The Final Payroll Software Puzzle: Why Gusto and Other Processors Don’t Mark Your Last Return

Have you ever found yourself puzzled by the seemingly simple task of closing your payroll account? You’re not alone. At a recent small business event, a lively discussion emerged about why payroll software Gusto—and many other payroll software—don’t mark your final tax return when you close your account. Let’s delve into this payroll predicament and see what we can learn.

The Unexpected Twist in Closing Your Payroll Account

Picture this: You’re wrapping up your business or switching payroll providers. You’ve dotted all the i’s and crossed all the t’s – or so you thought. Then you realize there’s one more hurdle: marking your final tax return. Surely your payroll software can handle this simple task, right? Well, not so fast.

One frustrated business owner shared their experience with Gusto: “Gusto confirmed that they do not check these boxes for you when you close your Gusto account, leaving you the task to ‘work directly with the agency for this‘.” Ouch. That’s not exactly the smooth sailing you were hoping for. But before we grab our pitchforks, let’s dig a little deeper.

The Industry Standard: A Surprising Revelation

Here’s where things get interesting. As the discussion unfolded, a pattern emerged. It turns out, Gusto isn’t alone in this practice. In fact, it’s the norm across the industry. One person, who works for a payroll bureau, chimed in: “I’m on the bureau side, we don’t do that either. It’s the business owner’s responsibility.”

Another added: “Yeah no the last 3 payrolls processors I’ve worked for don’t do that.” So, what gives? Why is this seemingly simple task left to the business owner?

The Method Behind the Madness: Why Payroll Software Providers Don’t Mark Final Returns

Let’s break down the reasons why payroll processors typically don’t mark final returns:

1. It’s Not Just Ticking a Box: Marking a return as final is a big deal. It’s telling the IRS, “This business is done with payroll taxes, period.” That’s not a statement to be made lightly.
2. Liability Concerns: Payroll processors aren’t tax experts or accountants. They’re not in a position to make definitive statements about a business’s tax status. What if you’re just restructuring? What if you’ll continue without W-2 employees? Marking a return as final in these cases could cause serious headaches.
3. Technical Hurdles: Here’s a fun fact from one commenter who works for a payroll processor:”On page 5 of the IRS’s 941 instructions, it states, ‘[if marking the return as final], also attach a statement to your return showing the name of the person keeping the payroll records and the address where those records will be kept.’ … Since we electronically bulk file, there’s no mechanism for us to attach this required statement.”It’s like trying to fit a square peg in a round hole – the systems just aren’t set up for it.
4. Incomplete Information: Payroll processors don’t always have the full picture of your business situation. They don’t know if you’re truly closing shop or just restructuring. Making that call without complete information could lead to costly mistakes.

The Business Owner’s Burden: A Necessary Evil?

Now, I know what you’re thinking. “Great, so it’s all on me?” Well, yes and no. Let’s look at it from another angle. Several commenters emphasized that marking returns as final is ultimately the business owner’s responsibility. At first glance, this might seem unfair.

After all, isn’t that what you’re paying the payroll company for? But here’s the thing – your business, your taxes, your responsibility. It’s a fundamental principle of running a business.

Your payroll processor is there to help with the day-to-day operations, not to make critical decisions about your business’s tax status.

Think of it this way: Would you want your payroll company deciding when your business is officially “closed” in the eyes of the IRS? Probably not. That’s a decision that should come from you, with the advice of your accountant or tax professional.

The Exceptions to the Rule: A Glimmer of Hope?

Now, before you lose all hope, there’s a plot twist. A few persons mentioned that their payroll bureaus do offer services to mark returns as final or even close tax accounts. One said: “On the bureau side, and we do offer to close the state and federal accounts as an added service as part of a client discontinuation process.” Another added: “We do check the box if requested, and for most States. We have a client termination form which includes the question of whether to mark the return as final.” Sounds great, right? But before you rush to switch providers, consider this:

1. It’s likely an additional service, which means extra fees.
2. Even if a provider offers this service, they’ll need detailed information from you. You can’t just wash your hands of the process entirely.
3. The responsibility is still ultimately yours. Remember, at the end of the day, you’re still on the hook for ensuring everything is done correctly.

The Potential Pitfalls: A Cautionary Tale

Now, let’s talk about what can go wrong if this process isn’t handled correctly. One user shared a cautionary tale: “Had a client close their business, and when I cancelled with Gusto, they specifically asked if I needed them to close the payroll tax accounts. It was only after we got notices for failure to file that Gusto told me they don’t perform that service.” Ouch.

This highlights the importance of clear communication and understanding exactly what services your payroll provider does and doesn’t offer.

So, What’s a Business Owner to Do?

At this point, you might be feeling a bit overwhelmed. Don’t worry, we’ve got some practical advice for you:

1. Communicate Clearly: When you’re closing your account or your business, be explicit about your intentions. Don’t assume your payroll provider knows what’s going on with your business.
2. Ask Questions: Find out exactly what your payroll provider will and won’t do when you close your account. Get it in writing if possible.
3. Consult an Expert: Consider working with a professional who can guide you through the process of closing your business and filing final returns.
4. Do Your Homework: Understand what’s required when filing a final return. Knowledge is power!
5. Consider Your Options: If having a provider who offers closing services is important to you, shop around. Just remember to weigh the costs and benefits.

The Bottom Line: Navigating the Final Payroll Frontier

The world of payroll and taxes can be a maze, especially when you’re trying to close up shop. While it might be frustrating that your payroll provider won’t mark your final return, remember that they’re not trying to make your life difficult.

They’re simply sticking to industry standards and protecting themselves (and you) from potential errors. As a business owner, the buck ultimately stops with you.

It’s your responsibility to ensure all loose ends are tied up when closing your business or changing providers. Yes, it’s one more thing on your plate, but look at it this way – it’s also one more way you’re taking control of your business’s destiny.

Remember, running a business is a journey, and closing one is just another part of that journey. It might be challenging, but with the right knowledge and support, you can navigate these waters successfully.

Speaking of support, if you’re feeling overwhelmed by the financial aspects of running (or closing) your business, reach out to us. We can help you.