Closing a sole proprietorship business is a straightforward process. However, it’s important to understand the steps involved to ensure you comply with legal requirements and avoid complications. In this article, we’ll explain how to close a sole proprietorship business and what you need to do to tie up loose ends.

How Do I Close My Sole Proprietor Business?

To close a sole proprietorship, you must take care of the following steps:

  • File a Final Return and Related Forms – you must file a final tax return, as well as any other tax forms required by your state or local authorities.
  • Take Care of Your Employees – if you have any employees, you must notify them about the closing of the business and make sure all final wages and other payments are made.
  • Pay the Tax You Owe – make sure all taxes owed to the local, state, and federal authorities are paid in full.
  • Decide to Close – for a sole proprietorship, the business owner can decide to close the business on their own. However, if you have a partnership, all co-owners must agree to the decision.
  • File Dissolution Documents – you must file dissolution documents with the Secretary of State in the state where the business is registered.
  • Cancel Licenses and Permits – if your business has any licenses or permits, you must cancel them and provide proof of cancellation.
  • Notify the IRS – you must send the IRS a letter that includes the business’s complete legal name, EIN, and the date of closure.

Closing a sole proprietorship is fairly straightforward; there are few official requirements. The business owner simply needs to cease operations and take care of the loose ends. However, it’s important to make sure all legal requirements are met and all taxes are paid in full.

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How simple is it to shut down a sole proprietorship?

A sole proprietor must submit a letter to the Internal Revenue Service (IRS) that includes the full legal name of their business, the employer identification number (EIN), the business address, and the rationale for wanting to terminate their account.

Do you need to inform the IRS when you shut down a business?

You must submit Form 1065, U.S. Return of Partnership Income, when you close your business in the year. When you do, you should include all capital gains and losses on Schedule D (Form 1065). Additionally, mark the “final return” box, which can be found near the top of the front page, beneath the name and address.

How difficult is it to shut down a one-person business?

It is relatively easy to terminate the operations of a sole proprietorship or partnership since the business owners have legal responsibility and accountability for all business choices, matters related to law, and financial obligations.

Should I get rid of my EIN if I shut down my business?

Once you have completed all of your tax obligations, submit a request to the IRS to terminate your company’s EIN account. This will end the tax-related responsibilities associated with the number, but the number will remain assigned to your company and cannot be transferred to another business.