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In my business, I help others arrange business entities, akin to limited liability corporations or corporations. Usually less attention is paid to the so-called AND-establishing business entities. This is unlucky – knowing the right way and the right time to dissolve your online business can save you a significant amount of money and hassle.
The most significant thing to remember when setting a deadline to dissolve your online business is to take motion before the end of the 12 months. November and December are a good time to say goodbye and start over.
Why it is price dissolving your organization before the end of the 12 months
If you know it’s time to put your online business on the shelf (or incinerate), but you do not start formally dissolving the company until January 1, well, as they say in Texas, you’ve got just shot yourself in the foot, partner.
If this company, regardless of how sick, is still in operation on January 1, you’ll owe the IRS and your state tax authority a tax return for that calendar 12 months. And who has the time and money for additional reports when the matter could simply be resolved before January? Depending on the state you reside in, it’s possible you’ll also experience other headaches:
Minimum business taxes: In some states, if you are still nominally in business by January 1 – even if your organization doesn’t generate one red cent of income for the entire 12 months – you may be charged one type of minimum business tax or one other. For example, assume your California LLC was not dissolved before January 1st. Now you owe the state Franchise Tax Board $800 for the pleasure of not operating this 12 months. Massachusetts insists that each one corporations (including S corps) pay a minimum “annual excise tax” of $456. Nevada calls this the “business license fee” and it is $500 for corporations and $200 for LLCs.
Find out what happens if your state imposes a minimum business tax by visiting your state’s SOS (Secretary of State) website. Look for words like “excise tax,” “business license fee,” and “franchise tax,” and all slang terms mean “we’ll just tax you for existing.”
License or permit renewal fees: If you do not close your online business by December 31, you possibly can be stuck paying for renewed licenses or permits. If you are closing a nursery, plumbing company, food service business or bar, you definitely do not want to pay for a license that covers the period when you are not in business.
Remember that depending on the scope of your online business and its industries, it’s possible you’ll have the opportunity to obtain a license and business permit from multiple levels of presidency. Let’s assume that your C corporation, FlameCorp, has several industries, all of a pyromaniac nature: if you wait until January to put out your online business, it’s possible you’ll owe renewal fees each to the municipal authorities who allow your busker to juggle the blazing fire of clubs for street suggestions, and to the Federal Bureau of Alcohol, Tobacco and Firearms, which grants licenses for the import of fireworks. To avoid getting burned, make sure you know the detailed fees and applicable deadlines imposed by each permitting and licensing authority.
Registered Agent Fees: My company charges a fee of $149 per 12 months to act as your registered agent, receive official documents, legal notices, protect your privacy, etc. Whether you utilize my company or one other company, registered agent contracts routinely renew at the starting 12 months. Don’t pay me for no reason. Instead, be a skilled and dissolve your organization by the end of the 12 months, then immediately notify your registered agent to discontinue services for the coming 12 months.
Fees for annual (or semi-annual) reports.: These fees are not as high as minimum business taxes and license and permit fees; Nevertheless, why would a hardworking entrepreneur such as you throw away money? For example, in California, if your corporation is not dissolved by the last day of the second anniversary month of its incorporation, you face an annual report filing fee of $30 every two years. Had the resolution been timely, that $30 could have gone to the “I Deserve This Latte” fund.
Solution vs. conversion
Maybe now is not the time to throw in the towel, but it is obligatory to restart the formation of existence. I’m often contacted by entrepreneurs who want to transform their existing business entity into a recent sort of entity. For example, a sole proprietor forms a corporation on a whim, but quickly realizes that the tax and reporting structure is a bit too complicated for him and would love to convert his corporation into a single-member LLC. In a few states, this will be completed through a process called “conversion,” whereby the existing entity does not have to be formally dissolved.
Approximately 35 states have “statutory conversion” laws that expressly allow a majority of these conversions. Other states, nonetheless, require you to jump through a few more hoops. Take New York, for example, where S corporation owners must go through a merger process if they need to convert to an LLC entity. First, the owner must form an LLC, a recent entity that stands alone. The LLC will then need to acquire the existing S Corp through a merger, which requires the filing of a Certificate of Merger and all the rest.
To ensure the cleanest transition possible, convert your online business entity before December thirty first. This will simplify your tax returns (who wants to pay an accountant to file each a Schedule C and a Form 1120 for the same company?) and help streamline other compliance activities and administrative issues, akin to the liabilities mentioned earlier in this text.
How to dissolve
Again, your state’s SOS website will walk you thru the details of the business entity dissolution and transition process. Generally, you’ll need to file dissolution paperwork with the state. If your organization is a corporation or LLC with multiple owners, a shareholder or owner voting record might be required. You will need to pay any outstanding taxes and notify the IRS by filing a final tax return for your online business, marked “final return.” You must also cancel your EIN (Employer Identification Number) by contacting the IRS. Your state’s SOS office will provide you with a comprehensive list of steps.
Congratulations on simplifying your life! Closing an underperforming business can release your focus and energy for your next big entrepreneurial adventure. Dissolving your organization before the end of the 12 months will protect your time and wallet.