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Question about closing 2 businesses and filing their taxes

Hello everyone,

 

I need some help with filing taxes for this 2020 year. I have 2 businesses which I plan to dissolve this year. Business 1 is a partnership LLC based in Arizona and the second business is a sole member LLC based in Arizona as well. 

 

The 1st business opened in 2018, but due to COVID, my partner and I want to dissolve it down.

I formed the 2nd business in May of this year (2020), however have found it not effective to use it. This single member LLC has only net $800 of revenue in 2020.

 

I am curious about how I should go about filing dissolutions/filing final year tax return since 2020 forms are not available yet. Should I wait to dissolve these businesses until Dec 31, 2020 and the file, and if so what Turbo Tax tool should I use. Because both of these are pass through entities, I'd need to file my personal returns as well.

 

Can someone help? Thanks!

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2 Replies
Anonymous
Not applicable

Question about closing 2 businesses and filing their taxes

there are at least 2 issues with dissolving a LLC.  one is the legal issue of what actions must be taken under state law to dissolve it. this may involve filing dissolution papers and paying whatever filing fees (or whatever term the state uses)  there are.  in many cases I've known taxpayers to do nothing in this regard including not paying any future franchise taxes or fees.  then usually under state law after a period of years of not paying these fees the LLC is automatically dissolved.  thus I can not say what would happen if an action was filed against one of the LLC's that was not yet legally dissolved. you may want to consult a lawyer or pay whatever costs are involved with filing the dissolution papers.  I can't even say that there is a need to file such papers because the laws regarding LLC dissolution vary by state.

 

as to the final tax return for the single-member LLC since the activity is reported directly on your tax return, at least for federal purposes, you would include the final 2020 activity, if any, on your 2020 1040.  since you didn't provide the state, I can't say if there would be a final 2020 tax return for the LLC for state purposes besides the activity that would flow from your federal to state 1040. 

 

as to the final tax return for the LLC/partnership, if you want to do the filing now rather than later you would use the 2019 forms and use a date 1/1 through the date you closed it down.  note that if it's closed in August the federal return is due by 11/15/2020 (15th day of the third month following termination). you do not get until 3/15/2021 to file. since you already have the 2019 software you'll save the cost of the 2020 software if you were to wait until year-end 2020 to close it. if there is a state return required you'll need to check its due date.  don't forget to file.  the federal penalties for your partnership are about $400 for each month or fraction thereof that it is late 

this is what the IRS says constitutes termination:

A partnership terminates when one of the following events takes place.
1) All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership.
2) At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner.

 

the k-1 info would go on your 2020 1040 returns. 

 

Question about closing 2 businesses and filing their taxes

Just to clarify for others that may read this, a partnership (or an LLC taxed as a partnership) terminates only under option 1 in @Anonymous response.

The second method reflected known as a technical termination was repealed for tax years after December 31, 2017.

 

*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
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