Are you wondering how to shut down an S corp? The process of closing an S corp requires a few important steps and can be time consuming. In this article, we’ll provide a comprehensive overview of the process for shutting down an S corp.

How to Shut Down an S Corp?

In order to shut down an S corp, you must first file Form 966, Corporate Dissolution or Liquidation, if you adopt a resolution or plan to dissolve the corporation or liquidate any of its stock. You must then submit a certificate of termination to the appropriate state agency. Before you do this, you must make sure to settle outstanding tax and state income obligations, along with any other employee benefits.

In most states, you will then need to file Articles of Dissolution to officially dissolve your S corporation; however, some states call this paperwork by a different name. To shut down your S corporation legally, you will need to file Articles of Dissolution with the secretary of state in the state where you formed the entity you used for your business.

If you dispose of business property when you close the S-corporation, you must report the disposal to the IRS on Form 4797. This form should then be attached to your final 1120-S tax return.

Depending on the structure of the S-corp, other procedures may be required. These may include that co-owners or shareholders schedule a meeting, pass a resolution and vote to dissolve the company. These events must be documented in writing.

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What will be the financial implications for taxes when an S corporation is dissolved?

When a S Corporation is dissolving, the company must file Schedule K-1 (Form 1065) and give a separate version of the form to each shareholder. Even though S Corporations are pass-through entities and tax is not usually owed on the company level, shareholders still need to pay taxes on the profits they receive from the company.

How simple is it to shut down an S Corp?

Typically, a majority vote of the shareholders would be necessary to dissolve an S-Corp. Depending on the state, this could be a simple majority or something more, such as a supermajority or two-thirds majority.

Should I terminate my EIN if I shut down my business?

If you are done making payments to the IRS, submit a request to have your company’s EIN account closed. Even though this will end your tax obligations, your business will still own the number and it will not be assigned to another organization.

What is the initial action required to dissolve a corporation?

The first step to ending the corporation is to get shareholders to agree to formally close it. The board of directors should pass a resolution to dissolve the business and get approval for the decision.