 internal revenue service IRS tax news what business owners need to do when closing their doors for good and it seems to me if you're closing your door at least you're doing it for good as opposed to for bad possibly closing it to protect stuff as opposed to closing the door repeatedly on that IRS auditor who took all your money's face which would be closing the door for bad instead of for good at least in theory any case first an attempt at a joke President Biden let us know he has recovered from COVID and yes I have completely recovered it's once again feeling I question your actions captain I question your choices hi and my tea however reporters suspect he got into his son's stash again and it's really just feeling the highest the kite reporters advising the administration it's high time you hide the hemp at a higher hiding place tax tip 2022-122 August 10th 2022 there are a few things business owners need to do before they close their business so obviously if you're closing up shop if you're closing the business you want to be able to do it as cleanly as possible so that you can move on to the next thing that you're looking to move on to the last thing you need is the IRS and the old business kind of dragging you down when you're trying to move on to whatever the next thing is that you're going to be doing so of course they need to fulfill their federal tax responsibilities note that if you're setting up your tax obligations sometimes especially things like payroll for example things like different types of entities s corporations c corporations LLCs can be a little bit complex to unwind you want to make sure that you unwind them properly because it could come back and haunt you at a future point in time and you also want to keep in mind some state obligations you might have for things like LLCs and s corporations if those have been set up because the state might be charging you a fee and if you don't close those things out properly you can get stuck in the cycle where they just keep charging your fees even though you try to close business so it's also important to notify the IRS of their plans business owners must take these steps when closing a business so you file a final tax return and related forms so you want to make sure you mark it off as it's basically your final tax return and you're telling the IRS that note that that's not the only step you need to do oftentimes people think what I told the IRS it's my final tax return but again if you set up some other entities like an LLC or an s corporation for example you got you got to close those things out properly and especially be making sure you're mindful of what the state requirement is as well so that you so again you can get it closed out nicely so you can you can move forward it's worth the effort to do it right if you can so the type of return to file and related forms depends on the type of business so clearly if you're a business you could be a sole proprietorship you could be an s corporation it could be an LLC you might be a C corporation but less less likely you could be a partnership for example they all have their different final tax forms to be completing so take care of employees business owners with one or more employees must pay any final wages or compensation make final federal tax deposits and report employment taxes so you want to make sure that you do that as well because if you don't pay the employees properly and report properly the iris can think of it not only as as though you didn't pay your own taxes but they could say well you're responsible for the withholdings because they made you responsible for withholdings of the employees money and if that's not properly handled they could try to say well now you've you've you know taking money from the employee in essence because you didn't pay the payroll taxes properly or didn't report properly and of course if you stop in the middle of the year and close the doors you still have the responsibility for the year in reporting so the employees know their wages and the iris knows the wages so you got the w2s the 1099 sets for contractors and the w3s and the quarterly 941s and all that all that stuff so you want to make sure you follow through with that stuff the person that's most likely the place that most businesses are most likely to get sued at a later point is sadly the from the employees oftentimes and the payroll taxes can be some of the more sticky areas and stuff that you would like to get right the first time going back into the payroll taxes and trying to figure them out at a later point is a tedious task and it'll take more time that way so you'd like to get it done right the first time with that one generally so pay taxes owed so even if the business closed now the payment may be be due next filing season so clearly the iris is still going to want their money so so if you close the business the iris is still going to say you know you need to pay us or else we're going to be charging you the penalties and interest so you want to file the final tax return and pay your final taxes on time and again if you don't close it properly some of these flow through entities like an s corporation an LLC a partnership might not be taxable entities on the federal side of things because their flow through entities to the 1040 but they could be taxable on the state side of things so you might think well if those aren't properly closed whatever no big deal but on the state side of things you're still they still going to hit you with penalties maybe possibly so and that's frustrating so so try to close those out properly report payments to contract workers businesses that paid contractors at least $600 for services including parts and materials during the calendar year in which they go out of business must report those payments so the contractors are the people that are not employees they're sole proprietorships they're not corporations because if they were corporations you typically don't have to issue a 1099 you don't have to give them the the w2 you don't have to do as much reporting as with an employee which is the most important thing you want to make sure you are doing but you're supposed to give them that that 1099 form to give that information to the irs again not as critical a thing that as the w2 is probably not going to you know cause you as most sole proprietors as much trouble but you want to make sure you're following through with that year in reporting stuff in the final year of operations even if you stopped in the middle of the year because you don't want you know it's just that you know you don't want your last employment or your last your last your last job your last business to be haunting you for the rest of your life right so you'd like to close things up make sure it's settled as best you can and then move move so cancel e in and close irs business account business owners should notify the irs so they can close the irs business account so the e in number employee or identification number you're going to need that if you had employees obviously but you might have an e in number even if you didn't have the employees because you like to not have to give your social security number to people that that needs a contracting information or something like that so so you want to make sure you close out the e in number keep business records how long a business needs to keep keep records depends on what records in each document so your records you want to keep the records at least up until the statute of limitations which is like three years but you probably want to keep them for like five years or i don't you know because they could come after you over three years so the iris basically has a statute of limitations but then they say well if the tax issue was over a certain dollar amount then we can come after you for a longer period and if we suspect fraud intentional misreporting then we can basically come after you indefinitely right so you probably want to keep the records around or or put them in put them in some storage cloud storage or something as long as it's secure and the payroll data is once again the one that you're most likely to have future problems on the people that often come back and cause you problems in the future when you're trying to move forward here are often the employees right so so you want to so if you're going to get sued by the employees or something like that then you want to in a future point for whatever reason whatever happens whatever weird stuff goes on going forward you want to make sure you have the payroll records and and so you can handle anything like that or the iris says you didn't report something properly or something like that you want to have the records so irs.gov there's a link to that here has information to help guide business owners through the process of shutting down there's a link to that here small businesses and self-employed taxpayers can find information including what forms to file how to report revenue received in the final year of business how to report expenses incurred before closing business owners can also get helpful information on declaring bankruptcy selling their business and terminating retirement plans so there's all that information here and there'll be a link to this in the description