Your tax checklist for shutting down a business gets longer still if you have employees: You’ve also got to wrap up your payroll responsibilities.
Going back to that example of the dessert business, let’s say that instead of going it alone, you employ two bakers and a cashier, all full-time workers. That means you’ve been withholding income and employment taxes from the salaries of these three workers, and also paying the employer’s portion of their employment tax.
Because your payroll tax deposits have exceeded $1,000 annually, you’ve had to make deposits and file Form 941 each quarter. So closing down involves issuing final W-2 forms to your employees by the due date of your final tax return. You also have to file a final Form 941 for the last quarter in which you paid your workers, and use that form to tell IRS about the shutdown.
Check the box on Line 18 and enter the date you last paid wages. (If your employment tax deposits were $1,000 or less annually while you operated your business, you would have qualified to file and make deposits just once a year, using Form 944. In that case, when you close your business you’d file a final Form 944 for the last year in which you paid your workers, and use it to notify IRS about your shutdown.