A report from Yelp suggests 60% of restaurants that have closed for coronavirus will not reopen. I don’t know if this is accurate or not, but I do believe many businesses are permanently closing as a result of coronavirus.
From a tax perspective, the closing of a business is a critical time. Winding up your business taxes correctly can save you time, money, and headaches years from now. Let’s take a look at a few tax considerations when shutting a business.
First, you must close out tax accounts. This is unlike individual income tax where you only file if you have income to report. Generally, businesses must file final returns, dissolve business entities, and close out accounts for sales, payroll, and general excise tax. Failure to do so can result in the IRS or State assuming your are still in business and then attempting to assess additional tax.
Second, if your business owes taxes you may be personally liable. Personal liability will depend on the structure of the business, the type of tax, and your role within the business. If you have personal liability, then you won’t be able to close the business and simply walk away from the tax bills.
Third, keep records from the disposition of business assets like inventory, equipment, and accounts receivables. This is important because if you sell business assets there may be tax liability on the sale. Also, if the business will owe creditors, including the IRS and State tax agencies, then there may come a day when you must show that debts were paid as much as assets permitted.
In conclusion, if you are closing your business then don’t overlook the taxes or you could find yourself dealing with them years from now.