Many entrepreneurs in Baton Rouge spend years cultivating a successful business. However, there may come a time when a person decides that he or she wants to dissolve the business. No matter what the reason is behind the dissolution of the business, it is important that the process be completed with all the proper formalities. The failure to do so could have unwanted tax or liability consequences.
First, those who are dissolving a business need to let their state’s taxing authority know of the decision, if the business had been collecting and paying sales tax. In addition, business owners will have to close any accounts relating to the business, including any accounts they have with the federal Internal Revenue Service (IRS). And, the IRS needs to receive a notification that the business is ending.
Moreover, the final federal income tax return must be filed for the last year the business was in operation, and the return must be labeled as “final.” Payroll tax returns also must be filed, as will unemployment tax returns. Wage reports for the business’s workers, whether they are employees or independent contractors, may also need to be filed for the business’s final year.
Business owners dissolving their business need to let their city and county know, so that any fictitious name, dba filings can be cancelled along with any local tax accounts. And, those who are dissolving a business needs to let their creditors know of the decision.
That plan is to pay back what is owed to the business’s creditors, for example, by selling assets. Any taxes still owed to the state or to the IRS need to be paid. Finally, after the creditors have collected what is owed to them and taxes have been paid, what is left of the business’s assets will need to be distributed to the appropriate parties, such as the business partners or shareholders.
These are only the basic steps for the dissolution of a business. If a business is a limited liability company or a corporation, there are additional steps that need to be taken to properly end the business. Therefore, whether one’s business is a small sole proprietorship or a larger corporation, it may be useful to consult with an attorney when ending the business, to ensure that no essential step is overlooked.
Source: the balance, “What to Do Before Closing a Business,” Jean Murray, Sept. 11, 2016