Whether it makes sense to file a Chapter 7 for a corporation is a nuanced issue.
But whether you decide to file Chapter 7 for the corporation or just shut the business down without bankruptcy, there’s some mop up to do.
Miss these wind up issues and the corporate officers will not sing your praises.
Too often, a failing corporation lets its employees goes or stops paying the owner-employee, but fails to file a final payroll tax return.
Until they know the business has no payroll, the IRS assumes that the corporation continues to operate just as shown in the last filed payroll tax return.
It comes to the individual’s attention when the IRS assesses taxes for the quarters since the last tax return.
It gets worse. The taxing authorities may assess the taxes on the payroll that never happened against the shareholders.
The clean up is simple: file a payroll tax return, checking the box “final return”.
When the corporate shut down occurs mid year, it’s easy to forget that the corporate officers are personally liable for seeing that employees get timely w-2’s the following calendar year.
Part of the wind up of any business, corporate or proprietorship, should include making provision for preparing and distributing w-2’s to employees. Even if they aren’t distributed til the next year, management should get the necessary information to the tax preparer and pay for the professional’s work.
Pinning down losses
Dollars to doughnuts, the individual sitting across the desk from you discussing a failed business has lost money in the effort. The pain of failure may be lessened if the owner gets some tax write offs as a result. I know only enough about taxes to suggest that the entrepreneur gather up the business documents to support any available tax deductions while the records are at hand.
No matter how bad the books are when you meet, chances are that they will not improve when the business closes. Worse, the papers may be scattered or destroyed.
Prompt the individuals to get tax advice on the issue, so that they can squeeze a small glass of lemonade from the lemons at hand.
Image courtesy of Jos Dielis