You’ve been a freelancer for years. You just got a W-2 job and you never want to do a freelance job again or you don’t have time. Or you’re retiring completely and will no longer take any new jobs. Or your business is simply not working out.
What do most people do? Very often, nothing. Sometimes this failure to close out your business correctly can come back and bite you.
This page is not for you if you intend to do the occasional freelance job. For that, keep your business open.
I am just addressing sole-proprietorships here. If you have an llc or a corporation, closing your business is more complicated and requires more steps than are listed here.
1 Notify your creditors in writing that you are closing your business at a future date. Depending on the state, creditors can send a claim within a certain amount of days (typically 90 or 180 days). Find out what the number of days is for your state. Inform the creditors that after this day, claims will not be allowed.
2 Make sure that all outstanding taxes are paid and tax forms are filed. Pay estimated taxes at least through the period where you receive income from your freelancing.
3 Do you have any employees? If so, you have to give them notice plus you have to be sure your final payroll tax deposits are made and all the federal and state employment tax returns are filed. Otherwise you can be held liable for payroll taxes that aren’t paid. If you are running your business under an ein, notify the IRS in writing that you are closing your business. Notify the state and city in writing as well. Make sure that your workers compensation insurance company knows that you are canceling your workers compensation policy as of the final date you have employees.
4 Do you pay sales tax? File your final sales tax returns. Contact your state for any form notice that you might have to file with them.
5 Inform your clients that you will no longer be in business as of your closing date. Make sure you finish your outstanding work by the closing date. Do any of these clients owe you money? Try to collect it immediately. Waiting will not make it easier to collect. You might want to contact an attorney to advise you on terminating whatever contract you might be under in a proper way and to have the client sign a termination agreement that can be drawn up. This could possibly avoid certain future claims.
6 Are you doing business under a different name than your own personal name? If so, then you should have been registered with your county as a “doing business as”. Contact the county to ask if you must cancel the use of this name and what the process for doing it is.
7 Are you selling all or any of your business assets? If so, your state may have its own requirements. New York State, for example, has a requirement that seller provide the buyer with a “Notice to Prospective Purchaser of a Business or Business Assets”. https://www.tax.ny.gov/pdf/current_forms/st/tp153.pdf
8 Cancel any other license or permit that you have.