How do I dissolve an S corp?

An S corporation is an ordinary corporation (or, sometimes, an LLC) that filed a federal election to be taxed under Subchapter S. That one fact organizes the whole dissolution: the state sees a corporation and wants its standard corporate dissolution filing, and the IRS sees an S corporation and wants the S-specific final paperwork. You work both layers, in that order.

Here's the sequence. As always on this site, it's general information, not legal or tax advice - the liquidation-tax pieces in particular belong with a preparer who knows your books.

Step 1: Board resolution, then shareholder approval

Corporate dissolution is a two-vote process. The board of directors adopts a resolution recommending dissolution, and the shareholders approve it by whatever margin the bylaws or the state's corporation statute requires. Small S corps where the directors and shareholders are the same people still paper both votes - some state forms ask for the vote counts or a statement that the shareholders approved, and the IRS wants a certified copy of the resolution attached to Form 966.

Record the date. The 30-day clock on Form 966 starts when the resolution or plan of dissolution is adopted, and the wind-up formally begins here.

Step 2: File Form 966 within 30 days

Form 966, Corporate Dissolution or Liquidation, is the IRS's notice that the corporation has adopted a plan to dissolve. It's due within 30 days after the resolution is adopted, goes to the IRS service center where the corporation files its income tax return, and carries the certified copy of the resolution. It's an information filing, not a return, and it doesn't replace the final Form 1120-S.

This applies to every corporation with an S election in place, including an LLC that elected S status.

Step 3: Clear taxes and reports where the state requires it

Some states won't accept a corporate dissolution until the revenue side is settled. Texas requires a Certificate of Account Status from the Comptroller (Form 05-305), issued only after the final franchise tax report is filed and paid. New Jersey requires clearance from its Division of Taxation. Everywhere else, bring past-due annual reports current first, because a delinquent entity's filing bounces.

Note that the state's franchise tax has nothing to do with your federal S status - S corps that pay no federal corporate income tax still owe state franchise and annual-report obligations like any other corporation.

Step 4: File Articles of Dissolution with the formation state

The document is the standard corporate one: Articles of Dissolution in many states, Certificate of Dissolution in others - Delaware corporations file a Certificate of Dissolution, and California stock corporations file a Certificate of Election and a Certificate of Dissolution, online-only through bizfile Online since July 1, 2026. It lists the corporation's exact name and file number, the effective date, a statement that dissolution was authorized by the board and shareholders, and an officer's signature. Nothing on the form asks about the S election; the state doesn't track it.

State fees vary. DissolveYourBusiness.com prepares and files the dissolution for a flat $75 plus the state fee, for any entity type in any state, submitted within 3-5 business days of your order.

Step 5: Wind up and distribute - where the S election matters

The wind-up itself is standard: collect receivables, pay creditors, cancel contracts, then distribute what's left to shareholders. The tax character of those final distributions is where S status earns attention.

Liquidating distributions are generally treated as payment in exchange for the shareholders' stock, so each shareholder computes gain or loss against their stock basis - and S corp basis, adjusted over the years by the K-1s, is exactly the number owners most often don't have handy. Reconstructing it after the fact is slow; start early.

One corporate-level trap deserves a flag: built-in gains tax. If the corporation was once a C corporation and later elected S status, sales of assets that had appreciated as of the conversion can be taxed at the corporate level during the recognition period - the 5-year period beginning with the first S corporation year (26 U.S.C. § 1374). A liquidation inside that window can trigger it. Whether it applies to you is precisely the kind of question this guide can't answer; put it to your preparer before you sell or distribute appreciated assets.

Step 6: The final 1120-S and final K-1s

The corporation's last return is Form 1120-S for the short year ending when it dissolves, with the final-return box checked in Item H and the 'final K-1' box checked on each shareholder's Schedule K-1. A corporation that has dissolved must generally file by the 15th day of the third month after the date it dissolved, with an extension available on Form 7004.

There's no separate filing to end the S election. A revocation letter is for corporations that want to keep existing as C corporations; a dissolving corporation's election simply ends with the corporation, and the final 1120-S is the last word.

Step 7: Payroll, EIN, and the rest of the close-out

Most S corps run payroll - shareholder-employees take a salary - so the payroll close-out is rarely optional: final Form 941 (or 944) with the closed-business box checked and the final wage date entered, Form 940 for the year marked final, W-2s and W-3, and 1099-NECs for contractors. After all returns are filed and paid, a signed letter to the IRS closes the business account tied to the EIN.

Then the standard tail: cancel state tax accounts, licenses, and DBAs; withdraw registrations in any other state where the corporation qualified to do business; keep the stamped dissolution and the final returns permanently. The full sequence is in our close-out checklist. DissolveYourBusiness.com files the state dissolution only - the federal and payroll steps are yours or your accountant's.