Last time, we began discussing how to terminate your S-Corporation. Such dissolution is no easy task. There are many steps involved, and if you do something wrong, you could pay for it. Even if the state authorities don’t notice right away, the IRS won’t find it funny. As difficult as getting a startup off the ground, shutting it down can be even harder.
Resolve Your Remaining Financial Obligations
This step involves paying off every single outstanding bill and debt. You’re also obligated to tie up loose ends regarding any applicable sales taxes. You cannot, under any circumstances, leave the unpaid debt hanging. Once you have completed those tasks, cancel business licenses and active permits. Failing to do so incurs more fees that you can’t pay and shouldn’t have to, considering your business is now defunct.
Communicate with Every Stakeholder
For the sake of argument, agree with us that you went all in to make your S-Corp work. Then, things didn’t go as planned. As soon as you know your S-Corporation is a bust, then it’s time to fold. The most professional way to initiate this procedure is to talk to everyone.
Communicating with each stakeholder in your organization minimizes confusion, outrage, and all of the turmoil that the situation evokes. Clients, vendors, freelancers, suppliers, contractors, and employees must be notified. Plus, if you intend to start a second business down the line, it’s best practice to keep them in the loop. Severing connections like that can ruin your next endeavor before it can even get underway.
Coordinate with the IRS During the Process
Moreover, you are responsible for coordinating with the IRS. The Internal Revenue Service will be on high alert for any accidental miscommunications. Evidence of professional misconduct or even white-collar crimes (such as embezzlement) will result in harsh consequences.
In any case, submit the relevant documents as soon as you can. The IRS calls this paperwork the “letter to revoke subchapter S election.” Unlike other filing practices, no forms or fees exist. Instead, you must indicate a revocation of the election belonging to Section 1362(a). Other bits of information you are expected to provide include identifying information for shareholders, the name of your S-Corporation, and the EIN as well.
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