To deregister for income tax with the IRS, individuals simply stop filing once their income drops below the required threshold, while businesses must formally close their federal tax account by filing final returns, canceling their Employer Identification Number, and wrapping up any payroll or dissolution paperwork. The IRS itself doesn’t use the word “deregister,” but the effect is the same: the agency stops expecting returns and payments from you.
Individuals: You Just Stop Filing
There’s no form to submit and no account to close. If your gross income falls below the standard deduction for your filing status, you’re generally not required to file a federal return, and the IRS won’t send you a notice for failing to file a return you never had to file. For the 2026 tax year, the standard deduction is $16,100 for a single filer and $32,200 for married filing jointly, with a higher figure for head of household and an additional amount for filers 65 and older.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
A few situations still require a return even when your income is low. You must file if you had net self-employment earnings over $400, owe certain taxes such as the alternative minimum tax, or received advance premium tax credits through the health insurance marketplace.2Internal Revenue Service. Check if You Need to File a Tax Return
It sometimes makes sense to file anyway. If an employer withheld income tax from your paychecks, the only way to recover that money is to file a return and claim the refund. The same goes for any refundable credits you qualify for.
Businesses: The Steps to Close a Federal Tax Account
A business can’t quietly fade away. If you permanently shut down operations, sell the business, or dissolve the legal entity, you have to formally close the account. If you don’t, the IRS keeps expecting returns for every filing period, and the failure-to-file penalty is 5% of any unpaid tax per month, capping at 25%.3Internal Revenue Service. Failure to File Penalty
The IRS lays out a checklist: file all final returns, take care of employee obligations, pay any taxes owed, report payments to contractors, and cancel the Employer Identification Number.4Internal Revenue Service. What Business Owners Need to Do When Closing Their Doors for Good Each step has its own forms and deadlines.
File Final Income Tax Returns
Every entity type files a final income tax return, and each one has a “final return” checkbox near the top of the first page. Corporations file a final Form 1120 (or 1120-S for S corporations) and check that box. Partnerships do the same on Form 1065. Sole proprietors file their regular Form 1040 with a final Schedule C.5Internal Revenue Service. Closing a Business That checkbox is the functional equivalent of deregistration for income tax: it tells the IRS not to expect any more returns from this entity.
The final return covers the short tax year from the start of the year through the date you ceased operations, and includes any gains or losses from selling off business assets. You can’t close the account if you have unfiled returns from prior years or unpaid balances; those have to be resolved first.
File Form 966 for Corporate Dissolutions
Corporations that adopt a resolution or plan to dissolve must file Form 966 within 30 days of that adoption.6Internal Revenue Service. Form 966, Corporate Dissolution or Liquidation This is separate from and in addition to the final corporate tax return. If the dissolution plan is later amended, you file another Form 966 within 30 days of the amendment. Thirty days goes fast when you’re also handling asset sales, employee terminations, and creditor payments, and this is one of the deadlines people miss most often.
Cancel the EIN
An EIN is permanent. The IRS never reissues it or assigns it to another entity. But you can close the account associated with it by mailing a letter that includes the business’s complete legal name, the EIN, the business address, and the reason you want to close the account. If you still have the notice the IRS sent when it originally assigned the EIN, include a copy.7Internal Revenue Service. If You No Longer Need Your EIN
Send the letter to:
Internal Revenue Service
Cincinnati, OH 459995Internal Revenue Service. Closing a Business
Before you send the letter, all final returns must be filed and all taxes paid. The IRS won’t close an account with outstanding obligations. Exempt organizations that applied for tax-exempt status or filed information returns send their closure letter to a separate address at the Ogden, UT facility instead.7Internal Revenue Service. If You No Longer Need Your EIN
Close Payroll and Retirement Plan Accounts
Businesses with employees have more filings. Your final Form 941 needs special treatment: check the box indicating the business has closed, enter the date you paid final wages on line 17, and attach a statement identifying who will keep the payroll records and where they’ll be stored.5Internal Revenue Service. Closing a Business
Your final Form 940 works similarly. Check the “Final: Business closed or stopped paying wages” box in the Type of Return section.8Internal Revenue Service. Instructions for Form 940 Form 940 is normally due January 31 of the following year, or February 10 if you deposited all FUTA tax on time during the year.
If the business sponsored a one-participant retirement plan such as a solo 401(k), file a final Form 5500-EZ for the plan’s last year. This filing is required even if the plan had $250,000 or less in assets; the small-plan exemption doesn’t apply to the final plan year.9Internal Revenue Service. Instructions for Form 5500-EZ Distribute all plan assets to participants before filing.
Report Asset Sales and Contractor Payments
Selling or disposing of business property at closing triggers reporting many owners miss. Gains and losses on business real estate, equipment, vehicles, and other property go on Form 4797, which includes depreciation recapture.10Internal Revenue Service. About Form 4797, Sales of Business Property If you deducted depreciation on an asset and then sell it for more than its adjusted basis, you owe tax on the recaptured amount.
When someone buys the whole operation rather than individual assets, both buyer and seller must file Form 8594 to allocate the purchase price across asset categories.11Internal Revenue Service. About Form 8594, Asset Acquisition Statement Under Section 1060 Both parties need to use the same allocation, so coordinate before filing.
If you paid any independent contractor $600 or more during the calendar year in which you closed, you still have to issue a Form 1099-NEC. The fact that your business no longer exists doesn’t eliminate the obligation.4Internal Revenue Service. What Business Owners Need to Do When Closing Their Doors for Good
How to Submit and Prove You Submitted
Most final tax returns can be e-filed through the same software or preparer you’ve been using. E-filing generates an electronic confirmation of acceptance, which is the cleanest proof of timely submission.
For paper filings, including the EIN cancellation letter and Form 966, send everything by certified mail with a return receipt. The Taxpayer Advocate Service specifically recommends this because it creates proof of both the mailing date and the date the IRS received it.12Taxpayer Advocate Service. Taxpayer Mails Return Keep a complete copy of everything you send, along with the certified mail receipt. That paper trail is your defense if the IRS later says it never received something.
If the responsible party changes during the wind-down, say a managing partner leaves and someone else takes over the dissolution, update the IRS within 60 days using Form 8822-B.13Internal Revenue Service. About Form 8822-B, Change of Address or Responsible Party – Business
What Happens If You Skip Closure
The most common problem is ghost filing obligations. If you stop operating but never close the account, the IRS keeps expecting returns. The failure-to-file penalty is 5% of unpaid tax for each month a return is late, capping at 25%.3Internal Revenue Service. Failure to File Penalty Even if you owe nothing, the IRS may send notices and generate substitute returns based on third-party information, potentially creating a tax bill where none should exist.
For businesses that had employees, failing to file final employment tax returns creates a separate exposure. The IRS can hold the responsible party personally liable for trust fund taxes, meaning the income tax and employee share of Social Security and Medicare withheld from paychecks but never remitted. That liability survives the business closure and follows the individual.
Records to Keep After Closing
Deregistering the account doesn’t mean shredding the files. The IRS retention periods vary by record type:14Internal Revenue Service. How Long Should I Keep Records
- General business and income tax records: at least three years from the date you filed the final return or the return’s due date, whichever is later.
- Employment tax records: at least four years after the tax is due or paid, whichever is later.5Internal Revenue Service. Closing a Business
- Records tied to underreported income greater than 25% of gross income: six years.
- Records for worthless securities or bad debt deductions: seven years.
- Records where no return was filed or a fraudulent return was filed: keep indefinitely.
Property records deserve extra attention. Keep documentation for any business property until the statute of limitations expires for the year you disposed of it, because the original purchase records are what let you calculate gain correctly after years of depreciation.
State Accounts Are Separate
Closing your federal tax account doesn’t close your state accounts. Most states that collect income tax, sales tax, or employment tax require separate cancellation filings, and the IRS doesn’t manage that process for you.5Internal Revenue Service. Closing a Business Fees for filing articles of dissolution at the state level typically range from $25 to $60, though some states charge more. Contact your state’s department of revenue and secretary of state’s office to identify which accounts still need closing and what forms to use.