By Brian Ravencraft
Due to any number of reasons, many businesses just don’t make it. They have no choice but to cease operations. If only it was as easy as locking the door and never looking back. The proper tax documents must be filed in order to shut down operations properly and without penalty.
You must file a final income tax return and some other related forms for the year your business shuts down. The type of return to be filed depends on the type of business you have.
If you are a Sole-Proprietorship, you will file a Schedule C Form 1040 return that is known as a profit or loss from business. This will go along with your personal return. You will also need to account for any self-employment tax.
If you operated as an S-Corporation, you would file a Form 1120-S for the year of closing. Your accountant will also have you report capital gains and losses on a Schedule D while also checking the box that shows this will be the final return for the business.
C-Corporations will also file a Form 1120-S for the year of close. You will also report capital gains and losses on a Schedule D and that final return box will need to be checked off.
Did you operate as Partnership? Then you are looking at a Form 1065 to file for your closing year. You will also report capital gains and losses on a Schedule D. This also calls for marking that will be your final return. You will do so on the return and your Schedule K-1.
If you have another type of corporation, you have other hoops to jump through to put the business to rest once and for all. This involves filing the proper forms to liquidate and dissolve your business. Work with your accountant to start this process.
As always, let me know if you have questions. Many other elements come into play when closing a business. If I can be of help to you, please reach out.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.agribusinessaccounting.com or www.HolbrookManter.com.