#989908 - 12/30/04 09:27 AM
How to shut down business?
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Ben One
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Registered: 06/28/03
Posts: 665
Loc: Columbia, MD
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Hi,
In 2002 my songwriting partner and I started a small record label to sell the CD that we released that year. But in the last 18 months we haven't been actively promoting it, as we are both raising our respective children. Since it's become a hassle for me to fill out the IRS forms every year, I wanted to ask how I could go about shutting down a business from a tax point of view.
We have Federal and state tax ID#s; every year we fill out an IRS form for a general partnership; twice a year I fill out Maryland state tax and use fees. We carry our CD on CDBaby, but haven't had any sales this year.
We could go on with the business; and write off expenses due to maintaining our website which links to our CDBaby sales page; but I think I'd prefer closing the business (at least for 5 years) until we are both able to actively play live and promote our music again.
What steps are needed to officially shut down a business like this? Any suggestions are appreciated.
Thanks,
Ben
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#989909 - 12/30/04 02:14 PM
Re: How to shut down business?
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rebonn
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Registered: 04/10/01
Posts: 441
Loc: Blairsville, Ga,
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Can you just declare the business inactive without closing ?
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#989910 - 12/30/04 02:41 PM
Re: How to shut down business?
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Ben One
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Registered: 06/28/03
Posts: 665
Loc: Columbia, MD
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Originally posted by rebonn:
Can you just declare the business inactive without closing ?
But I have to tell you a larger reason--I actually feel a bit uncomfortable writing off our business expenses (website hosting, etc.) when we're not "actively" promoting the album. Sure, it's available for purchase on CDBaby, and all the links for ordering the CD are in place, but I don't know, it doesn't feel "right" for me to write off $100-150 worth of expenses every year for an CD which is having no sales.
I should add that, if I do go ahead and shut down the business, I'll of course remove the CDs for sale from CDBaby.
Ben
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#989911 - 12/30/04 03:41 PM
Re: How to shut down business?
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Lee Flier
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Registered: 09/13/00
Posts: 15398
Loc: Atlanta,GA,UNITED STATES
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Ben,
The IRS has a form for you to declare that the business has not been active for the previous year, and I believe you can also state that you don't expect it to be active the current or following year. You can still keep the tax ID# for whenever you do decide to "operate" again.
And yeah you don't want to keep writing off expenses with no income for more than a couple of years in a row - that sort of thing will get you busted eventually.
However, you CAN still offer the CD for sale without an official "business license" - just declare any income from sales on your personal income tax. You can also write off any expenses up to the amount of sales you earned (but no more) as hobby expenses. It's probably better to declare your projects as a hobby unless you start making some serious money at it.
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#989912 - 12/30/04 04:25 PM
Re: How to shut down business?
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forceman
MP Hall of Fame Member
Registered: 03/01/04
Posts: 5046
Loc: Metro-Detroit, Michigan
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Lee,
Regarding expensing a hobby music business--I suggest each individual discuss this with their respective accountant, as it isn't as cut-and-dried as you posted.
Regards.
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#989913 - 12/30/04 04:31 PM
Re: How to shut down business?
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Ben One
Gold Member
Registered: 06/28/03
Posts: 665
Loc: Columbia, MD
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Lee, Thanks--this is just the sort of information I need!
Originally posted by Lee Flier:
The IRS has a form for you to declare that the business has not been active for the previous year
Would you happen to know the form offhand? Otherwise, I'll call the IRS to ask which one that is.
So, if I fill out that form, I'm guessing I can declare it a hobby starting in tax year 2004 (rather than having to wait a year?)
However, you CAN still offer the CD for sale without an official "business license" - just declare any income from sales on your personal income tax. You can also write off any expenses up to the amount of sales you earned (but no more) as hobby expenses.
This is great information--I guess there are appropriate lines on 1040 (or a schedule thereof) that will enable me to enter sales and also hobby expenses, right?
It's probably better to declare your projects as a hobby unless you start making some serious money at it.
Thanks again!
Ben
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#989914 - 12/30/04 05:03 PM
Re: How to shut down business?
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Lee Flier
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Registered: 09/13/00
Posts: 15398
Loc: Atlanta,GA,UNITED STATES
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Ben, I don't have a form with me offhand, and yes I would suggest calling the IRS (or you may be able to find it on their web site). In fact you should verify all of this with them, cuz I'm not an accountant - but the info I provided is for the purpose of letting you know that there is definitely a more efficient way to do things than what you're doing now!
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#989915 - 12/30/04 05:12 PM
Re: How to shut down business?
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rebonn
Senior Member
Registered: 04/10/01
Posts: 441
Loc: Blairsville, Ga,
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I think declaring the business inactive is in with the normal IRS paperwork you get from them.
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#989916 - 01/07/05 09:17 AM
Re: How to shut down business?
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Ben One
Gold Member
Registered: 06/28/03
Posts: 665
Loc: Columbia, MD
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IRS got back to me and advised me to fill out a final form 1065 (this is the tax form for partnerships). There's a box on the form that will allow me to declare this the "Final Return."
Then starting in tax year 2005, I think I can start declaring this as a hobby.
Thanks, everybody, for your guidance in this matter!
Ben
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