How do I account for closing my business?

I was behind on taxes and I had someone willing to pay the taxes in exchange for the business. The money he put out is/was less than the store was worth (although it was not appraised). Is this considered a sale? Or do I list that it was closed. How do I show this on my balance sheet?

The fact that you had accepted an amount that was used to pay off your taxes in exchange for the ownership of your business, this fact alone shows your intent on valuing your business at a price equal to the total tax liability that was settled by the buyer of your business. I would think that this arrangement appears to be a sale! Though you state that the value appears considerably below what you perceive the value to be.

You would indicate "Final' on your business tax return and as such on a final tax return you may wish to exclude the balance sheet, and if you are qualified you perhaps should take this option.

Since you may have had a loss on the sale of your business, you could be entitled to deduct this loss as an ordinary loss (more favorable than a capital loss) if the assets that you sold as a part of the business are what is known as Sec 1231 property, assets that are generally used in Trade or Business.

The IRS tax code has stated that any gains on Section 1231 assets are taxed at the favorable Capital Gains rates (except for depreciation recapture), and any losses that are sustained as a result of a sale of these assets are tax deductible as Ordinary Losses. I would suggest that you contact your CPA or tax advisor and identify any assets that would qualify for section 1231 tax treatment! This would result in a favorable tax treatment for you!

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