Data from Yelp Inc., the online reviewer, shows that more than 80,000 businesses permanently closed from March 1st to July 25th of this year. About 800 small businesses filed for Chapter 11 bankruptcy from mid-February to July 31st, according to the American Bankruptcy Institute. They estimate that total bankruptcies in 2020 could be up 36% from last year.
Closing a business is a tough decision. It’s painful. It also creates a long “To Do” List, including final tax responsibilities. Figuring out everything that needs to be done can be confusing. Fortunately, the IRS recently launched a redesigned webpage to help business owners and self-employed individuals navigate federal tax steps when closing a business.
The IRS’ “Closing a Business” webpage has explanations, 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 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.
- 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, such as employment tax records, depends on the document. Generally, tax records should be kept for four years and copies of tax returns should be kept permanently.
The IRS’ “Closing a Business” webpage outlines the steps needed to close a business and help take care of any employees. No matter the business type, information on this page https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business helps business owners and self-employed individuals understand what to do after making the tough decision to shut down.