Generally, a business that operates a “large food or beverage establishment” must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. A large food or beverage establishment is a “food or beverage operation”:
a. Located in the U.S.,
b. Where customer tipping of food or beverage employees is customary, and
c. Normally employed more than 10 employees on a typical business day during the preceding calendar year (the 10-employee test). (Form 8027, Instructions)
A food or beverage operation is any business activity that provides food or beverages for consumption on the premises (e.g. a restaurant or a bar), other than fast food operations. Generally, tipping is not considered customary in a cafeteria-style operation or if at least 95% of total sales (other than carryout) had a service charge of 10% or more.
Closing a sole proprietorship. A sole proprietor should take the following steps when closing the business:
1. If the business has one or more employees, the employer should file final employment tax returns and make employment tax deposits for the calendar year in which the business makes its final wage payments. Employment tax returns include Form 940, Form 941 and Form 944.
2. The employer will also need to provide employees with Forms W-2, Wage and Tax Statement, and File Form W-3, Transmittal of Income and Tax Statements, to transmit Form W-2, Copy A, to the Social Security Administration (SSA) for the calendar year in which the business makes its final wage payments.
Forms W-2 can be filed electronically using the SSA’s Business Services Online (BSO) filing portal. Electronically filed Forms W-2 do not need to be transmitted using a Form W-3. Federal tax deposits must be made using the Electronic Federal Tax Payment System (EFTPS). Both the BSO and EFTPS require registration before they can be used to file documents or make payments, respectively.
3. If the business paid any nonemployee workers (independent contractors) $600 or more, it will need to provide them with Forms 1099-NEC and, if not e-filing its Forms 1099-NEC, the business will need to use Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to transmit paper copies of Forms 1099-NEC to the IRS.
Forms 1099-NEC can be filed electronically using the IRS’s Filing Information Returns Electronically (FIRE) system.
4. If the business is a large food or beverage establishment and has tipped employees, the business should file Form 8027 to report final tip income and allocated tips.
5. If the business provided its employees with a pension or benefit plan, the business should file a final Form 5500, Annual Return/Report of Employee Benefit Plan. Form 5500 and Form 5500-SF, Annual Return/Report of Employee Benefit Plan Short Form, must be filed electronically. Form 5500-EZ, Annual Return of One Participant (Owners and their Spouses) Retirement Plan, cannot be electronically filed and, therefore, must be filed on paper with the IRS.
6. File the individual income tax return and pay any taxes due. With the Form 1040 or Form 1040-SR, a sole proprietor should file a Schedule C to figure any profit or loss from the business. A Schedule SE, Self-Employment Tax, should also be filed if any self-employment tax is due. If the sole proprietor sold the business, he or she should also attach to the return Form 8594, Asset Acquisition Statement. If the sole proprietor sold business property, he or she should attach to the return Form 4797, Sale of Business Property.
7. Close the business’s account with the IRS. After all their returns are filed, the sole proprietor should send the IRS a letter with the business’s complete legal name, employer identification number (EIN), and business address, explaining why the business wants to close its account. Include a copy of the business’s SS4 letter containing its EIN assignment (also known as a 147C letter). Send the letter to: Internal Revenue Service, Cincinnati, Ohio 45999.
All appropriate tax returns must be filed before the IRS close will close the business’s account.
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