How to Dissolve a Home Business on Your Taxes

File normal tax returns.

A home business is often established as a sole proprietorship where the business owner establishes a state or county "doing business as" designation but does not formally open a new entity. For tax purposes, the sole proprietorship is no different from the individual owner filing a tax return with the owner's Social Security Number used as the business entity as well. This makes closing the business for tax purposes quite easy for the home-based sole proprietor.

Instructions

1. Call state and county tax recorder's offices. Each state and county has different business tax licensing rules and regulations. Obtain instructions for proper notification that there will no longer be business activities from your home business.

2. Review at the final year's income to determine if a complete Schedule C must be filed to account for personal business income. If the business grossed less than $5,000 for the year before closure, Schedule C-EZ is sufficient.

3. Complete Form 1040 when filing your personal tax return as you normally would. Transfer the net income from Schedule C or C-EZ to line 12 on Form 1040.

4. File Form 940 for any final salary and wages paid to employees prior to closing the business. This is the same as you would have done if you remained in business.

5. Continue to file annual tax returns in subsequent years without concern over completing a Schedule C or Form 940. There is no official closure of a sole proprietorship since you can't close your Social Security Number. If you decide to re-open the business, start filing these forms with your tax returns once again.

References

• Nolo Law for All: Closing Your Business
• IRS.gov: Form 1040
• IRS.gov: Schedule C-EZ
• IRS.gov: Form 940