Tax concerns for clients who close their businesses

Whether it’s a fallout from the pandemic or for other reasons, it’s never easy when clients have to close their businesses. As your clients’ trusted advisor, you can advise them with respect to tax obligations.

Business owners must take these steps when closing a business:

• File a final tax return and related forms. The type of return to file and related forms depends on the type of business.
• 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.
• Pay taxes owed. Even if the business closes now, tax payments may be due next filing season.
• Report payments to contract workers. Businesses that pay 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.
• Cancel their employer identification number (EIN) and close their IRS business account. Business owners should notify the IRS so they can close the IRS business account.
• Keep business records. How long a business needs to keep records depends on what’s recorded in each document.

IRS.gov has information to help guide business owners through the process of shutting down. 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 closure.

Business owners can also get helpful information on declaring bankruptcy, selling their business, and terminating retirement plans.

Interesting in more information on tax advisory services? Check out the Intuit® Tax Pro Center’s library of tax advisory articles.