The IRS streamlined the “Closing a Business” page into simple steps, so business owners and self-employed individuals can make final IRS payment.
During this difficult and challenging time, the IRS streamlined the “Closing a Business” page into simple steps, the release states, so business owners and self-employed individuals can quickly find the information they need including tax payment options.
“The IRS realizes small businesses and self-employed individuals are facing challenges in their personal and business lives during these uncertain times,” said Eric Hylton, commissioner, Small Business/Self-Employed Division. “Closing a business is a difficult decision and we want to help ease the burden for people making this tough choice. We redesigned the closing a business page on IRS.gov to help businesses comply with final tax responsibilities and make IRS payment.”
The information includes what forms to file and how to report revenue received in the final year of business and expenses incurred before closure.
- File a final return and related forms. The type of return to file depends on whether the business is a sole proprietorship, partnership or corporation. The page features a section for each business type. Business owners can click on the section that applies to them to get the returns and forms they need.
- Take care of employees. Business owners with one or more employees must make tax payments in the form of federal tax deposits and report employment taxes.
- Pay the taxes owed. Even if the business closes now, tax payments may be due next filing season.
- Report payments to contract workers. Businesses that pay contractors at least $600 for services (including parts and materials) during the calendar year in which they go out of business, must report those payments.
- Cancel EIN and close IRS business account. The IRS cannot close out an account until the business has filed all necessary returns and paid all taxes owed.
- Keep business records. How long a business needs to keep records depends on what’s recorded in each document.
The page also has information to help business owners who are declaring bankruptcy, selling their business and terminating retirement plans.
The IRS has a legitimate right to raise taxes on companies, even though the company has gone bankrupt. However, precisely who will be liable to pay these taxes will depend on the legal framework of the company. For example, if a company is structured as an LLC, or limited liability corporation, shareholders in the company will not be responsible for paying back taxes. However, sole proprietors and partnerships will.
The only way that a business required to pay penalties could get out of it would be to reach a settlement with the IRS. In a settlement, the company will not be obligated to pay the entire amount that it owed. The precise conditions in which an IRS may consent to a settlement are unknown — the IRS prefers not to disclose them, so as not to threaten its ability to collect taxes — but the agency has been known to accept partial payment.