Step 1: Go into the Office 365 Portal.
Step 2: From the Dashboard, select Users and Groups:
Step 3: Don't click on the name of the user you want to delete. Simply put a check in the box next to their name, then the option to delete them will appear:
After you delete the user(s) in the Office 365 Admin area, the deleted users will be disabled automatically in CRM. The licenses associated with the deleted users are now available to new users. If you don't have someone you want to assign the freed license to and you wish to remove it (aka stop paying for it), you must call Microsoft Billing Support at 1-877-913-2707.