No business owner wants to face the reality that they must shut their doors. The effect of the COVID-19 pandemic on our economy may force many small business owners to close if it continues. If that happens, they should be sure to take the following steps in closing down their business:
- If the business has one or more employees, the employer should file final payroll tax returns and make payroll tax deposits for the calendar year in which the business makes its final wage payments. Employment tax returns include Form 940, Form 941, and Form 944.
- The employer will also need to provide employees with W-2 forms. These forms along with Form W-3, should be filed with the Social Security Administration (SSA) for the calendar year in which the business makes its final wage payments. Forms W-2 and W-3 can be filed electronically using the SSA’s Business Services Online (BSO) filing portal.
- If the business paid any independent contractors $600 or more for services rendered it will need to provide them with Forms 1099-NEC. These forms along with Form 1096 must be filed with the IRS.
- If the business provided its employees with a pension or benefit plan, the business must file a final Form 5500, Annual Return/Report of Employee Benefit Plan. Form 5500 and Form 5500-SF, Annual Return/Report of Employee Benefit Plan Short Form, must be filed electronically. Form 5500-EZ, Annual Return of One Participant (Owners and their Spouses) Retirement Plan, cannot be electronically filed and, therefore, must be filed on paper with the IRS.
- If the business is operating as a sole proprietorship then file a Schedule C to figure any profit or loss from the business along with their 1040 individual tax return. If the sole proprietor sold the business, they should also attach to the return Form 8594, Asset Acquisition Statement. If the sole proprietor sold any business property, they should attach to the return Form 4797, Sale of Business Property.
- Close the business’s account with the IRS. After all of these returns have been filed, the business owner should send the IRS a letter with the business’s complete legal name, employer identification number (EIN), and business address, explaining why the business wants to close its account. Include a copy of the business’s EIN letter. Send those documents to: Internal Revenue Service, Cincinnati, Ohio 45999.
All the applicable tax returns must be filed before the IRS will close the business’s account.