The Tax Repercussions of Closing Your Business
The COVID-19 pandemic has had devastating consequences not only on the health of thousands of Americans, but also on the economy as a whole. Many businesses, for instance, especially small family-owned companies, have been forced to shut their doors permanently as a result of pandemic-related restrictions. While the decision to close a business may seem difficult enough on its own, business owners are also required to fulfill a number of final tax responsibilities before they can actually close their doors. These rules are wide ranging and cover everything from reporting revenue and expenses to paying taxes, making it especially important for those who have decided to close their businesses, to speak with an experienced Florida tax & IRS attorney who can ensure that they comply with their final tax obligations.
Business owners who decide to permanently wrap up their business dealings are required to fulfill a number of tax-related responsibilities, including:
- Filing a final tax return for the year of the business’s closure and relevant forms depending on whether a business is a Limited Liability Company (LLC), a partnership, a corporation, or a sole proprietorship;
- Addressing the needs of employees, which includes paying final wages, making federal tax deposits, reporting employment taxes, and providing all employees with a Form W-2 for the calendar year in which their wages were earned;
- Paying taxes that are due for the next filing season;
- Reporting any payments made to contract workers (including the delivery of materials and parts) during the year of closure;
- Canceling their permanent federal taxpayer identification number for the business, known as a Employer Identification Number (EIN) and closing their IRS business account by sending a letter to the IRS with the name of the business, the company’s EIN, the business address, and the reason for closure; and
- Retaining certain business records, such as property records, which should be retained until the period of limitations expires for the year in which the property was disposed of, as well as documentation related to employment taxes, including records of the amounts and dates of wage and pension payments, the contact information of employees, copies of income tax withholding certificates, the dates and amounts of tax deposits, copies of tax returns, and records of any fringe benefits.
The IRS also has specific rules for business owners who are declaring bankruptcy, selling a business, or terminating retirement plans. Please call our office today to learn more about the best way to comply with these rules and regulations.
Connect with an Experienced Florida Tax Attorney
If you are considering closing your business for good and have questions about your tax and legal obligations, please don’t hesitate to reach out to Florida tax lawyer Ronald Cutler, P.A. at 386-490-9949. We make ourselves available to clients seven days a week, so if you are unable to meet with us at our office during the week, please call our office to set up a free weekend consultation with a member of our legal team today.