Understand Tax Obligations That Go Along With Shutting Down Your Business
Tax-related consequences and requirements of businesses that are closing are a cumbersome but unavoidable fact of life for business owners who are winding down. Whether because of COVID-19 or other reasons, a business closure comes with obligations, including:
- Notifying the IRS and the state where the business is located that the business is shutting down: This may be done by choosing “final return” on Schedule C for the IRS. In addition, when closing a business’s IRS account, an owner should send the IRS a letter including business name, EIN, address and the reason the account is closing. A business owner should also cancel the business’s EIN with the state.
- Paying all final taxes. The IRS will not consider a business closed until this happens.
To avoid penalties and unexpected troubles with the IRS or the state (or the Office of Tax and Revenue in Washington, D.C.), a business owner should consult with an experienced tax law attorney. Kundra & Associates, P.C., can provide valuable information and assistance for business owners who are closing up shop.
Final Tax Obligations
Several IRS forms can serve as guides for the tax aspects of a business shutdown, including Schedule D (for capital gains and losses), Form 8594 (to provide calculations used to arrive at the final values in Schedule D) and Form 941 to write off final tax expenses, including Social Security and Medicare payroll withholdings, as well as federal and state unemployment insurance.
For businesses that have received Paycheck Protection Program (PPP) loans, the timing of a business’s closure can determine whether a business will need to report forgiven loan balances as income. Attorney Chaya Kundra’s over 25 years of experience and highly developed skills make Kundra & Associates, P.C., a go-to resource for business owners in the Maryland and Washington, D.C., region.
About To Close Your Business? Contact Us.
We have the information and tools that you need to comply with tax laws or resolve disputes with the IRS as you shut down your business.