How to Close an LLC: What You're Really Shutting Down (and Why It Matters)

Closing an LLC means dissolving your legal entity and ending your S Corp election, two separate steps with their own filings. But if you're earning $80,000+ annually, shutting down could cost you $8,000+ in tax savings each year. Before you close, consider whether automating compliance might be smarter than walking away from those benefits.

You might think closing an LLC means one simple step. Here's the reality: you're shutting down two separate things: your legal entity and your tax status. If you elected S Corp treatment, you need to dissolve the LLC and revoke the S Corp election with the IRS.

But here's the catch: if you're earning $80,000+ annually, abandoning your S Corp benefits leaves $8,000+ in tax savings on the table each year. You'll get a precise, step-by-step closure plan that covers both the legal dissolution and tax revocation. Plus, a quick check to confirm whether closing is actually your best move right now. The federal requirements are more straightforward than most people think.

Get started today and turn your shutdown into a smarter system. Lettuce automates formation, compliance, payroll, and taxes for businesses-of-one, so you can keep your savings, stay protected, and focus on what’s next, not on paperwork.

Understand What You're Closing: LLC vs. S Corp

When you're considering an LLC or S Corp closing, you're actually looking at two separate decisions. Your LLC is the legal shell, the business entity that exists in your state's records. Your S Corp election is a tax choice layered on top, telling the IRS how to treat your profits. You don't pick one or the other. You can have both working together for your business.

They're Different Things That Work Together

Your LLC is a business structure allowed by state statute; it's your legal entity that provides liability protection and exists in state records. Your S Corp status comes from a federal tax election that changes how the IRS treats your business income. The S Corporation election lets you pass income, losses, and deductions through to your personal tax return while potentially saving thousands in self-employment taxes.

Your Day-to-Day Reality

Here's how this plays out in real life: The entity remains "ABC Consulting LLC" on contracts, bank accounts, and state filings. But when tax season arrives, you file as an S Corp using Form 1120-S. Clients still write checks to your LLC. Liability protection comes from your LLC setup. Tax savings come from your S Corp election. When you close, you'll dissolve the LLC with your state and separately end the S Corp election with the IRS.

The $80,000 Rule: When Closing Costs You Money

At $80,000+ in annual business income, an S Corp election typically saves $8,000+ per year in self-employment taxes: money that would otherwise go to Social Security and Medicare taxes on your full profit. Before making any closing decisions based on administrative burden, run the numbers. If you exceed this threshold, consider automating instead. Automated platforms run your payroll, file quarterly returns, and track compliance deadlines, keeping your tax savings without the paperwork headaches.

Dissolve the Legal Entity: 7 Steps to Close Your LLC Cleanly

Dissolving your LLC isn’t just about stopping operations. It’s a legal process with specific filings, deadlines, and financial obligations. These steps walk you through how to formally dismantle your entity, settle every loose end, and protect your liability shield.

Step 1: Dissolve the Legal Entity

Your LLC exists because it’s registered with your state. To officially close it, you need to dissolve it in your state records. That means filing paperwork, paying off debts, and shutting down accounts to make sure no obligations remain.

Follow these steps to dissolve your LLC cleanly:

1. Plan a 60–90 day timeline to handle payroll, final payments, and all required filings.

2. Settle all debts and liabilities, pay vendors, employees, and any outstanding taxes (sales tax, payroll tax, franchise tax, etc.) before filing for dissolution.

3. File your Articles of Dissolution with your state’s Secretary of State (or equivalent agency). This officially ends your LLC’s existence.

4. Cancel business licenses, permits, and registrations to stop recurring fees and renewals.

5. Run your final payroll and issue W-2s or 1099s to employees or contractors. Also, at the end of the year, you would need to file your final employment tax returns (Form 941 and 944) and mark them as final.

6. File your final state and federal returns, checking the “final return” box on each form. If you close your entity mid-year, you still need to wait for the next year to file your tax returns according to the normal tax filing deadlines. The earliest date tax authorities start accepting filings is usually around January 15-20. This is when you will pay your outstanding income tax, if any.

7. Close all business bank accounts and credit lines, then archive your records for at least seven years.

Getting this sequence right protects you from personal liability, unpaid taxes, and future fees. Once your state-level dissolution is complete, your next step is to close things out federally.

Step 2: End the S Corp Election (If Applicable)

If your LLC elected S Corp status, some states may require you to submit a separate form to formally terminate S-Corp status at the state level ( for example, NY or NJ). Or skip the manual process entirely. Lettuce automates both your LLC dissolution and S Corp revocation, handling every filing, deadline, and payroll step so you can close cleanly, stay compliant, and move forward with confidence. Get started today.

How to Close an LLC: Frequently Asked Questions

Smart business owners ask the right questions before making big moves. The following questions give you the numbers and timeline you need to close cleanly, or decide whether closing makes financial sense right now:

What happens to my S Corp status when I close my LLC?

Your S Corp election automatically ends when you dissolve the LLC. The IRS treats them as separate decisions that terminate together. You'll file a final return marking the end of both your LLC and S Corp status. No separate revocation letter needed; dissolution handles both. See comment

How do I dissolve an LLC and end my S Corp tax election at the same time?

File your state dissolution paperwork and your final Form 1120-S in the same tax period. Mark "final return" on your S Corp return and issue final K-1s to all shareholders. Coordinate the dissolution date with your final payroll and tax filings to avoid extra compliance periods.

Will I lose out on tax savings if I shut down my LLC too early?

If you earn $60,000+ in profit, closing means losing $8,000+ in annual tax savings. Calculate whether automation can eliminate the admin burden driving your closure decision. Often, the solution isn't shutting down; it's automating compliance to capture tax benefits without hassle.

Do I need to keep records after closing my LLC?

Yes, keep all business records for at least seven years after dissolution. The IRS requires employment tax records for at least four years, but maintaining complete records protects your limited liability shield. Store them securely, you'll need them if questions arise about your closed business.

Can I reopen an LLC later if I change my mind?

You can form a new LLC anytime, but you can't "reopen" a dissolved one. If you're closing due to temporary circumstances, consider keeping the LLC active with minimal activity instead. This preserves your entity, business relationships, and the option to elect S Corp status again when you're ready to scale back up.

Close With Confidence or Automate and Keep the Savings

Closing your LLC means handling two steps: dissolving your legal entity and ending your S Corp election. And when done right, you’ll protect your liability shield and stay fully compliant.

If you’re earning $80,000+ in annual business income, closing could mean losing $8,000+ in annual tax savings. Instead of shutting down to escape admin work, automate it.

Lettuce keeps your business compliant, optimized, and effortless: formation, payroll, filings, and taxes handled in one system. Get started with Lettuce today and keep more of what you earn.