In my business, I help others form business entitiessuch as an LLC or corporation. Usually less attention is paid to it AND– formation of business entities. That's unfortunate—knowing the right way and time to dissolve a business can save you a significant amount of money and hassle.

The most important thing to remember about your time business dissolution is to aim for action before the end of the year. November and December are good times to say goodbye and start over.

Related: 5 ways to move forward after closing your business

Why you should liquidate your business before the end of the year

If you know it's time to put a business on the shelf (or in the incinerator), but you don't move to officially dissolve the business entity by January 1st, well, as they say in Texas, you've just shot yourself in the foot, partner.

If that business, however ailing, is still alive on January 1, then you will owe the IRS and your state taxing authority a filing taxes for that calendar year. And who has time or money for extra files when you could have just distributed it before January? Depending on the state you live in, you may also have other headaches that come from:

Minimum business taxes: In some states, if you're still nominally operating by January 1 — even if your business fails to generate a red cent of revenue all year — you'll be hit with one form or another of the minimum business tax. For example, let's say your California LLC was not dissolved before January 1st. Now you owe the state Franchise Tax Board $800 for the satisfaction of not doing business that year. The state of Massachusetts insists that all corporations (including S corporations) receive a minimum “annual excise tax” of $456. Nevada calls it a “business license fee” and it's $500 for corporations and $200 for LLCs.

Find out what if any minimum business taxes are imposed in your state by visiting your state's SOS (Secretary of State) website. Look for words like “excise tax”, “business license fee” and “franchise tax”, all slang terms for “we'll just tax you for existing”.

License or permit renewal fees: If you don't resign before December 31, you may be stuck paying for renewed licenses or permits. If you are closing down your day care or plumbing business, or your food service business or bar, then you certainly don't want to pay for licensing to cover a period of time that you are not operating.

Keep in mind, depending on the breadth of activities and verticals of your business, you may find yourself licensed and permitted by multiple levels of government. Let's assume that yours C-CorporationFlameCorp, has several verticals, all of a pyromaniac nature: If you wait until January to wind down your company, then you may owe renewal fees like the municipal authority that allows your bus driver to juggle flaming sticks for roadside tips and the Federal Bureau of Alcohol, Tobacco and Firearms that licenses your fireworks importation business. Make sure you understand the specific fees and associated timelines set by each permitting and licensing authority so you don't get burned.

Registered Agent Fees: My business charges $149 a year to act like yours registered agentreceiving official documents, legal notices, protecting your privacy, etc. Whether you use my firm or another, registered agent contracts automatically renew at the beginning of the year. Don't pay me for no reason. Instead, be a pro and distribute your business by the end of the year, then immediately notify your registered agent to stop service for the next year.

Annual (or bi-annual) report fees.: These fees are not as high as minimum business taxes and licensing and permit fees; however, why should a hardworking entrepreneur like you throw money away? In California, for example, if your corporation doesn't dissolve by the last day of the second month of the anniversary of its formation, then you're on the hook for the $30 annual report filing fee twice a year. If your breakup was timed, that's $30 that could have gone to your I-Deserve-This-Latte fund.

Dissolution vs. Conversion

Maybe now is not the time to throw down, but a restart of unit formation is in order. I am often approached by entrepreneurs who want to convert their current business entity into a new type of entity. For example, an individual entrepreneur forms a corporation on a whim, but quickly realizes that the tax and reporting structure is a little too complex for his tastes, and he would like to convert his corporation to a single-member LLC. In some states, this can be achieved through a process called, get this, “conversion“, where the existing entity does not need to be formally dissolved.

About 35 states have “statutory conversion” laws for books that explicitly allow such conversions. Other states, however, require you to jump through a few more hoops. Take New York, for example, where S corporation owners are required to pass one REUNION process if they seek to convert to an LLC entity. First, the owner must create the LLC, the new entity, in its own right. The LLC will then need to acquire the existing S Corp through a merger, requiring a Certificate of Merger to be filed and all the rest.

For the cleanest transition possible, convert your business entity before December 31st. This will simplify your tax filings (who wants to pay an accountant to file a Schedule C and a Form 1120 for the same business?) and help improve other compliance and administrative issues, such as the obligations listed below. seen in this article.

How to distribute

Again, your state's SOS website will walk you through the specifics of the entity dissolution and conversion process. Generally, you will need to file articles of dissolution with the state. If your business is a corporation or a multi-owner LLC, then a voting record of a shareholder or owner will be required. You will need to pay any unpaid taxes and notify the IRS by filing a final tax return for your business that will be marked “final return.” You must also cancel your EIN (Employer Identification Number) by contacting the IRS. Your state's SOS office will provide you with an exhaustive list of steps.

Congratulations on simplifying your life! Closing a non-prosperous business can free up your focus and energy for your next big entrepreneurial adventure. Dissolving your business before the end of the year will save you time and your pocket.