Pay Your Taxes and Debts

First and most importantly, if you have employees, make your final payroll tax deposits and file all of your final employment tax paperwork on time. Also, the federal and state employment tax authorities need to know you're going out of business -- the federal unemployment tax return (IRS Form 940) and the employer's federal tax return (IRS Form 941) have a box you can check indicating you will not be filing future returns, and your state withholding and wage reporting return should have one as well.

If you will be selling off some business assets to recoup some of your investment, you'll need to file Form 4797, Sales of Business Property. (See IRS Publication 544, Sales and Other Dispositions of Assets for more information.) If you're selling all of your business assets as a group, you may need to file IRS Form 8594, Asset Acquisition Statement instead.

As for income taxes, during tax time you will need to file a final tax return with the IRS and probably with your state tax agency as well. For partnerships, corporations, and LLCs, the federal return has a box you can check indicating that it's your final return. Sole proprietors just stop filing Schedules C and SE with their Form 1040.

If your business collected sales taxes, be sure to submit the final forms and funds that are due up to the closeout date to the state office that collects your sales tax.

Before your last day in business, if you have employees, make plans to pay them their last paychecks. Most states require employers to give employees their final paychecks on their last day of work or within a few days. Also, some states require businesses to pay out accrued, unused vacation days at the same time.

Apart from taxes, you may have run-of-the-mill business debts -- money owed to your landlord, bank, suppliers, utilities, and service providers. Notify these creditors of your upcoming closure and make plans to pay in full, or settle, all of these business debts. (See "Notify Your Creditors, Employees, and Customers," just below, for more information.) If you have paid off a particular creditor, ask for a letter indicating that your bills are paid in full.

Invariably, after you close up shop, a creditor will come out of the woodwork. If you have assets left, or cash left from selling the assets, you should set aside some money for potential claims and make sure that people who might need to get in touch with you have your contact information, so issues can be resolved efficiently, without damaging your business reputation.

Notify Your Creditors, Employees, and Customers

Generally, you will need to notify the following people of your impending closure.

Suppliers. Suppliers will want to know when the last delivery should be made, what goods you're returning (if that's part of your contract), and where and how they'll get paid for goods they've supplied. However, if you're not ready to stop buying, you may want to keep your impending closure quiet for a while. Some suppliers, when they find out your business is about to close its doors, may pull your credit line and require that all orders be paid for in cash.

Service providers. These providers, such as utilities, business insurers, and payroll preparers, will want to know the final day you'll require services and where to send the final bill. If you have any deposits down, find out how to get them back. When you notify your business insurer that you are going out of business, the insurer will want to know about any potential liabilities that might crop up after the business is shut down. Be honest; you risk losing coverage if you don't disclose any pending legal threats or problems.