Closing or Selling Your Business? Here’s What You Need to Know About Taxes

First Things First: Let Us Know ASAP

Not only may we be able to advise on tax-advantageous structures if you’re selling or closing your business, but it’s critical to timely file an extension for the final income tax return, since it usually takes time to get everything else in order.

When a business shuts down, the IRS requires what’s called a short-year income tax return. The deadline for this return is often much earlier than your normal filing date, which means there is less time to finalize your books, gather paperwork, and get your filings in.  

As soon as your dissolution paperwork is in from the Secretary of State, get it to us and we’ll determine the short-year filing deadline and extension deadline.

Key Tax and Compliance Steps in a Business Closure 

While every situation is unique, here are some of the most common items you’ll need to address:  

• Finalize your books: Your accounting records need to be complete and up to date so we can prepare the final return. (Tip: we can do this for you!)
• File a short-year final income tax return: As mentioned previously, this is likely due before your normal filing deadline, but we’ll typically file an extension to buy time to get everything in order. 
• Gather business sales documentation:
  • If you sell individual assets, provide the bill of sale for each item.
  • If the business is sold as an asset sale, the sales agreement must show how the purchase price is allocated across assets. We’ll need Form 8594 (filled out and matching by both buyer and seller) to attach to the tax return, as well as the buyer’s name, address, and EIN.
  • If the business is sold as an equity sale, we’ll need a copy of the full transaction agreement.
• Wrap up payroll and sales tax: Submit final payroll tax filings and deposits, as well as final sales tax returns and remittances, and close down accounts. 
• Issue 1099s: Make sure all required 1099 forms are filed for the year.
• Close down accounts: Once all business activity has ceased, take steps to formally close out:
  • State Secretary of State (dissolution paperwork)
  • Bank and credit card accounts (after all business expenses are paid)
  • EIN account
  • Licenses, permits, and registrations
• Notify tax agencies: After final returns are filed, you’ll need to close out your accounts with agencies such as:
  • IRS (see link)
  • State taxing agencies (varies by state; consider income, payroll, and sales tax as noted above, plus any special taxes that may apply to your business) 

Don’t Forget Income Tax Planning

Closing or selling a business doesn’t eliminate your tax liability; it may actually create new planning opportunities. Proactive income tax planning during this transition can help you minimize tax surprises and make the most of your exit. The sooner you can bring us in during the process, the better. 

Final Thoughts

The decision to close or sell a business is a big one, but having the right guidance can make the process far less stressful. If you’re considering a closure, let us know right away so we can help you navigate the steps, avoid missed deadlines, and create a plan that works for you. We highly recommend consulting with legal counsel for more specifics and advice to guide you through the process.