1. File a Final Return and Related Forms
You must file a final return for the year you close your business.
The type of return you file – and related forms you need – will depend on the type of business you have. A limited liability company (LLC) is a business organized under state law. An LLC may be classified for federal income tax purposes as a partnership, a corporation or an entity disregarded as separate from its owner.
- A sole proprietor is someone who owns an unincorporated business by themselves.
- A partnership is a relationship between two or more partners to do trade or business.
- A corporation is a separate taxpaying entity with at least one shareholder. This includes S corporations.
File Schedule C (Form 1040 or Form 1040-SR), Profit or Loss From Business, with your individual tax return for the year you close your business.
You may also need to file the following forms. You should file these when you file your individual tax return.
- Form 4797, Sales of Business Property, for each year you sell or exchange property used in your business. You also need to file this form if closing your business causes the business use of an eligible property under Section 179 to drop to 50% or less.
- Form 8594, Asset Acquisition Statement, if you sell your business.
- Schedule SE (Form 1040), Self-Employment Tax, if you have net earnings of $400 or more from your business.
You must file Form 1065, U.S. Return of Partnership Income, for the year you close your business.
When you file, you must:
- Report capital gains and losses on Schedule D (Form 1065).
- Check the “final return” box (it’s near the top of the front page of the return, below the name and address).
- Check the same box on Schedule K-1, Partner’s Share of Income, Deductions, Credits, Etc.
You may also need to file these other forms with your Form 1065:
- Form 4797, Sales of Business Property, for each year your partnership sells or exchanges property used in the business. You also need to file this form if closing your business causes business use of an eligible property under Section 179 to drop to 50% or less.
- Form 8594, Asset Acquisition Statement, if you sell your business.
You must file Form 966, Corporate Dissolution or Liquidation, if you adopt a resolution or plan to dissolve the corporation or liquidate any of its stock.
You must also file your corporation’s final income tax return. Remember to check the “final return” box, which is near the top of the front page of the return, below the name and address.
For a C corporation you must:
- File Form 1120, U.S. Corporate Income Tax Return, for the year you close the business.
- Report capital gains and losses on Schedule D (Form 1120).
For an S corporation you must:
- File Form 1120-S, U.S. Income Tax Return for an S Corporation for the year you close the business.
- Report capital gains and losses on Schedule D (Form 1120-S).
- Check the “final return” box on Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, Etc.
Regardless of the type of corporation, you may also need to file these forms when you file your Form 1120 or 1120-S:
- Form 4797, Sales of Business Property, for each year you sell or exchange property used in the business. You also need to file this form if closing your business causes the business use of an eligible property under Section 179 to drop to 50% or less.
- Form 8594, Asset Acquisition Statement, if you sell your business.