What Papers to File With the IRS to Close a Business LLC

By Salvatore Jackson

According to the U.S. Census Bureau, 17 percent of new businesses fail within the first five years as a result of bankruptcy or insufficient funding. A limited liability company, or LLC, is subject to strict reporting requirements by the IRS, and several forms must be filed with the IRS before the LLC is permitted to dissolve.

According to the U.S. Census Bureau, 17 percent of new businesses fail within the first five years as a result of bankruptcy or insufficient funding. A limited liability company, or LLC, is subject to strict reporting requirements by the IRS, and several forms must be filed with the IRS before the LLC is permitted to dissolve.

Employment Tax Filings

The LLC must issue Form W-2 to all employees and Form 1099 to all independent contractors. After receiving the filled out W-2 and 1099 forms, the LLC must report this information to the IRS by filing Form W-3 for employees and Form 1096 for independent contractors. If the LLC is engaged in a business involving the collection of tips, such as a restaurant or bar, the LLC must report tip income on Form 8027. Additionally, the LLC must file its final annual or quarterly employment tax return by filing either Form 940 for annual returns or Form 941 for quarterly returns. After filing these forms, the LLC must cancel its Federal Employment Identification Number.

Ready to start your LLC? Start an LLC Online Now

Reporting LLC Gains and Losses

An LLC may elect to be taxed as either a corporation, partnership or sole proprietorship. After choosing to close, the LLC must file a tax return to report capital gains and losses and indicate on the return that it is the final tax return for the LLC. If the LLC is taxed as a corporation, the LLC must file Form 1120. If the LLC is taxed as a partnership, the LLC must file Form 1065. If the LLC is taxed as a sole proprietorship, the owner of the LLC must file Schedule D on his individual tax return and indicate that the sole proprietorship will be closing.

Report Liquidation or Dissolution

An LLC that will be closing must report to the IRS that it will be dissolving and liquidating by filing Form 966. When filling out Form 966, the LLC must execute either a resolution or plan to dissolve. As part of the resolution or plan to dissolve, the LLC must set forth a detailed plan for dissolving LLC assets and paying LLC creditors. Furthermore, if the LLC is completely dissolving, it must indicate on Line 10 of Form 966 that the LLC is dissolving pursuant to Section 331.

Report Proceeds From Asset Sales

After electing to dissolve, the LLC must sell off any assets owned by the LLC to pay LLC creditors. If there are any proceeds remaining, they must be distributed to LLC members. The process of liquidation must be reported to the IRS on Form 8594. If any LLC assets are not sold and are instead exchanged for other assets, this asset exchange must be reported to the IRS on Form 4797.

Ready to start your LLC? Start an LLC Online Now
What Form Does an LLC File With the IRS?

References

Related articles

How to Close an S-Corporation in North Carolina

To close an S corporation, or S corp, there are a number of steps you must take to ensure that the corporation has settled its debts and will no longer be liable for taxes. Both the board of directors and the shareholders must agree to close the corporation. You should inform all business associates, creditors and consumers about the dissolution, and ensure that all business debts and wages are paid. Finally, you must notify the state and file final tax returns.

How do I Report Income From an LLC?

A limited liability company, or LLC, is a “hybrid” type of business organization that combines the limited liability benefits of a corporation with the pass-through taxation and relaxed reporting requirements of a partnership. The LLC is a creation of state legislatures, and the Internal Revenue Service does not explicitly recognize LLC’s for the purposes of federal taxation. Depending on the status of your company, the IRS classifies LLC’s as a sole proprietorship, partnership or corporation. Understanding how your LLC is classified for federal taxation purposes is important to knowing how to report your LLC’s income.

How to Terminate an S-Corp Election & Revert to an LLC

A qualifying LLC that has previously elected to be treated as a corporation for federal tax purposes by filing IRS Form 8832 and that has also elected S corporation treatment by filing IRS Form 2553 may reverse both elections to revert to treatment simply as a non-corporation partnership or sole proprietorship.

LLCs, Corporations, Patents, Attorney Help

Related articles

Do LLCs Have to File a 1099?

One of the major benefits to organizing as a limited liability company, or LLC, is the advantage of pass-through entity ...

What Does Dissolved Mean for a Corporation?

A corporation is an independent legal entity, separate from its owners, who are known as shareholders. It is this ...

How to Close a Corporation With the IRS

A corporation is a business entity that is legally distinct from its shareholders. This means that, in addition to the ...

How to Prepare a Final K-1 for an S Corp

An S corporation is a special type of corporation that has elected to be taxed as a pass-through entity. Instead of ...

Browse by category
Ready to Begin? GET STARTED