Some businesses are considering permanently closing their doors because of persistent inflation on top of more than two years of COVID-19. Results from a June 2022 survey conducted by Digital.com of 1,000 small businesses with 500 or fewer employees show that inflation – and rumblings of a recession – are making about 65% of small businesses look seriously at closing their business.
Closing a business is a tough decision that creates a lot of work. That includes a “Tax Checklist” of responsibilities to alert the IRS and others not to expect more money or reporting from your business. Figuring it all out can be confusing. Fortunately, the IRS has a webpage to help business owners and self-employed individuals navigate tax steps when closing a business, including instructions, links, and forms for:
- Filing a Final Return and Related Forms
You must file a final return for the year you close your business. The type of return you file and related forms you need will depend on the type of business you have (e.g., sole proprietor or partnership).
- Take Care of Your Employees
If you have employees, you must pay them any final wages owed, make final federal tax deposits, and report employment taxes. You must also provide an IRS Form W-2, Wage and Tax Statement, to each employee.
- Pay the Tax You Owe
Whether it’s by check or online, all income and employment taxes must be paid in full.
- Report Payments to Contract Workers
If you have paid any unincorporated contractors at least $600 during the calendar year in which you close your business, you must report those payments on IRS Form 1099-MISC.
- Cancel Your EIN and Close Your IRS Business Account
The employer identification number (EIN) assigned to your business is the permanent federal taxpayer identification number for that business. The IRS will not close your business account until you have filed all necessary returns and paid all taxes.
- Keep Your Records
How long you need to keep your business records depends on the type of document. Generally, tax records should be kept for four years, and copies of tax returns should be kept permanently.
If inflation is making you think about whether to continue or close your business, a Tax Checklist will help identify tasks that need to be done. No matter your business type, the IRS’ “Closing a Business” webpage https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business will help you navigate what to do after making the tough decision to close.