Small Business Taxes & ManagementTM--Copyright 2012, A/N Group, Inc.
Do you have to file a return? What if you've picked a name, filed the papers for an LLC, etc. but haven't started the business and have no income for the year? Whether or not you have to file any returns depends on the circumstances.
Please keep in mind that the discussion below assumes that the business has no sales or expenses. There is no threshold for reporting sales. Even if you have only $1 of revenue you must file a return reporting the income. And once you begin filing returns you must continue to do so unless you advise the federal or state government you are no longer required to file.
This is the simplest way of doing business. Many businesses operate under their own name or file for a DBA (doing business as). If you have no sales or expenses for the year, you don't have to file a Schedule C. (That's one of the advantages of starting as a sole proprietorship and later moving on to an LLC, S corporation, etc.)
If you signed up for sales, employment, or other taxes, the state or IRS will be expecting to see a return. Just because you had no sales doesn't mean you don't have to file a sales tax return. Most states require a return even if the return would show all zeros. And many states assess a minimum penalty for not filing. If you haven't signed up for those taxes, you generally need file no returns. The same is true for unemployment insurance returns if they're filed separately from employment tax returns.
In some states you may be required to have a business license and file annual reports. If you applied for a business license, the reports must generally be filed even if you have no activity. Again, there may be penalties for failure to file.
If you don't think you're going to be doing business immediately, don't sign up to collect sales, or for employment taxes. In most cases it should take no more than a month (probably much less) from signing up to receive the necessary paperwork.
Here the answer is similar to that for sole proprietorship, above. The IRS and most states consider a single-member LLC as a disregarded entity. That is, for tax purposes it's the same as being a sole proprietorship. The difference here is that you've got a separate entity registered with your home state. In most cases, no return is required. But check the rules in the state in which you're doing business.
The rules on other returns are like those of a sole proprietorship. For example, if you signed up to collect sales taxes, you've got to file returns.
LLC, Partnership, S Corporation, Corporation
These are all separate entities. You'll need to file federal returns (Form 1065 for LLCs and partnerships; Form 1120S for S corporation; Form 1120 for a corporation) even if you had no income or expenses. The state and the IRS will be looking for these returns and will be assessed penalties for not filing.
The rules with respect sales and employment (and unemployment insurance) returns are similar to those of a sole proprietorship. If you didn't sign up, no return is due. There may be exceptions on the state level. Check the rules for your state. If you did sign up, you'll have to file returns.
Many states have annual report or similar required filings. Filings may be required by the tax department and/or the secretary of state. Failure to file may cause the entity to lose it's status with the state.
What happens if your business goes dormant for a tax year? Even if you have no revenue, you must file LLC, partnership, S corporation and corporate returns. Filing a Schedule C may not be required, check with your tax advisor.
Other returns, such as sales tax and employment, and unemployment insurance returns, once started, must still be filed. If you no longer have employees, and don't expect to have them in the near future, you may be able to discontinue filing federal returns by checking a box on Form 941. The same should be true for your state return; check the requirements in your state.
If you don't expect to collect sales tax in the future, you may be able to check a box on your return to discontinue filing. In some cases there may be more paperwork with the state.
If you expect the business to be dormant for only a short period of time you may not want to discontinue filing employment or sales to save the trouble of reapplying when you do restart activities.
Copyright 2012 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles in this publication are not intended to be used, and cannot be used, for the purpose of avoiding accuracy-related penalties that may be imposed on a taxpayer. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 06/06/12