Expert: Arthur Naman - 11/14/2010

Question
We own a very small LLC that had only two employees and my
husband, the owner.  Recently we had to lay-off the two
employees due to lack of work. We always filed a 941 each
quarter reporting the taxes on all three of them.  Now that
it is just my husband we would like to change the way we
file to an estimated tax and stop the withholding using the
940, unemployment, etc.  Do we need to file a form with the
IRS and the State of MI to do so? Thanks for your help!

Answer
An LLC is a creature of state law, the first question is what are your for federal tax purposes:  sole proprietorship, C corporation of S Corporation.

If you are paying yourselves via s salary as would be the case if you are a corporation for federal tax purposes, then you will need to continue taking out withholding, paying payroll taxes and filing payroll tax forms. As you indicated you have been paying your three employees, including your husband, I assume you are a C Corporation.

If you are in fact a C corporation, then you will need to dissolve the corporation and then continue to operate as a sole proprietorship for federal tax purposes before you can do away with the need to prepare payroll tax returns.

If your business is a sole proprietorship, then you will have not been paying yourselves via salary.

If you do not pay yourselves via a salary, then simply file payroll tax forms through the end of the year, indicating they are final returns.

I have not worked with MI taxes, but I expect all that I have said applied thereto as it has with other states I have worked with.

Who has been preparing your tax returns each year; please seek their advice or that of a qualified tax preparer, especially a CPA.