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Should I shut down or stay in
business?
Dear Small Biz Adviser:
I've operated a sole proprietorship since 1995. My intention has
been to make a profit, but my losses have always outweighed my gains
on my Schedule C. I expect to have even less time to devote to this
business in the next few years because of the demands of my current
full-time job. However, when I retire in seven years, I expect to
devote myself full-time to my business. In the meantime, since I
don't expect my business to turn a profit, should close it, convert
it to a hobby or in some other way put it on hold? If I close the
business, how do I do this, and what are the tax consequences? I
want to keep all my equipment and inventory to resume business after
I retire.
Thanks,
Ruth
Dear Ruth:
No responsible consultant is going to tell you to shut down or stay
in business based simply on the content of your inquiry. While your
business obviously cannot currently provide you financial security,
it is apparent that you like the nature of the venture. That is
important, as very few people retire and then go into business simply
to make money.
But as to the business's short-term future, if you
want to shut it down then simply cease operations. Stop filing Schedule
C when all financial transactions associated with payables, receivables
and notes are terminated. For example, if your last financial transaction
takes place in 2002, then file the Schedule C with your Form 1040
for that year. You no longer have any obligations to file on the
proprietorship until resuming the business.
As for depreciation of your equipment and other fixed
assets, unless they have a useful life exceeding the seven years
of dormancy you have planned, then you will simply reinstate their
use down the road. You will reconsider them at salvage value at
that time.
Don't overlook other paperwork
One thing to remember is a fictitious name registration. In many
instances, a fictitious name is protected for a period. In some
states, you have to renew the document every five years.
If you opt to renew the fictitious name, you will
need to file a Schedule C for the year in which the fee is paid.
However, this will result in a deduction from taxable income. You
simply have to decide whether it is worth the time and effort.
I see no difficulty filing the Schedule C and reaping the small
benefit of that deduction.
Then there are occupational licenses. You do not have
to pay those fees until restarting the business.
Finally, there is the matter of keeping your company's
name and services in the public eye. You've heard the expression
"out of sight, out of mind." If your full-time workload
compromises how much you can devote to your business and still allow
time to spend with family, friends, hobbies and other such diversions,
then there is no debate. But remember that you will have to revitalize
awareness of your business in seven years. This will be very similar
to starting your venture all over.
In the end, this is a matter of balancing priorities
with the use of your time. It is no big deal, nor is it expensive
to terminate the business. What is important is the reason for termination.
That is a matter on which only you can decide.
I wish you well.
-- Posted: Feb. 7, 2002
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