The Tax Responsibilities That Come With Shutting Down a Business

● File “final” tax returns. The business must file an annual income tax return for the year it goes out of business. That income tax return should be marked as final. The last payroll tax returns for the business should also be marked as final. This communicates to the IRS that the business is closing and will no longer be filing tax returns.

● Pay taxes owed. Business owners with one or more employees must make federal tax deposits and report employment taxes on the employees’ final wages or compensation.

● Report payments to contract workers. Business owners who pay contractors at least $600 during any given calendar year (including the year in which they go out of business) must report those payments.

● Close EIN business account. After you have filed all necessary returns and paid all taxes owed, send the IRS a letter that includes the complete legal name of the business, the business EIN, the business address, and the reason you wish to close the account. If you still have a copy of the EIN Assignment Notice, you should include a copy with your letter. The IRS business account associated with the EIN will be closed, but the EIN will not be canceled. If you ever need the EIN again in the future, it will still belong to the business entity even after the account is closed.

● Keep business records. Keep all records of employment taxes for at least four years. Records relating to property should be kept until the period of limitations expires for the year in which you dispose of the property. The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.

How to Avoid Fraud and Scams After a Disaster

Criminals and fraudsters often see disasters as an opportunity to take advantage of victims when they are the most vulnerable, as well as the generous taxpayers who want to help with relief efforts. These disaster scams normally start with unsolicited contact. The scammer contacts their possible victim by telephone, social media, email or in-person. Also, taxpayers might search for a charity online and be directed to a website or social media page that is not affiliated with the actual charity.

Donors should not give out personal financial information to anyone who solicits a contribution. This includes things like Social Security numbers or credit card and bank account numbers and passwords.

The Tax Exempt Organization Search (https://www.irs.gov/charit.../tax-exempt-organization-search) helps users find or verify qualified charities. Taxpayers should always contribute by check or credit card to have a record of the tax-deductible donation if they choose to give money.

What Employers Need to Know when Classifying Workers as Employees or Independent Contractors

It is critical for business owners to correctly determine whether the individuals providing services are employees or independent contractors.

Whether a worker is an independent contractor or an employee depends on the relationship between the worker and the business. An employee is generally considered anyone who performs services, if the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker’s services are performed. Independent contractors normally offer their services to the public.

Misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. If a business misclassified an employee without a reasonable basis, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes.

The Voluntary Classification Settlement Program is an optional program that provides businesses with an opportunity to reclassify their workers as employees for future employment tax purposes. This program offers partial relief from federal employment taxes for eligible taxpayers who agree to prospectively treat their workers as employees. Taxpayers must meet certain eligibility requirements and apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.