Helping people across all Industries Achieve Their Tax Goals 

TAX TIPS:

The tax responsibilities that come with shutting down a business

IRS Tax Tip 2021-153, October 18, 2021

There are many reasons a business owner may choose to close their doors, and there are many things that must be done to go out of business. Two important steps all business owners must take are fulfilling their federal tax responsibilities and informing the IRS of their plans. The closing a business page of IRS.gov is designed to help owners navigate the process of shutting down.

Small businesses and self-employed taxpayers will find a variety of information on the page including:

  • What forms to file

  • How to report revenue received in the final year of business

  • How to report expenses incurred before closure

The page also details steps all business owners should take when closing a business.

  • File a final tax return and related forms. The type of return to file and related forms depends on the type of business.
     

  • Take care of employees. Business owners with one or more employees must pay any final wages or compensation, make final federal tax deposits and report employment taxes.
     

  • Pay taxes owed. Even if the business closes now, tax payments may be due next filing season.
     

  • Report payments to contract workers. Businesses that pay contractors at least $600 for services including parts and materials during the calendar year in which they go out of business, must report those payments.
     

  • Cancel EIN and close IRS business account. Business owners should notify the IRS so they can close the IRS business account.
     

  • Keep business records. How long a business needs to keep records depends on what's recorded in each document.

Millions of people will get their Economic Impact Payment by prepaid debit card

COVID Tax Tip 

Nearly four million people are being sent their Economic Impact Payment by prepaid debit card, instead of paper check. The determination of which taxpayers receive a debit card was made by the Bureau of the Fiscal Service, another part of the Treasury Department that works with the IRS to handle distribution of the payments.

These Economic Impact Payment Cards arrive in a plain envelope from Money Network Cardholder Services. The Visa name will appear on the front of the card; the back of the card has the name of the issuing bank, MetaBank®, N.A. Information included with the card will explain that the card is an Economic Impact Payment Card.

Those who receive Economic Impact Payment by prepaid debit card can do the following without any fees.

  • Make purchases online and at any retail location where Visa is accepted

  • Get cash from in-network ATMs

  • Transfer funds to their personal bank account

  • Check their card balance online, by mobile app, or by phone

This free, prepaid card also provides consumer protections available to traditional bank account owners, including protection against fraud, loss, and other errors.

The card will come with instructions on how to activate and use it. Learn more at www.eipcard.com.

More information:

Employers can grant paid leave for COVID-19

COVID Tax Tip 

Under the Families First Coronavirus Response Act, employers can grant paid leave for an employee to take care of their health needs related to COVID -19 or to care for their family members. This relief helps ensure employees are not forced to choose between being paid or staying home to care for themselves, a child or other family member.

In addition to the relief for employees, businesses can claim two new refundable payroll tax credits for granting paid leave to their employees. The paid sick leave credit and paid family leave credit are available for eligible employers who pay qualified sick leave wages and/or qualified family leave wages from April 1, 2020 through December 31, 2020, and who have fewer than 500 employees.

The paid sick leave credit and the paid family leave credit will immediately and fully reimburse employers for the cost of providing COVID-19 related leave to their employees.

Here is what employees need to know about paid leave under the CARES Act.

Paid sick leave for workers

An employer can allow a full-time employee up to 80 hours of paid sick leave. A part-time employee may be allowed paid sick leave for the number of hours the employee works over a two-week period, if the employee is unable to work or telework because they are:

  • Subject to federal, state, or local quarantine or isolation orders related to COVID-19

  • Advised by a health care provider to self-quarantine due to COVID-19

  • Experiencing COVID-19 symptoms and are seeking a medical diagnosis

  • Caring for a person subject to federal, state, or local quarantine orders related to COVID-19 or has been advised to self-quarantine

  • Caring for a child whose school or place of care is closed or care provider is unavailable for reasons related to COVID-19

  • Experiencing any other substantially similar condition

Employers pay the benefits at 100% of employee's regular pay up to $511 per day and $5,110 in total for the care of employee's own health.

For the care of an employee's family members, employers pay benefits at two-thirds of the employee's regular pay up to $200 per day and $2,000 total.

Small business advertising and marketing costs may be tax deductible

IRS Tax Tip 

The tax law allows businesses to deduct expenses that help them bring in new customers and keep existing ones. These costs may include expenses for advertising and marketing. Here are some details about this valuable tax deduction that can help small businesses save money on their taxes.

Advertising and marketing costs must be ordinary and necessary to be tax deductible.

  • An ordinary expense is one that is common and accepted in the industry.

  • A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary.

Here are a few advertising expenses that are usually deductible:

  • Reasonable advertising expenses that are directly related to the business activities.

  • An expense for the cost of institutional or goodwill advertising to keep the business name before the public if it relates to a reasonable expectation to gain business in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross or to participate in similar causes is usually deductible.

  • The cost of providing meals, entertainment, or recreational facilities to the public as a means of advertising or promoting goodwill in the community.

Generally, small businesses can't deduct amounts they pay to influence legislation, which includes advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate.

More information:

Here are some facts about backup withholding.

Backup withholding is required on certain non-payroll amounts when certain conditions apply.

The payer making such payments to the payees does not generally withhold taxes, and the payees report and pay taxes on this income when they file their federal tax returns. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income.

Backup withholding is set at a specific percentage.

The current percentage is 24 percent.

Payments subject to backup withholding include:

  • Agriculture payments

  • Attorneys fees and gross proceeds paid to attorneys

  • Barter exchanges

  • Commissions, fees or other payments for work done as an independent contractor

  • Dividends

  • Gambling winnings, if not subject to gambling withholding

  • Interest payments

  • Original issue discount

  • Patronage dividends, but only if at least half the payment is in money

  • Payment card and third-party network transactions

  • Payments by brokers

  • Payments by fishing boat operators, but only the part that is paid in actual money and that represents a share of the proceeds of the catch

  • Rents, profits or other gains

  • Royalty payments

  • Taxable grants

  • ask your financial advisor for more info

Ready to Kickstart Your TAX YEAR?