hello in this lecture we're gonna talk
about S corporation and how to close one
at the end of this we will be able to
explain some requirements for closing
and S corporation including some of the
bookkeeping involved from the IRS
documentation and some states
documentation as I always want to make
sure that we seek advice from a
professional if you're looking to close
up the S corporation this is not meant
to be a comprehensive list every S
corporation clause will be different and
individual in in of itself this is just
to give some ideas of the areas that
need to be taken a look at and some of
the different areas to research into as
you go through kind of that closing
process to make sure that they have been
all been touched on everything that
needs to be looked at so what steps need
to happen to close out the S corporation
so we're gonna talk about some of the
bookkeeping out you know how are we
gonna close out the books how we're
gonna actually do the debits and credits
or what's the process that needs to
happen when we think about the
bookkeeping IRS documentation what's
going to be due to the IRS in order to
make sure that we get everything in and
completed and closed up and then we have
the state documentation so you'll recall
that we basically incorporated in a
particular state at the Secretary of
State generally so then we're gonna have
some documentation with the secretary of
state your state could have a Franchise
Tax Board basically a separate entity
dealing with the tax requirements from
the state or the reporting requirements
at least from the flow-through
entity of the S corporation and then you
probably have payroll taxes you're gonna
have to deal with at the state side as
well in California at the Employment
Development Department you want to make
sure that you close up all the payroll
information as well
what bookkeeping needs to happen so
we're not going to go through basically
the process the debits and credits of
closing out the books I just want to get
some general instruction or some general
idea you want to think about as you're
thinking about closing up any type of
organization and that is the processes
generally to sell the assets first and
then pay off the liabilities and then
distribute to the owners you want to
keep that in mind as you go through if
you do that in reverse order if you
start distributing to the owners before
you sell the assets and pay off the
liabilities you could end up in a
situation where you did not get as much
for the assets as we had originally
thought and that could cause problem
in the closing process so we won't get
into the debits and credits here or the
technicalities on you know closing out
and who should get what that's gonna be
something you'll negotiate in and of
yourselves but just realize that the
general idea of the closing process is
to hopefully to sell the assets first
get all the cash then pay off all the
debt then you got the cash and you can
just and you can distribute that'll be
the cleanest way usually when you go
through that process what needs to be to
be provided to the IRS so we just want
to take a look at some of the
documentation for the IRS now of course
we file with the IRS if we're an
s-corporation 1120s
so we're gonna need a final 1120s we'll
take a quick look at that
1120 s in a second and we're going to
need the final k1 form so the k1 forms
are what is used in order to report the
income flowing through the 11 20s to the
individual shareholders so that k1 is
kind of like the w2 that the
shareholders get and they then report
the income that flowed through the
corporation using the 11 20s to their
individual 1040 s so we need to make
sure that we get that final one done in
the final year of operation final
quarterly and annually employment tax
forms so even if you're a single member
like S corporation with only one owner
you probably have payroll taxes because
you're supposed to pay yourself a
reasonable salary so most S corporations
are gonna have some kind of payroll
taxes even if it's just to themselves
want to make sure that you close
everything out whether it be quarterly
whether it be whether you're doing
quarterly forms monthly forms that 941
is a typical form for filing as well as
the 940 which would be the year in
documentation want to make sure you get
those 2 out and you want to make sure
you do the final w2 and the w3 get all
the payroll reported out that you don't
want to mess up on the payroll that
cadet caused a lot of problems final
retirement plan reporting that's a form
5500 that's something if you have a
retirement plan in which you have to
file your report something like a 401k
plan if you do not have that but of
course this is not a requirement but if
you have a retirement plan another thing
that you just want to make sure that you
close out properly or else
it could cause problems down those down
the road report corporation disillusion
or liquidation so we'll take a look at
form nine six six for the IRS and you
can see a comprehensive list of this if
you go to the IRS website here irs.gov
or more specifically here's the URL that
will take you to the checklist remember
that's the checklist for the IRS and
then you kind of got to deal with
whatever state you're in you want to go
to the state and make sure you're taking
a look at both entities and doing
everything you need to do to close that
you close everything up properly so they
don't have to worry about it later on
here's of course the 1120 has nothing
different about this we're just looking
at page one of the eleven 20s this is
where we report the corporate income
this is the flow through tax return it
gets reported on the eleven 20s then
flows through with the k1 the change
here being we could we can indicate of
course that it's a final return on the
final return of the eleven 20s then we
have the K once remember the k1 reports
the income from the corporation on Form
k1 and then the N K ones are distributed
to the shareholders and again we could
report on the k1 that's the final k1
because it's the last one that you will
be receiving and so we want to indicate
that here's the corporate disillusion or
liquidation form nine six six here and
you can take a look at the IRS website
and look this up and see the
instructions for this form again irs.gov
gov is the website for the IRS website
and you just search for the form nine
six six and look at the instructions
related here what needs to be provided
to the state then so remember we got we
incorporated in the state in the
Secretary of State generally is where we
incorporated and then we went to the IRS
and make sure that we were an S
corporation by filing to be treated as a
S corporation so if we when we close out
we got to deal with the IRS side and we
got to deal with the state side so the
states may differ from state to state
obviously so different states could have
slightly different requirements with the
main thing you want to do is just make
sure that you're touching on both of
these sides you want to make sure that
you're closing out the IRS and doing the
final documentation file return there
don't forget to do make sure that your
whole isn't out with the state you're at
- and make sure all the documentation is
done there as well
could include the final state tax
returns so depending on the state you're
in you could have the final state tax
return Franchise Tax Board is where we
have that in California
remember we generally in incorporate
with the Secretary of State so the
secretary in the state and the Franchise
Tax Board often work together in that
Franchise Tax Board does some of the
processing of the paperwork and whatnot
for the Secretary of State so you want
to make sure that you get that final tax
return in and you want to make sure that
you pay any type of fees allocated to
the S corporation so although the u.s.
corporation is a flow-through entity
some states will charge some type of fee
in order to allow for the S corporation
to be processed there and for example
California has an $800 fee and if you do
not do the paperwork to close everything
up meaning you don't have all that all
the prior fees paid up and you do not
have the final tax return reported then
it's very likely that it will not be
closed properly and the Franchise Tax
Board will they'll therefore feel like
you owe them $800 a year at a minimum of
whatever the minimum fee will be until
it is closed properly and that could be
a headache so you so you want to make
sure to get the paperwork in in the
final year so that you don't get
problems down the road
certificate of disillusion with the
Secretary of State so remember when
you're dealing with a state you may have
to at least two individually the
Secretary of State is who you form the
corporation with and then you could have
the Franchise Tax Board dealing with who
you report the taxes to and then you
also have the the final state payroll
tax form so remember that even if you're
a single member as corporation you're
probably filing payroll taxes at least
for yourself because of that requirement
to pay a reasonable wage you want to
close that out with it with the IRS
Social Security Medicare federal income
tax and you want to close it out with
any kind of state requirement as well in
California we got the Employment
Development Department want to make sure
that you get all the payroll done once
again on both sides on the state side
and the IRS side
so here's an example of a certificate of
election to wind up and dissolve this is
from the Secretary of State website so
whatever state you're in you can look at
the Secretary of State website just as
we did with the IRS and kind of see what
their instructions are to close
everything out you'd want to do that of
course with the franchise tax report or
whatever tax an agency on the state side
- as well as whatever tax an agency for
the employee side of taxes as well so
you want to take a look at that you can
go to their website you can try to look
up the certificate of election to
dissolve and see what the Secretary of
State has on that side so that's going
to be the major advice - take a look at
you want to make sure you do the
bookkeeping in order sell the assets
first pay off the liabilities then
distribute then go to the related
entities in which you're going to have
to close everything out includes the IRS
includes the state secretary of state
included and you got the payroll on both
the IRS in the state at a minimum that
you're going to want to make sure that
you get closed up and wrapped up