Are you an owner of a business getting ready to start your next journey called “retirement”? Having a business and “retiring” is not as easy as being an employee and just announcing to HR or your boss that you’re leaving. There are several checklist items you need to resolve in order to truly close the doors under your name for good.
Think of these tasks as you would if you were selling your home and or moving away. You cannot just lock the door and say goodbye! You can’t imagine how many former clients have come back to me because they closed their businesses and didn’t follow through on some or all of these. And that cost them more money that could not be deducted because they were not actively in a business “for profit.”
Steps to Closing Your Business
Let’s go through the checklist outside of the sale agreement you may or may not have, and cover the things you need to do to retire as a business owner. (And remember, some of these may not be pertinent to you!)
- If you are incorporated or organized in a State, contact your Secretary of State’s office and file disillusionment paperwork. This generally is a small fee and if there are business shareholders/partners involved, all must sign the paperwork
- If you have employees, contact Federal, State, and local tax agencies with the permanently closed forms and make sure you also provide a forwarding mailing address. With the IRS, this is form 8822 Change of Address.
- File all your final payroll tax returns and pay all taxes due. If you close anytime during the year, you are REQUIRED to file W2/W3; 940 FUTA Tax return; state withholding, and unemployment returns for the year you had employees. You can prepay the 940 taxes and then come January of the year following your closing, you just need to send in the return. Remember to check the box CLOSED as of date on all payroll forms.
- Let’s not forgot those employees! You are REQUIRED to provide a W2 for the year any employees may have worked. If you use a payroll company online, check and see if they will send them out for you before you close your account with them. If you do not use a cloud-based payroll system, make sure you have all the necessary records to prepare the W2s come January. The IRS does not provide acceptable W2s until late December or no later than the first business day in January.
- If you have provided a retirement plan for the employees or yourself through your business, contact the brokerage house to close out the accounts and forward any required forms to the employees. Likewise, any health plans that your employees had through you must be addressed similarly. COBRA coverage may be available to them and the insurance firm/agent will assist with the transition and notifications.
- Subcontracted workers who received at least $600 per calendar year must also receive the 1099-NEC and forms filed with the IRS on or before the 31st of January of the year after the business was closed/sold.
- File your final tax return. If you file your business on a Schedule C Profit and Loss from a Business this will be on your individual 1040. If you are an LLC taxed as a partnership, S or C Corporation, your return would be due March 15 of the following year. Again, check the box FINAL on the 1065, 1120S or 1120.
- If you report sales and use taxes or excise taxes, make sure all final reports and taxes are in and paid before you notify the tax authority.
- In New Hanover County, North Carolina, the county taxes business owners on business use property (furnishings, equipment, computer and mechanical, etc.) The final return needs to be filed before January 31 of the year following closure with the closed/sold as of date on the return. This is one tax they will search you down and hold you to based on what they think you have or what you had listed in prior years.
- Maintain and keep all bookkeeping, receipts, payroll reports, and any other business-related information until the statute of limitations for audits expires before you shred. Digitizing may be the easiest way to keep these as digital records, be it in the cloud or disc takes up less real estate in your home!
- If you are selling equipment, vehicles, furnishings, or tools you need to report the sales on your tax return as well. Having your records when you purchased is a good backup if you misplaced your depreciation statements over the years. Recapturing depreciation is a tax matter and not on this checklist.
- Lastly, if you had a lease or utilities pay and close your accounts. Pay all your bills. Provide forwarding mail information if needed before you lock the doors or walk away for good.
This may seem like a pretty hefty checklist, but there are knowledgeable professionals at Century Accounting and Tax Services here to help you retire as a business owner.