Has the ongoing pandemic put your business in a situation where you may have to close its doors? If your business closes its doors, we can assist you during this transition. A business must file a final income tax return and some other related forms for the year it closes its doors.
The type of business you own will determine how you file your taxes. THF will provide our expertise in handling various tax responsibilities should your business close its doors. Here’s a rundown of the basic requirements when a business closes its doors due to the ongoing pandemic.
Businesses will need to file the usual Schedule C, “Profit or Loss from Business,” with your individual return for the year you close the business and may need to report self-employment tax.
Corporations file Form 966, “Corporate Dissolution or Liquidation,” if it adopts a resolution or plan to dissolve the corporation or liquidate any of its stock.
C Corporations will file a Form 1120, “U.S. Corporation Income Tax Return,” for the year you close. You will report capital gains and losses on Schedule D. and indicate this is the final return.
S Corporations will file a Form 1120-S, “U.S. Income Tax Return for an S Corporation,” for the year of closing and report capital gains and losses on Schedule D. The “final return” box must be checked on Schedule K-1.
You may need to file to report sales of business property and asset acquisitions if you sell your business.
Employees and Contract Workers
If you have employees, you must pay them their final wages and owed compensation. Make sure your business makes final federal tax deposits and report employment taxes. You may suffer a Trust Fund Recovery Penalty (TFRP) if you fail to withhold or deposit employee income, Social Security and Medicare taxes.
Companies must report payments on a Form 1099-NEC, “Nonemployee Compensation if they paid a minimum of $600 during the calendar year the business closes its doors.
Other Tax Issues
You must terminate and pay out any retirement plan benefits to employee participants. Detailed notice, funding, timing and filing requirements must be met by a terminating plan. This includes flexible spending accounts, Health Savings Accounts, and other programs related to employees.
We can assist you with many other complicated tax issues related to closing your business. We will advise you on the length of time you must maintain business records. Issues such as debt cancellation, use of net operating losses, freeing up any remaining passive activity losses, depreciation recapture, and possible bankruptcy issues will need to be addressed before closing. Make sure you cancel your Employer Identification Number (EIN) and close your IRS business account.
We can explain the available payment options to you if your business is unable to pay all owed taxes. Please feel free to contact us if you have any questions.