How to dissolve an S corporation

What does it mean to dissolve an S corporation?

An S corporation is not a separate kind of company. It is an ordinary corporation, or, less often, an LLC, that filed an election to be taxed under Subchapter S so that income passes through to the shareholders instead of being taxed at the entity level. When you dissolve an S corporation, you are closing the underlying entity, and the S election ends along with it. There is no separate “dissolve the S corp” filing distinct from dissolving the corporation itself.

That distinction matters because the work splits the same way it does for any corporation: a state half that ends the entity's legal existence, and a federal and tax half that ends its obligations, final returns, the IRS business account behind your EIN, and any state tax registrations. The S election only changes how the final income is reported, not whether you still have to close everything down.

Should you revoke the S election or dissolve the entity?

These are answers to two different questions, and people conflate them constantly. You revoke the S election when you want the corporation to keep existing but be taxed as a C corporation going forward, the entity lives on, only its tax status changes. You dissolve the entity when you are done with the business entirely.

If your goal is to close the company, you do not need to revoke the election first. You dissolve the corporation, and the S status simply ends when the entity does. Filing a revocation on your way out the door usually just adds a form and some confusion. The one scenario where revocation is genuinely the tool you want is when you are keeping the company but leaving Subchapter S, which is a different project from the one this page is about.

How do you dissolve an S corporation, step by step?

The order is what keeps the tax accounts from being left open. Here is the sequence:

1. Vote and adopt a plan of dissolution. The shareholders approve dissolution the way the bylaws and shareholder agreement require, and you record it in a written resolution or plan. This date starts the Form 966 clock.
2. File Form 966 within 30 days. Attach a certified copy of the resolution. It is a short form, but the deadline runs from the adoption date, not from the state filing.
3. Wind down the business. Notify known creditors, settle or set aside money for debts, collect receivables, and liquidate or distribute remaining assets to shareholders.
4. Wind down payroll. File final Forms 941/944 and 940, issue W-2s and 1099s, and close state payroll, withholding and unemployment accounts.
5. File the state dissolution. Articles or a certificate of dissolution with your Secretary of State, plus tax clearance where your state requires it.
6. File the final 1120-S and issue final K-1s. Mark the return final and give each shareholder their last Schedule K-1. See the fuller walk-through on the final business tax return.
7. Close the IRS business account. Once the final returns are in, send the IRS a letter to close the account attached to your EIN.

What is Form 966 and how does the resolution work?

Form 966, “Corporate Dissolution or Liquidation,” is the IRS's notice that a corporation has adopted a plan to dissolve. The instruction is to file it within 30 days of the resolution, with a copy of the adopted plan attached. It applies to S corporations just as it does to C corporations, the S election does not exempt you.

The practical trap is timing. Many owners handle the state paperwork first, then turn to taxes weeks later, by which point the 30-day window has quietly closed. Adopt the resolution, note the date, and treat Form 966 as the first federal step rather than the last. If you are already past 30 days, file it anyway, a late Form 966 is far better than none.

How do the final 1120-S and K-1s work?

A dissolving S corporation files a final Form 1120-S for its last (usually short) tax year, running from the start of the year through the closing date, with the “final return” box checked at the top of page one. Checking that box is what tells the IRS to stop expecting an 1120-S next year.

Each shareholder receives a final Schedule K-1 reporting their share of the last year's pass-through income, loss, deductions and distributions. That K-1 is separate from the tax treatment of the liquidating distribution itself: when the company hands back cash or assets in liquidation, that is generally treated as an exchange for the shareholder's stock, producing capital gain or loss against basis. Because basis, suspended losses and distributions all land in the same final year, this is the return most worth having a CPA check before it goes in.

How do you wind down payroll for an S corp?

S corporations are a payroll case even when the only employee was the owner, because reasonable compensation rules mean the owner was very likely on payroll. To close it cleanly you file final federal employment returns, Form 941 (or 944) and Form 940, with the final-return box checked and the date wages stopped, deposit any remaining employment tax, and issue W-2s to employees and 1099-NEC to contractors for the year.

Then close the state side: payroll withholding, state unemployment, and any local employment registrations. These state accounts are the ones the Secretary of State filing never touches, so they keep generating notices if you leave them open. The final-return page covers the federal payroll forms in more detail.

What is the state dissolution filing?

On the state side, an S corporation dissolves exactly like any corporation: you file articles or a certificate of dissolution with the Secretary of State, pay the state fee, and clear any franchise or income tax the state requires before it will accept the filing. Some states want a tax clearance certificate first; others let you file and settle tax afterward. The form name, the fee and the clearance rule all change at the state line, which is covered on the corporation dissolution guide and the individual state pages.

If the corporation registered to do business in other states, each of those foreign registrations has to be withdrawn separately, or the other states keep assessing their own annual fees.

How do you close the IRS account and EIN?

The IRS does not cancel an EIN, the number is permanent and never reassigned. What you close is the business account attached to it, by sending the IRS a letter with the entity's legal name, EIN, address and the reason for closing, after the final returns are filed. The IRS will not close the account while final returns are outstanding, which is exactly why the sequence above puts this step last. Full detail is on closing your IRS business account.

Rather have it handled?

Because an S corporation almost always has an EIN, payroll history and shareholder reporting, this is a Complete Closure job, the state filing, the IRS account, and guidance on Form 966 and the final returns, all in one. A specialist maps the exact scope on a call first, and if it turns out you need less, they will say so. Specialists are on WhatsApp 24/7.

This page is general information about dissolving an S corporation, not legal or tax advice. The final year's return has real tax consequences worth confirming with a CPA.