How to Finalize Taxes When Selling Your Business

Avoid fines, fees and frustration by ensuring you finalize taxes when selling your business.

Disclaimer: The information herein has been provided by KOS Coaching LLC and its affiliates for general information purposes. It does not constitute legal, accounting, tax or other professional advice or services and is presented without any representation or warranty as to the accuracy or completeness of the information.

Nobody likes to pay taxes. Paying a fine or interest resulting from failure to file is worse. Think back to all of those tax accounts you opened when starting or acquiring your business. All of those tax returns need to be filed and all accounts closed to properly wind down your business.

Let's dive into the tips for wrapping up taxes.

Tip #1 - Finalize your Payroll

Relationships with employees make the sales or closure process complicated and emotional. As painful as it may be, when selling your business assets you should terminate employees at the earliest date possible. The reason is that even though they may continue to work for "the business", the new owner will have a new EIN. Consider whether or not some employees need to continue to work under the old EIN for transition, relocation or closure purposes. After termination, issue W-2's and 1099's.

Tip #2 - File Final Tax Returns

Tax returns filed by businesses are related to either employees or business activity. After the payroll is finalized and employees are terminated, file all payroll taxes: Federal, State and Local Withholding, State Unemployment, Worker's Compensation, etc. File final returns for business activity taxes such as Sales Tax, Commercial Activity Tax, Excise Tax and other State-specific or Industry-specific taxes.

Tip #3 - Close the Business Tax Accounts

Closing all tax accounts should be done after all final returns are filed and payments are made. I found out the hard way what closing accounts too early causes - rejected tax payments and strongly worded letters from tax authorities. It is particularly important to maintain communication with your payroll processor during this phase to ensure all filings are complete and payments are accepted.

Tip #4 - Retire the Company

Assuming that the business you sold or are closing will not have future operations, it is prudent to dissolve the corporation. Some states require that you apply for and receive a tax clearance certificate before dissolving a corporation. That means that you have successfully followed the preceding three tips and have closed all of your state tax accounts. Once you have received tax clearance, you may need to take corporate board action to dissolve the corporation and notify your state of your intent to dissolve. Upon receiving your dissolution certificate, you can request closure of your business account (EIN) from the IRS.

Tip #5 - Finish strong

Lastly, there are many topics you will need to address when closing your business. It is crucial that you finalize taxes when selling your business. For more details on taxes and all other aspects of business closure, purchase our Self-Service Guide HERE, or email us at koscoaching.net@gmail.com to discuss Full Service Closure Coaching.