Why You Should Dissolve Your LLC by December 31 if It’s Not in Use
If you have an LLC that’s no longer active, it’s important to officially dissolve it before December 31. Why? Failing to take this step could cost you time, money, and unnecessary stress in the coming year. Let’s explore why dissolving your unused LLC by year-end is a smart move.
1. Avoid Paying Extra Taxes
One of the biggest reasons to dissolve your LLC by December 31 is to avoid unnecessary tax liabilities. Many states require LLCs to pay annual taxes or franchise fees, even if the business didn’t earn any income. If your LLC is still active on January 1, you may have to file a tax return and pay the associated taxes for the entire year, even if your business hasn’t done a single thing. Dissolving your LLC before the end of the year helps you avoid these extra costs.
2. Skip New Compliance Requirements
Starting in 2024, LLCs in the U.S. are required to file a new document called the Business Ownership Information Report with the Financial Crimes Enforcement Network (FinCEN). This report is part of new regulations aimed at increasing transparency about who owns and controls businesses. If you fail to file this report, you could face significant penalties. However, dissolving your LLC before the end of the year means you won’t have to worry about this new requirement.
3. Stop Paying Annual Fees
In addition to taxes, most states require LLCs to pay annual fees and file reports to remain in good standing. These fees can add up, even for businesses that are no longer operational. By dissolving your LLC, you eliminate these ongoing financial obligations. This allows you to save money and avoid the hassle of dealing with unnecessary paperwork.
4. Simplify Your Financial and Legal Records
Keeping an inactive LLC can complicate your financial and legal records. You’ll have to track the LLC’s status, manage its compliance requirements, and ensure all filings are up to date. Dissolving the LLC simplifies your records and helps you close out your business cleanly and efficiently.
How to Dissolve Your LLC
Dissolving an LLC involves a few key steps:
File Articles of Dissolution: Submit the appropriate dissolution form to your state’s business filing office, usually the Secretary of State.
Settle Outstanding Debts and Obligations: Pay any remaining debts and notify creditors of your LLC’s closure.
Cancel Permits and Licenses: Make sure to cancel any business licenses or permits associated with your LLC.
Close Business Accounts: Shut down your LLC’s bank accounts and cancel any business-related subscriptions.
Be sure to check your state’s specific requirements for dissolving an LLC, as they can vary.
The Bottom Line
Dissolving your unused LLC by December 31 is a crucial step to avoid unnecessary taxes, fees, and compliance obligations in the coming year. It helps you save money, stay compliant with new regulations, and simplify your business affairs. If your LLC is no longer serving a purpose, don’t wait—take action now to wrap things up before the year ends.
Have questions about dissolving your LLC? Drop them in the comments below!
