How to Close a Single-Member LLC With the IRS Properly

Closing a single-member LLC with the IRS requires precision to ensure compliance with federal regulations and avoid future complications. Whether due to personal reasons, business evolution, or strategic changes, properly managing this process helps prevent unforeseen issues.

Confirming No Pending Financial Obligations

Before closing a single-member LLC, settle all financial obligations. Review the balance sheet for outstanding debts, liabilities, or pending payments, including loans and credit lines. Address contractual obligations such as lease agreements or service contracts to avoid penalties or fees. Consulting legal counsel can clarify these matters.

Ensure state and local taxes, such as sales and property taxes, are paid. Federal tax obligations, including income tax, self-employment tax, and payroll taxes (if applicable), must also be settled to avoid penalties or interest.

Filing Final Federal Tax Returns

Filing the final federal tax returns requires accurate timing and documentation. The return must reflect all income and expenses for the year the LLC ceases operations. For example, if the closure occurs in 2024, the return should cover activity up to the closure date within that tax year.

A single-member LLC, typically treated as a disregarded entity for tax purposes, reports income and expenses on Schedule C of the owner’s Form 1040. Mark the “final return” box on Schedule C to indicate the business closure.

If the LLC had employees, file Form 941 for the final quarter and Form 940 for Federal Unemployment Taxes if applicable. Report gains or losses from the sale of business assets using Form 4797.

Ceasing Any Employer Responsibilities

Address all employer responsibilities before closing. Pay final wages, salaries, and accrued benefits to employees. Provide final pay stubs detailing payments, including tax and benefit deductions.

Submit final employment tax returns, such as Form W-2 to employees and the Social Security Administration, by the required deadlines. For example, Form W-2 is due by January 31 of the following year. Address any outstanding unemployment insurance obligations, which vary by state.

Cancel the Employer Identification Number (EIN) once all tax returns are filed by notifying the IRS in writing. Properly terminate employee benefit plans like retirement or health insurance and notify plan administrators as required under the Employee Retirement Income Security Act (ERISA).

Informing the IRS of Business Closure

Notifying the IRS of the LLC’s closure ensures accurate records. Include a written statement with the final tax return indicating the closure date and reasons for dissolving the LLC.

If the EIN was used for filings beyond income tax, such as excise or employment taxes, request its cancellation through a letter to the IRS. This prevents unnecessary administrative burdens.

Completing Required Dissolution Filings

After addressing federal obligations, complete state-level dissolution filings. Each state has specific procedures, often beginning with filing Articles of Dissolution with the Secretary of State or equivalent agency. These filings typically require the LLC’s name, formation date, and effective dissolution date. Some states may also require a certificate of good standing to confirm no outstanding state tax obligations.

If the LLC operated in other states, submit withdrawal filings in those jurisdictions to terminate its authority to do business there. Neglecting this step could result in fees or compliance notices.

Retaining Financial and Tax Records

Retaining financial and tax records after dissolution is essential to protect against audits or disputes. Tax authorities can audit returns for up to three years, or longer in cases of suspected fraud or significant underreporting.

Keep records such as tax returns, payroll documentation, and asset sales agreements. If business assets were sold, retain sales agreements and depreciation schedules. Preserve bank statements, canceled checks, and credit card statements to substantiate expenses claimed on tax returns.

Maintain copies of dissolution paperwork and correspondence with the IRS or other tax authorities. These documents serve as proof of the LLC’s proper closure. Digital storage solutions, such as encrypted cloud services, can provide secure and organized access to these records.