Closing Your Business
- Closing a Sole Proprietorship
- Filing Your Final Federal Employment Tax Returns
- Independent Contractors
- State Taxes
- Partnerships and Corporations
- Unamortized Costs and Winding Up Expenses
More Tax Topics
- Business Structures
- Start-up Costs
- Depreciation
- Car Expenses
- Home Office Deduction
- Travel Expenses
- Hiring Workers
- Meals and Entertainment
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
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Closing a Sole Proprietorship
Was Your Sole Proprietorship Temporarily Inactive for One or more Years?
Closing a sole proprietorship when there are no employees involved is a snap.
Simply file your final Schedule C to report any income and expenses in the final year of business. That's it.
The IRS doesn't require that you inform them that you're filing a final Schedule C. In fact, there isn't even a place on Schedule C to indicate that it's a final return.
And you don't have to write any special words on your final Schedule C either, such as "Final Return".
The only time you must file Schedule C is when your business has either income or expenses, or both, during any tax year.
Resuming Business Operations
If you temporarily discontinue operating your sole proprietorship for one or more years, then resume operations in a later year, simply do the following when completing Schedule C for the year you resume business:
- Place a checkmark in the box on line H.
- Line H states the following:
- If you started or acquired this business during 200X, check here.
- Line H states the following:
EXAMPLE:
- Tax Year 2009:
- You start a graphics design business in 2009.
- You operate the business as a sole proprietorship.
- You had no employees.
- Your business earned a net profit.
- On December 31, 2009 you discontinue operating your graphics design business in order to find a job working for a major graphics design company. The idea is to get one year's experience with a major company, then go back to operating your own business again in 2011.
- Tax Year 2010:
- You secure a job with a major graphics design company, ABC Graphics Design, Inc.
- You work for ABC Graphics Design, Inc. through 2010.
- On December 31, 2010, you quit your job so that you can go back to operating your own business again.
- Tax Year 2011:
- On January 2, 2011, you reopen your graphics design business.
- You operate your business as a sole proprietorship and resume doing business.
- Your business earns a net profit in 2011.
Result:
- Tax Year 2009:
- You File Schedule C to report your 2009 net profit from your graphics design business.
- In completing Schedule C, you place a checkmark in the box on Line H because it's the year you started the business.
- You do not have to indicate anywhere on Schedule C that you intend to close your business during the following tax year (2010) in order to begin working for a major graphics design company.
- Tax year 2010:
- Schedule C is not required to be filed for tax year 2010 because you had no income or expenses from your own graphics design business, which you temporarily closed.
- You are not required to notify the IRS that you did not operate your business during 2010.
- Tax year 2011:
- You resume operating your own graphics design business in 2011.
- Your business earned a profit in 2011.
- Schedule C must be filed for 2011. The filing deadline is April 17, 2012 plus extensions.
- In completing Schedule C, place a checkmark in the box on Line H. You treat the business as if it's the first year of operations even though you started the business in 2009 and temporarily closed it in 2010.
Material Participation:
- Schedule C, Line G: asks:
Did you materially participate in the operation of this business during 200X?
Check the Yes box if you worked at least 500 hours for the entire year (10 hours per week).
If You Had Employees
If you had employees when you closed your business, file the final employment tax returns to let the federal and state governments know that such returns are the final returns for your business.
See Closing Your Business When You Have Employees.
Related Links
- Did You Pay Independent Contractors $600 or More Your Last Year of Business?
- Form 1096
- State Unemployment Tax (SUTA)
- Sales Tax
- State Income Taxes
- Closing Partnerships
- Closing Corporations
- State Requirement for Dissolving a Corporation
- Deducting Unamortized Startup Costs and Organization Costs When Closing a Business
- Winding Up Expenses When Closing a Business
Copyright © 2008-2012 Larry Villano. All rights reserved.