Although most business owners open their doors with high hopes for financial success, many small businesses fail within the first several years. If you close your business, however, it doesn't end your tax obligation to the Internal Revenue Service, or IRS; you must file tax paperwork for your business, send W2s to your employees and pay all tax due. You can deduct many of the same expenses you deducted while your business was open the year you close it.
You can deduct any expenses that you incurred during the year when you pay taxes for the year you close your business. For example, if you pay rent on your office, you can still deduct any rent you paid on it the year you closed your business when you do your final taxes for the business. Expenses such as rent, telephone service and Internet access for your business are deductible as well.
If you paid for meals or lodging for yourself or your employees while traveling for business purposes, you can deduct these as miscellaneous expenses. You can also deduct bad business debts, such as loans, due to your business that the debtor failed to pay back. Miscellaneous expenses are subject to the two percent rule; you can only deduct expenses that exceed two percent of your adjusted gross income.
Net Operating Loss
You can deduct your net operating loss for the year that you close your business. Net operating losses, or NOLs, are the portion of expenses that outweigh the revenue your business made for the year. At the time of publication, you must follow a fairly complex series of calculations to carry back part of your NOL and carry forward the rest.
When you close your business, you must tie up loose ends with the IRS. Even if you deduct all the expenses you are eligible for, you may still have to pay taxes on the business, and meeting all IRS requirements may be overwhelming or confusing. Because of this, you should consult a tax professional when closing your business to maximize your deductions and ensure that you file all the needed paperwork.