How to Close an LLC Properly: State and IRS Steps

Closing your LLC is not as simple as shutting down the website and bringing the account balance to zero. You need to close it with the state and the IRS to avoid penalties. I’ll show you the actual order to leave everything in good standing.

Many entrepreneurs believe that closing an LLC simply means stopping billing, emptying the bank account, and forgetting about it. But the reality is different: your company exists on two independent legal fronts—the state where you registered it and the IRS at the federal level. Leaving it idle does not close either one. As long as the entity remains active in official records, the state will continue to expect its annual reports and fees, and the IRS will continue to expect tax returns.

Here, we’ll look at everything in the practical order in which it needs to be done, what changes depending on your state, and what official agencies require so you can close up shop without unpleasant surprises in the future.

What It Really Means to Close and Why There Is So Much Confusion

This process involves three different concepts that people often lump together:

Dissolve: this is the internal corporate decision to end the company, following the rules established in the governing documents or imposed by state law.
Wind up (winding up): this is the operational phase of collecting what you are owed, paying every outstanding debt, and distributing any money left over.
Cancel: this is the formal process with the state to remove the entity from the public business registry.

To provide a specific example based on accessible law, Delaware law establishes that an LLC is dissolved and winds up its affairs when a triggering event under its agreements occurs or when the members vote according to the majorities established by law, with winding up and the distribution of assets regulated separately in the Delaware Code, Title 6, Chapter 18, Subchapter VIII. Once that winding up is fully completed, the certificate of formation is formally canceled under § 18-203.

I use Delaware because its laws are public and transparent for verifying the rules, but each state has its own forms, requirements, and fees.

Step 1: Make the Internal Decision and Put It in Writing

The starting point is not sending a document to the government, but documenting the agreement within the company. The first thing I review is the operating agreement: it should clearly state how dissolution is approved, what percentage of votes is required, and what formal record is needed. If you previously read our guide on what an LLC Operating Agreement is for and what it should include, you will remember that this document governs the internal life of the business.

If you do not have a signed operating agreement, you must follow your state’s default laws. In Delaware, for example, if there is no prior agreement, dissolving the company at the members’ discretion requires the vote or consent of those holding more than two-thirds of the interest in the profits.

Sign that resolution or unanimous consent and file it carefully. If a bank, a member, or an authority asks you in the future when and why you stopped operating, that document is your support.

Step 2: Wind Up Assets and Debts Before Distributing a Single Dollar

An orderly winding up is the step that protects you. It consists of four clear points:

Cancel commercial contracts, digital tools, and subscriptions that charge you month to month.
Collect outstanding invoices from customers and resolve open disputes.
Pay everything you owe to suppliers, creditors, and, if you had payroll or professional services, employees and contractors.
Back up and retain all business accounting records.

The order here is essential, and you cannot skip it. Delaware law explicitly requires creditors to be paid first during winding up; only if funds remain after all debts have been settled may they be distributed to members. Distributing the bank balance while leaving creditors unpaid is a direct path to having those debts pursue you personally.

In addition, if you paid contractors or had employees under your responsibility, the IRS explains in its official guide on how to close a business that you have specific reporting obligations for those payments in the same tax year as the closure.

Step 3: Cancel the State Registration and Keep Your Information Current

Once winding up is complete, it is time to go to the state where you created the entity. Requirements vary by jurisdiction, but you will usually be required to:

File an official form for dissolution, cancellation, or termination.
Be fully current on annual reports and payment of state fees.
Obtain a certificate of compliance (tax clearance) issued by the state tax agency confirming that you do not owe local taxes.
Pay the applicable administrative fee.

Because each Secretary of State sets its own deadlines and fees, you need to verify the current amounts where your company was formed. And if you also registered your LLC as a foreign entity to operate in other states, you will need to withdraw it in each one.

A common mistake at this stage is rushing to cancel representation services. You need to keep your registered agent active until the state confirms in writing that the cancellation was approved. In our article on what an LLC registered agent does and when to change one, we explain that this person or company is the legal channel through which you receive official notices; if you cancel the service too early, you will be left in the dark about any request. Likewise, if you had an office for receiving mail, review the guidelines on a virtual address for a Wyoming LLC and for the bank to make sure you redirect important correspondence until the company has been wound up.

Step 4: File Final Returns With the IRS

The IRS requires you to file the final return for the year in which you close operations. The exact form will depend on how your LLC is classified for federal tax purposes: it may be treated for tax purposes as a partnership, a corporation, or an entity not considered separate from its owner (disregarded entity).

Each classification involves different schedules and information forms. In addition to final income tax returns, you need to pay accrued taxes, report payments to contractors, and keep accounting records and contracts properly filed. Remember that while the entity continues to exist legally, you also cannot neglect other current federal obligations; if you are unsure whether you were required to complete a filing such as the BOI report for LLCs with FinCEN, review your obligations before closing everything out. My advice for this step is clear: always work with a qualified tax preparer to prepare and mark those returns as final.

Step 5: Deactivate the Account Linked to Your EIN

There is a common belief that you can delete an EIN from the system. That is not the case: once the IRS assigns you that identifier, it remains permanently on record and is never reassigned to another company. If you want to better understand the background of this number, review our guide on what the EIN is and how to apply for it.

What you can formally do is close the associated business account. The official procedure consists of sending a letter to the IRS with the entity’s legal name, the EIN, the registered address, the reason for closing, and a copy of the assignment document if you still have it, as explained by the IRS in its process for deactivating EIN accounts.

The IRS itself gives a very clear warning: if you owe business taxes, made tax payments, or received outstanding notices, it will not deactivate the account until all returns have been filed and the debts have been paid in full.

Step 6: Close Bank and Operating Accounts Last

The operational shutdown is the very last step. Blocking or closing your bank account too quickly is a common mistake: if a late refund, recurring charge, or hold from payment processors comes through, you will have nowhere to receive it or no way to resolve it.

Once balances are at zero, all customers and suppliers have been settled, and state filings are underway, formally close the bank account, payment gateways, web domains, and corporate email accounts. Each bank follows its own timelines, and none of them is automatically notified of what you do with the state or the IRS.

The Most Common Mistakes I See When Closing

Believing that stopping billing is the same as legally dissolving the company.
Distributing funds to members before paying all invoices and obligations to third parties.
Completing the state cancellation and forgetting to file the final return for the year with the IRS.
Dismissing or canceling the registered agent before having the state’s certificate of cancellation in hand.
Losing access to mailboxes and files just when a notice from the authorities arrives.

If you need help avoiding confusion with the paperwork and would rather delegate the process, we take care of organizing the documents and state filings through our services. And if, after reviewing everything, you determine that the best option is not to close but to bring your company into compliance and keep it in good standing, you can review our plans.

Legal notice: At Maera, we are an administrative services platform. We are not a law firm or an accounting firm, and we do not provide legal, tax, or financial advice. The information in this article is for informational purposes only. Each case has specific circumstances that should be evaluated with a qualified professional and by always consulting the current regulations of your state and the IRS.

FAQ

Can I Simply Stop Using My LLC?

No. Stopping billing, shutting down the website, or bringing the bank account balance to zero does not dissolve the LLC or eliminate your responsibilities. As long as the entity remains listed as active in the registry, the state will continue to require annual reports, payment of fees, and maintenance of a registered agent. At the federal level, the IRS will continue to expect your returns and information forms. The IRS explains the steps for closing a business, which include filing the final return, resolving obligations to contractors or employees, and retaining the books. You need to document the dissolution internally, wind up accounts, cancel the registration with the state where it was formed and in the states where you operated as a foreign entity, and finally comply with outstanding tax obligations.

Which Comes First, the State or Federal Closure?

There is no fixed order in which one process cancels out the other; both processes move forward in parallel and have their own requirements. In Wyoming, for example, the dissolution is first approved internally and the business is wound up according to state law; then the Articles of Dissolution are filed, in which you certify under your signature that you have already completed that winding up. At the same time, you must prepare the final federal returns, pay any tax balance due, and request deactivation of your EIN account. The IRS guide to closing a business emphasizes that you must separately verify your state obligations. Before submitting any form, make sure you have collected outstanding amounts, paid creditors, and obtained the members’ signatures.

Can the EIN Be Canceled?

No, the EIN is not canceled or removed from the federal database: it remains permanently associated with the company that originated it. What you can do is request closure of the business account associated with that number by sending a formal letter to the IRS stating the full legal name, the EIN, the company address, the reason for closing, and a copy of the original assignment notice if you have it. The IRS explains the procedure for closing the account associated with the EIN and clearly warns that it will not deactivate the account if there are unfiled tax returns or unpaid taxes. Closing the EIN account also does not automatically cancel your LLC with the state; send this notice only after you have reconciled returns and payments, always keeping a stamped copy and proof of mailing.

How Much Does It Cost and How Long Does It Take to Close an LLC?

The cost and timing depend entirely on the state where the company was formed, whether it was registered in other states, and whether you have overdue reports or payments. You need to review the official dissolution or cancellation fee, outstanding annual reports, the cost of a tax compliance certificate if the state requires one, and foreign withdrawal fees. The SBA summarizes the general steps for closing, but each Secretary of State determines the official amounts and timelines. A company in good standing and without debts is processed much faster than one with employees, creditors, or registrations in multiple jurisdictions. The first thing I recommend is checking the entity’s status with the registry to identify outstanding balances before submitting anything; if you need support with the administrative process, we can help you through our services.