Closing a business means a life transition. It’s usually a stressful time even if you really wanted the change. However, you shouldn’t forget that closing your business calls for meeting several tax obligations. It’s the same whether you are self-employed and have incorporated or you’re shuttering your small business and letting your employees go. Your obligations may require the assistance of your financial advisor or counselor as you close your business or at tax time.
Solo Practitioner Calling it a Day
If you’re self-employed, as in all the proceeds from your work go into your personal bank account, there won’t be much for you to do. You’ve been running an unincorporated enterprise. You should have been using form Schedule C to report your business expenses and your income. There will be nothing to do but to stop using Schedule C if you’ve got a full-time job. This will be the case for most people like freelancers who used their home computer and worked out of a small corner of the house.
Disposal of Business Assets
If you do have business assets that you are disposing of, like a home computer or perhaps a food truck, you’ll have to report the disposal of these assets. Most likely, with an asset like a food truck, you’ll be selling it, but disposal doesn’t have to mean an actual sale. You can donate assets or leave them lying around. You’ll still need to report them as a business asset loss (or gain if you sell).
You’ll need to determine a fair market value for each asset and note this on your return on the appropriate form. If you sell the asset, you’ll have to note how much you sold it for. You’ll then be able to determine whether you had a loss or gain regarding the asset and make the appropriate deduction. However, you can only get the deduction if you sell the asset before the business closes. Note that you can receive a charitable deduction if you donate the asset. However, you won’t be able to claim the full value if you have previously received a business deduction on the asset.
You may have been using some personal items in a dual-use capacity and taking a partial business deduction for depreciation. You will have to prorate the deduction for the time during the year you were in business when filling out your taxes.
You’ll report the sales on different forms depending on the action you take. There’s a form for a bulk sale of assets and one for a partial sale.
Small Businesses and Payroll Taxes
If you have employees, it will involve more work as you might expect. You’ve been paying an employment tax and withholding income for those employees. Once you take care of their W-2 forms for the tax year, you will note that you’re shutting down your business on either the annual or quarterly employer’s federal tax return forms.
In Florida, you’re free to give your employees their final paycheck within a reasonable time after their last day of work. If you’ve agreed to give your employee vacation time and they haven’t taken those days, you may have to pay them for those vacation days they did not take in their last check. So then, you should account for this when looking at debts and taxes you need to pay at the dissolution of your business.
Ending the Business in Debt
Hopefully, you decided to end your business because you are seeking a change or you received an offer you couldn’t refuse. However, you may have had to end the business because of rough economic times. In this case, you may have incurred significant debt, including back taxes. You should seek help in looking for ways of repaying the debt. Bankruptcy is an option, but perhaps not the best one. You can attempt to negotiate a payment plan with the IRS yourself or have your tax lawyer handle it.
If your business had assets, sold taxable goods or had employees, you may have serious tax issues that you should keep an eye on during the chaotic changes surrounding the close of your business. You should discuss issues related to taxes with an experienced tax attorney when you’re ready to shutter your business.