Many small businesses have been negatively impacted in 2020, and Indiana businesses are no exception. Edgewater CPA Group witnessed the closing of many longstanding Indiana businesses, such as the Butler-Tarkington hardware store owner who closed up shop after 43 years in business. Costumes by Margie closed after 50 years in business. Moreover, restaurants, hairdressers, and movie theaters have also been hit hard due to the pandemic. If your small business closed permanently this year, here are three things you need to do for your final business tax preparation.
1. File Your Final Tax Return
The IRS requires final tax reporting, as does the Indiana Department of Revenue, along with the satisfaction of tax debt upon the close of your business. The tax and reporting requirements can be cumbersome, and mistakes can be costly. Here are the final tax return requirements for your business tax preparation.
- Sole proprietors. File a final Schedule C. Note: Schedule C does not have a “final return” box.
- Partnerships and LLCs. File Form 1065 and check the box that says this is your final return. Create, distribute, and file your final K-1’s as usual.
- C Corporations. File your 1120 Form and check the “final return” box – file Form 966 to report the dissolution.
- S Corporations. File Form 1120S and check the “final return” box – file Form 966 to report the dissolution.
In addition to the final tax returns, you are also responsible for final taxes, such as payroll and sales taxes. Be sure to file Forms 940 and 941 for your last year of business. Then pay those taxes, prioritizing them over other creditors and enlisting help from our Payroll Services should you need it.
2. Dissolve Your Indianapolis Business
The state of Indiana charges business entity fees and a charge to dissolve your business, so you must file a formal dissolution with the state. The Indiana Secretary of State website houses this information. If you have multiple owners, you must also draft a legal agreement, called a Resolution of Dissolution, for everyone to sign. You should retain the resolution for your records.
Once you formally dissolve your business with your partners and the Secretary of State, you’ll need to wrap up final loose ends. For instance, you can cancel your taxpayer ID numbers with both federal and state agencies, which you may have to do in writing. Next, you must determine how to pay off any outstanding debts, such as to employees or creditors. Make payments per state and federal law. You may have to sell assets to meet this obligation, which can create additional tax implications. On the other hand, If you cannot meet your debt obligations, you may consider filing bankruptcy.
3. Get Small Business Tax Preparation Help
You may be able to close your business on your own if it is a simple business, such as a small Sole Proprietorship. However, most business owners benefit from the knowledge and expertise of a small business CPA. That is why clients use Edgewater to prepare tax filings and subsequent business forms accurately and legally. We even find additional deductions and savings you may not consider. Call us at (888) 317-4835 or schedule a consultation online.
Sources:
Orr, Susan. “Owner closes Butler-Tarkington hardware store after 43 years in business.” IBJ, 4 September 2020. 13 December 2020.
https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business
https://inbiz.in.gov/business-filings/close-business