Dissolved LLC taxed as S Corp in 2024. Now T Tax wants me to choose option for dissolution that is not correct.

[emh_SpencerTop]

I dissolved LLC taxed as S Corp in 2024.  It was simple business, just me as consultant.   I was employee of my company, paid out most earnings as wages. The only asset was $51 remaining depreciation on a computer.  I just closed down with a sale. The $51 remaining depreciation was written off.  I just closed down without a sale. 

Filling out my Schedule K-1 on my personal taxes Easy Step gave me four options to “Describe S corporation Disposal”. 

     1. Sold it outright (complete dissolution)

     2. Sold it, receiving payments

     3. Disposed of it, but not by selling

     4. None of the above.  

I checked option 4.  

However, running Smart Check near completion T Tax now says I must check one of the top 3 choices.  Option #4 no longer exists when I look at the forms.  Closing down without checking #1, #2 or #3 is not allowed. 

 Option #3 seems like it might be a good choice, but the online help for #3 says “ Other disposition include: Gifted interest, transferred interest without a sale or sold to a related party.”  None of those apply to me.  

“None of the above” seems perfect in my situation bc nothing was sold, there are no assets to sell.  

If “None of the above” is not a valid choice in T Tax, should I just choose option #1, “Sold it outright” for $1, then mark sales expenses as $1?  This way, there is not gain or loss, but  T Tax shows my S Corp stock basis is $1,064.  That is incorrect, but not worth the trouble trying to fix mistakes of past bookkeepers. It’s actually near zero.  I shouldn’t owe taxes on the mythical $1,064.  Will T Tax & IRS will try to tax me a second time for this non-existent distribution of $1,064.  

Thank you, 

Eric

[ThomasM125]

You can do as you suggest. If you paid the remaining capital account balance it wouldn't be taxable since it would likely just be a return of your original investment.

[emh_SpencerTop]

Thank you, Thomas. After reconsidering my post, what do you think about choosing option #3, "Disposed of it, but not by selling," rather than falsely stating that it was sold for $1. Option #3 is accurate.  Could TurboTax online help be causing my confusing because it doesn’t include simply shutting down the business among the list of reasons to check that option?  I searched IRS.gov for any language that restricts the use of option #3 for shutting down a business but did not find any relevant information.

Additional info: I sent a letter of dissolution to the IRS last month asking them to cancel my EIN.  As long as they've still got staff opening the mail that should tell them my business is no longer operating.  

Again, thank you for your time,

Eric

[ThomasM125 · Accepted solution]

Yes, disposing of it but not by selling would seem to be the more accurate response. Another thing to keep in mind is the answers to those questions will not be listed on your return, they are just to allow TurboTax to better process your entries.