I am closing my business. Does the IRS offer any information on what to do when closing a business?

Yes, the IRS provides comprehensive information on the steps to take when closing a business. The guidance covers various types of business entities, including sole proprietorships, partnerships, and corporations. Here are the key actions and forms required for each type of business:

1. General Steps for All Businesses:
   • File a final tax return and related forms.
   • Take care of employees by making final federal tax deposits and providing Forms W-2.
   • Pay all taxes owed.
   • Report payments to contract workers on Form 1099-NEC.
   • Cancel the employer identification number (EIN) and close the IRS business account.
   • Retain business records for the appropriate period.
2. Sole Proprietorships:
   • File Schedule C (Form 1040 or Form 1040-SR) for the year the business ceases operations.
   • File Form 4797 if selling or exchanging business property.
   • File Form 8594 if selling the business.
   • File Schedule SE (Form 1040) if liable for self-employment tax.
   • Make final federal tax deposits and file Form 941 or Form 944 for the calendar quarter in which final wages are paid.
   • File Form 940 for the calendar year in which final wages were paid.
   • Provide Forms W-2 to employees and report payments to contract workers on Form 1099-NEC.
3. Partnerships:
   • File Form 1065, U.S. Return of Partnership Income, and check the "final return" box.
   • Report capital gains and losses on Schedule D (Form 1065).
   • File Form 4797 if selling or exchanging business property.
   • File Form 8594 if selling the business.
   • Make final federal tax deposits and file Form 941 or Form 944 for the calendar quarter in which final wages are paid.
   • File Form 940 for the calendar year in which final wages were paid.
   • Provide Forms W-2 to employees and report payments to contract workers on Form 1099-NEC.
   • Send a letter to the IRS to close the business account, including the complete legal name of the business, EIN, business address, and reason for closing.
4. Corporations:
   • The IRS has released fact sheets on how to close a corporation, which include similar steps to those for sole proprietorships and partnerships.

The IRS also provides additional resources such as Publication 541 for partnerships and Publication 334 for small businesses, which offer detailed guidance on closing a business. Business owners can find more information and access necessary forms on the IRS website.

Sources:
Publication 544 (2023)
FS-2020-16
FS-2020-15
Publication 334 (2023)
Publication 463 (2023)
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