Business Structures
When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.
For additional information, refer to Small Business Administration’s Choose A Structure webpage.
Closing a Business
There are t
ypical actions that are taken when closing a business. You must file an annual return for the year you go out of business. If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes. Also attach a statement to your return showing the name of the person keeping the payroll records and the address where those records will be kept.
The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return. If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.
You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business. If you do not have a pre-printed envelope in which to send your taxes, refer to the Where To File page for a list of addresses. Below is a list of typical actions to take when closing a business, depending on your type of business structure:
Checklist
- Make final federal tax deposits
- Electronic Federal Tax Paying System (EFTPS)
OR - Form 8109-B
- Electronic Federal Tax Paying System (EFTPS)
- File final quarterly or annual employment tax form.
- Issue final wage and withholding information to employees
- Report information from W-2s issued.
- File final tip income and allocated tips information return.
- Report capital gains or losses.
- Report partner’s/shareholder’s shares.
- File final employee pension/benefit plan.
- Issue payment information to sub-contractors.
- Report information from 1099s issued.
- Report corporate dissolution or liquidation.
- Consider allowing S corporation election to terminate.
- Form 1120S, Instructions (PDF)
- Report business asset sales.
- Report the sale or exchange of property used in your trade or business.
Produce big manufacturing deductions
The so-called “manufacturing deduction” isn’t just limited to companies that manufacture products in the traditional sense of the word. It’s available to a wider range of business operations than you might think.
What’s more, the maximum deduction is increasing to 9% of qualified production activity income (QPAI) in 2010. If your company is in the top 34% tax bracket, this effectively amounts to a 3.15% tax cut.
Here’s some background information. Under Section 199 of the tax code, a qualified domestic producer can currently deduct 6% of the lesser of its QPAI or its taxable income. The maximum deduction was initially doubled from 3% after 2006.
Production activities must be performed in whole, or in significant part, on U.S. soil. The annual deduction is limited to 50% of the W-2 wages.
Obviously, the deduction is fair game for traditional manufacturers of goods, but it also applies to farmers, fishermen, miners and a variety of businesses in the construction field. In fact, IRS regulations single out construction activities for special treatment. For instance, a qualified company doesn’t actually have to construct buildings. The deduction may be extended to certain taxpayers in the business of painting, drywalling and landscaping.
Similarly, the deduction is generally available to engineers and architects. As long as the services are related to construction, the costs qualify for the deduction, even if no actual construction takes place. The deduction may also be claimed by businesses conducting feasibility and environmental impact studies.
Depending on your situation, you may want to modify your business operation to qualify for the increased deduction in 2010. Don’t make any snap judgments if your business operation appears to fall outside the scope of a traditional manufacturing activity. We can make a definitive assessment of your situation. Please do not hesitate to call us and schedule a meeting for this purpose.
