Businesses closing occurs when the owners are no longer actively engaged in business, sell their business or their stock of goods to a new owner, change the structure of business or change the partnership agreement. Similar to starting a business, closing a business requires completing a series of steps. The State of California Board of Equalization (BOE) must be notified when closing a business. Actions that must be taken when closing a business depend on the structure of the closing business; a sole proprietorship, partnership, corporation, S corporation, or a limited liability company (LLC).
Closing a business involves making the final federal tax deposits for the year and filing an annual tax return for the year the business closes and a quarterly or annual employment tax form for any employees. Also the business owner is required to issue a final wage and withholding information to employees and report information from any W-2’s issued, all capital gains/losses, all shares related information and any other pension/benefit or final payment information. A list of forms associated with each of the above mention actions can be found at the State of California BOE's website.
The Internal Revenue Service (IRS) specifies locations where the tax return forms have to be submitted. Where to file the forms is determined by the first number or alphabet character in the name of the form. For instance, to file Form 3520, choose the No. 3 to find the location. Locations for filing can be found on the IRS website.
Each new business is assigned a unique Employer Identification Number (EIN). Even though an EIN is never reused, it is recommended that when closing a business, the owner contact the IRS at: Internal Revenue Service, Cincinnati, Ohio 45999 and specify the reason for closing the business. The notification should include the legal name of the business, the EIN and the business address.
To close the business, the following information must be ready for filing various forms: the official last date of all business activity, the reason for closing, the names of all owners/partners, the means used to dispose of the inventory/fixtures/equipment, the current address and business phone number, and a copy of any business-related permits.
The State of California recommends getting any tax-related advice in writing. As such, any tax-related errors made due to the written information will be excusable, and the owner might be relieved of any tax, penalty or interest charges.
If the California BOE is not notified of a business closure in time, the owner of the business (at the time of the closure) can be held liable for tax, interest, and additional penalties incurred even after the business is no longer in operation.