Steps to Take if You Are Wrapping Up a California Business

 Posted on June 07, 2017 in Small Business Taxes

When a business wraps up due to closure, merger, sale, or reorganization, California requires that certain measures be taken to alert the state that the business is no longer operating in the state.

These steps, as simple as they may be, can be overlooked. In fact, many business owners have faced serious repercussions by not following them. Failure to take these steps can result in future tax liability, including penalties and interest.

Step 1: Inform the Franchise Tax Board of the Entity’s Final Tax Year

The first step a business winding down must take is to tell the Franchise Tax Board (FTB) that the final return filed by the business will, in fact, be the last one. This is an easy step to complete; however, it is also easy to overlook.

All that is required is that the taxpayer must indicate on the state tax return that the return will be the last one filed by the entity. This is accomplished by checking a box on the return.

If this step is not taken, the business will be subject to notices, penalties, and other proceedings by the FTB. Such measures are not good for the reputation of the business owners and can cause unnecessary inconveniences.

Step 2: File with the California Secretary of State

The California Secretary of State must also be notified about the change in the business’ status. The business must complete the proper form with the Secretary of State that dissolves, surrenders, or cancels its capacity to conduct business in California. This requirement applies to domestic or foreign businesses.

If this step is not completed, the FTB will require that your business must comply with all return filing laws as set forth in the Revenue and Taxation Code. Thus, your business may be on the hook for minimum annual fees and taxes. If not paid, those amounts could accrue interest and penalties until the proper forms are filed.

Contact a Santa Clara County Business Tax Lawyer

If you are thinking about closing a business or do not anticipate that your business will be active in the future, then you must take the appropriate steps in order to avoid paying fees and penalties.

Meeting with a tax attorney about how best to wrap up your business can save you time and effort, as well as money. The accomplished San Jose business tax attorney at John D. Teter Law Offices has helped many businesses facing these issues. Our firm can be reached at 408-866-1810.

Sources:

https://www.ftb.ca.gov/businesses/faq/Closing_a_Business_Entity.shtml

https://www.ftb.ca.gov/businesses/faq/ab2341faq.shtml