Businesses end more often than they succeed, and the ending is where a surprising amount of avoidable cost lives. An LLC that simply stops trading still owes its state annual report, still has a Form 5472 due if foreign-owned, still has a registered agent billing it, and may still be the subject of a substitute return a few years later. Dissolving it takes an afternoon of paperwork and removes all of that.
1. Decide, and record it
Follow the operating agreement: a written consent of the members to dissolve, dated. For a single-member LLC that is a one-paragraph resolution. Banks and the state may ask for it.
2. Settle the business
Collect what is owed, pay creditors, cancel contracts and subscriptions, return or sell assets, and distribute what remains to the members. Keep the LLC's bank account open until the last payment clears and the final tax is paid; closing it early is the most common mistake, because refunds and final bills then have nowhere to go.
3. File with the state
Articles of dissolution (Wyoming, most states) or a certificate of cancellation (Delaware), with the fee, after the state's own taxes are paid to date. Delaware requires the franchise tax to be current before it accepts the cancellation. Some states want tax clearance first. If the LLC registered to do business in other states, withdraw from each of those too, or their annual reports continue.
4. Final tax filings
- Federal: the entity's final return for the short year, with the "final return" box ticked. For a foreign-owned single-member LLC that means a last pro forma 1120 with Form 5472, on which the closing distribution to the owner is itself a reportable transaction. Partnerships file a final 1065 with final K-1s; S-corps a final 1120-S. Schedule C filers note the closure on the personal return.
- Payroll: final 941 and 940 marked final, final W-2s, and the state unemployment account closed.
- Sales tax: final returns in every state where the LLC was registered, and the permits cancelled. An open sales tax permit with no returns generates estimated assessments.
- 1099s: for the final year's contractors, on the normal January date.
5. Close the EIN account
The EIN itself is never reissued, but the IRS account under it should be closed with a short letter: entity name, EIN, address, reason, and a copy of the CP575 if available. Without it the IRS may expect returns indefinitely.
6. Tidy up
Cancel the registered agent once the state filing is accepted. Close the bank account after the last tax payment clears. Tell platforms (Stripe, Amazon) the entity has closed so their 1099-K reporting stops. Keep the records, including the final returns and the dissolution certificate, for at least seven years; longer for anything involving property.
The non-resident version
Everything above, plus: the final Form 5472 must be filed even if the LLC never earned a dollar, and the home-country disclosure of the foreign entity should show it as closed in the year of dissolution. Founders who form an LLC, change plans and leave it are the largest single source of $25,000 penalty notices we see. A dissolution in year one costs less than one state annual report.
The check: if you own an LLC that has not traded for a year and you have no plans for it, the cheapest thing you can do is dissolve it before its next annual report date.