Tax Tip - Follow these steps when shutting down a business

Tax Tip

Follow these steps when shutting down a business

Business owners may decide to shut down their operations for a variety of reasons. Some struggle for years before admitting that their particular market is drying up or the company's products lack sufficient customer appeal. Others manage strong businesses, but no longer feel motivated to continue pouring energy into the enterprise. Still others may find that partnerships have grown sour or personal crises have unavoidably encroached on their time and resources.

Regardless of the reason for shutting down a business, owners should follow a systematic dissolution strategy whenever possible. Such a plan should include the following steps:

Vote to close the business. Of course, a sole proprietor may only need to consult with a spouse or trusted advisor. With a partnership, corporation, or limited liability company, more than one business associate must agree to the dissolution. Organizational documents or a state's business statutes often mandate the level of agreement required (a simple majority or two-third's majority, for example), so you'll want to consult applicable rules.

File a final tax return. Even if the business only operated for a portion of the year, you'll need to notify the IRS that the company's annual tax return is its last one.

Fill out dissolution paperwork. Let your state and local governments know that the company is ceasing operations. The forms you need should be posted on your secretary of state's website. Especially when a partnership or corporation is dissolved, formal filings should prevent future confusion about ownership and liabilities.

Cancel licenses, permits, and insurance policies. Most businesses are required to obtain city, county, and/or state licenses to operate. Those governments should be notified of the dissolution. Insurance brokers as well should be told to cancel business liability, health care, and other company policies.

Notify interested parties. At some point you'll want to inform lenders, suppliers, service providers, and customers. Lenders will be eager to find out how you plan to repay loans. Suppliers will want to know when to make final deliveries. Utility companies will need to know when to turn out the lights and shut off the water. Customers, too, should be given plenty of notice about final orders and ongoing projects.

Get expert advice. Closing down a business can be a stressful and fragile process. Many things can go awry, so seeking help from us can keep the process moving in the right direction.

If you have any questions, please call us.

Joseph C Becker, CPB, MBA, CFE
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com