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I ended my self employment last year. How do I tell the IRS?

 
5 Replies

I ended my self employment last year. How do I tell the IRS?

If you are not incorporated  then just  stop making quarterly estimates  and  stop filing a Sch C with your return. 

 

In the program interview for the Sch C   simply indicate the business was closed and then retire the assets if you have any.  They were either sold, scrapped or converted to personal use ... follow the interview screens. 

 

 

 

Carl
Level 15

I ended my self employment last year. How do I tell the IRS?

Assuming it was a single member LLC reported on SCH C as a part of your personal 1040 tax return, it may not be as simple as "not filing a SCH C". Expecially if the business has/had any depreciable assets or inventory.

If the business has assets, work through each individual asset one at a time and indicate that you "stopped using this asset in 2020" and then work through the screens to show your disposition of that asset. Either it was sold, lost, stolen, scrapped, removed for personal use, or whatever other reason may apply.

If the business has inventory on the last day, then that inventory needs to be disposed of somehow if you did not sell it. Typically, I see it reported as "removed for personal use" which is fine.

If the business claimed "any" business vehicle use, then you must show the disposition of the vehicle. Even if that vehicle was less tha 100% business use. I most commonly see vehicles with less than 100% business use reported as "removed for personal use".

 

I ended my self employment last year. How do I tell the IRS?

I ended my self employment last year. How do I tell the IRS?

Do I need to send any forms or a letter to the IRS to notify them I am going out of business?

Carl
Level 15

I ended my self employment last year. How do I tell the IRS?

At the beginning of the business section one of the screens has a selection on it for "I sold or otherwise disposed of this business in [tax year]. You must select that option and press on "as if" you still own the business.

WHen you get to the business summary screen, you have to work through income and expenses, even if those amounts are all zeros.

Next, you must work through the Business Assets section, and if any assets are listed there you must show your disposition of each and every asset one at a time. Start working through the first asset and on the screen that ask, indicate that YES you DID STOP USING this asset in [tax year]. Then continue working the asset through to report it's disposition - be it sold, removed for personal use, given away, stolen, destroyed, whatever.

Note that you must show your disposition for each and every asset listed, individually.

After you're finished with all the assets, if your business claimed ANY vehicle use at ANY time you were in business, then you will need to work through the business vehicle section to show the disposition of the vehicle - even if that vehicle was a personal vehicle not used 100% for the business. Most likely, your disposition of the vehicle would be "removed for personal use", because while not unheard of, it's rare that the sale of a business reported on SCH C would include the vehicle in that sale too.

Finally, if your business carry's inventory and you still have unsold inventory, then you must make your EOY inventory balance $0. To do that, on the COGS screen simply indicate that all remaining inventory was “removed from the business for personal use” and this will make your EOY Inventory balance $0.

Once you've completed all the above, just work it through to the end, and this will be the last year you file a SCH C for this specific business that you no longer have.

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