See the IRS guide before closing a business.
If you or your client is closing a business, make sure it’s done right. If you don’t, the problems could haunt your client—and you—for years.
Because so many small businesses are closing, the IRS has revamped its Closing a Business web page to include both general information and specifics for different types of business entities.
Key factors. Pay employees their final wages —and submit related employment tax deposits and final employment tax returns: the quarterly 941, 940, W-2s and 1099s.
File the final income tax return and related forms.
Other key steps. Cancel the EIN and close the IRS business account by sending the IRS the letter described on the web page. Although the IRS web page does not mention it, similar actions need to be taken with state tax agencies, corporation commissions, or other agencies with which the business is registered, plus any local government agencies or departments.
Important point: Keep your client’s books and records plus copies of all filed tax returns—both the IRS and state agencies can audit the business after it is closed, and the former owner(s) could be responsible for any unpaid taxes, interest and penalties.
From the AIPB General Ledger for Professional Bookkeepers.