What should I do about tax debt from a closed business?
Closing a business does not end its taxes. You must file final returns and payroll forms. Unpaid payroll taxes can become your personal debt through the Trust Fund Recovery Penalty.
File a final return for the year you close and check the final return box. If you had workers, pay final wages, make final deposits, and file Form 941 or 944.
If you don't withhold or deposit worker taxes, the Trust Fund Recovery Penalty may apply to the people in charge.
Out of business entities with any type of tax debt may use the $25,000 direct debit path to ask for lien withdrawal.
Key facts
- Final returns for each tax type
- Unpaid payroll deposits and quarters
- Who decided which bills got paid
- Any IRS letter proposing the penalty (60 days to appeal)
- Liens on business or personal property
Options that may help
Income tax and payroll forms for the last period.
You have 60 days from the IRS letter to appeal.
Business owners can call 800-829-4933 or the number on the notice.
Results depend on your situation. Not every case qualifies.
Common questions
Can the IRS take my personal property for business payroll tax?
Once the penalty is charged to you, yes. It can file a lien or levy your personal assets.
Source: IRS: Employment taxes and the Trust Fund Recovery Penalty
Do I need Schedule SE?
If you had net earnings of $400 or more from self employment, yes.
Source: IRS: Closing a business
Sources
General information, not tax or legal advice. You can contact the IRS yourself for free at irs.gov.