full of multiple administrative tasks. The IRS itself has numerous requirements, plus there are additional state filings, not to mention the final payments to vendors and contractors. Yet with the help of your local tax professional or accountant, such as EB Tax Consultants in Brooklyn, NY, closing your business can be less stressful and assist you in moving on to the next opportunity.
Notify Your Vendors
Again, it is important to pay all final expenses related to your business. Many of these may be tax deductible, so you want to be sure to collect and handle these invoices promptly. At the same time, you do not want to have invoices coming in for an indefinite period of time. Therefore, when notifying vendors that your business is closing, give them an address to send all final notices and a timeframe to send them.
When the invoices are received, pay them promptly and then make sure these payments are recorded properly in your system. Eventually, you should find yourself down to just a few expenses left, those being the state, federal and of course, any administrative or accounting assistance you have received.
Make Those Tax Payments
For many business owners, this may seem to be a no brainer. However, in the rush to complete a variety of tasks at your brick and mortar store on a tight timeframe, it can be easy to overlook. Therefore, when you determine that your business is closing, contact your payroll administrator and accountant. Let them know the time frame and they can assist you in making sure the last required tax payments are made on time, so you do not incur any tax penalties or additional fees.
Additionally, if you have made quarterly tax payments for your personal income, you will want to continue making those payments. It will assist you in lowering any tax liability when you file your taxes and show any extra income from the sales of assets or real estate related to the operating of your business.
Issue W-2s and 1099s
A critical part of this is the necessary final payroll taxes and then issuing the W-2s for all your employees. Contractors who worked with your company on particular projects will also need to receive final 1099s. This will also close the payroll aspect of your business. However, these should not be issued until after your employees have completed their last days. Once these are issued, your employees can no longer incur hours or pay from your business.
File Your Returns
Working with your tax professional, it is vital to complete all the final tax returns for both the state and federal agencies. You will need to be sure to claim all the income from the sale of assets, capital gains and losses, as well as all deductible expenses. You will also need to notify the IRS that you are now out of business. This will keep you from incurring any potential liability for taxes when you are not operating.
The state that your business operates in will also have some specific paperwork that must be filed. This will stop any additional taxes from being billed, but also notify the state that you will no longer be conducting business within their borders.
Final Closing Paperwork
Depending on your state, you will also have to file the necessary paperwork to dissolve your business. This will notify the state the business is no longer in operation. At the same time, if you have a corporation, then you will need to complete the necessary paperwork with the federal government to dissolve your corporation.
Divide the Proceeds with Shareholders
When all expenses have been paid and the assets have been sold, the profits must be divided among the shareholders or partners according to the agreements governing these arrangements. This also means that a K-1 must be issued to each shareholder or partner for any income they received.
Holding Documentation
After the business is closed, be sure to keep all records for seven years, per the IRS. Therefore, you need to be sure to find a secure place to store them. Once your seven years is completed, then you will need to have them destroyed securely.
There may be multiple steps to the process, but you can successfully close one business to move on to new opportunities.
Click on the link below to connect with one of the tax professionals at EB Tax Consultants in Brooklyn, NY. They can help you with a variety of these tasks, including filing final returns, issuing W-2s and 1099s, as well as dissolving your business with the IRS.
ERNIE BUSTAMANTE