Small Businesses: Avoid Penalties with the New Corporate Transparency Act
Today, we're talking about the New Corporate Transparency Act, which affects most small business owners. It's also referred to as, BOI Reporting, which stands for Beneficial Ownership Information.
The stakes are very high with compliance as overlooking these regulations can lead to a significant penalty of $500 per day.
This is not a risk any prudent business owner should take.
The New Corporate Transparency Act.
The Corporate Transparency Act calls for small businesses, specifically those with fewer than 20 employees, to report their Beneficial Owner Information to FinCEN, the Financial Crimes Enforcement Network. This goes into full effect on January 1, 2025.
For new businesses established in 2024, a 90-day reporting window is provided. Beyond 2024, new businesses have only 30 days to report this information.
For existing businesses, the first report is due by January 1, 2025. I know what you're thinking. This is just too much.
It's crazy. It's unreasonable.
I don't disagree with you, but I'm just reporting on what's going on and what you need to be aware of as a small business owner.
So what information needs to be reported to FinCEN?
The Corporate Transparency Act requires each reporting company, that meets the reporting requirements, to identify itself, its owners and officers, and any professionals who help to form or register the company.
Specifically, they'll want legal names, addresses, dates of birth, driver's license numbers, and Social Security numbers.
Who is a Beneficial Owner of a Reporting Company?
A beneficial owner is an individual who either directly or indirectly has substantial control over the reporting company or owns or controls at least 25% of the reporting company's ownership.
What Will This Information Be Used For?
FinCEN says the information will be kept confidential. They'll share it with US regulatory agencies and it won't be accessible to the general public.
How Secure Is This Information?
FinCEN says they will enforce strict rules to protect this data, and any unauthorized use or access could lead to harsh consequences such as hefty fines and even potential jail time. Take that for what it's worth.
Do you think the information will be really kept secure? I don't know. With data breaches and IRS contractors leaking tax returns? I just don't know.
What are they hoping to accomplish with this new act?
It's designed to deter illegal activities by mandating that companies provide thorough details about who owns and manages these companies. This will help prevent unscrupulous individuals from hiding behind shell-type companies
Who Can Prepare The BOI Information?
This is evolving. The answer right now is... I don't know.
CPAs are being advised not to handle this type of work since it could be perceived as legal work that should be handled by a lawyer. Lawyers, on the other hand, don't often have a close relationship with business owners, and they'd rather defer this back to Accountants. The American Institute of CPAs advises that businesses might be best served by handling these reports by themselves.
Regardless, these need to get done, the failure to do so will result in hefty penalties for the small business owner.
Are There Reporting Exceptions?
Yes, there are exceptions. Generally, businesses with more than 20 employees, over $5 million in revenue, and a physical presence in the US.
There's also a list of 23 types of entities exempt from the BOI Reporting Requirements. The following table summarizes the 23 exemptions:
Just know that non-compliance is not an option. If your small business is subject to reporting, then you have to comply.
If you don't, the penalties can add up really fast at $500 per day, and in criminal cases, the fines can reach $10,000 and up to two years of prison time.
This is crazy.
For more detailed guidance, FinCEN's FAQ is an invaluable resource.
One final thing to note is if you have any old LLCs or Corporations that you set up years ago and they're just sitting around, you might want to dissolve those with your state as soon as possible.
So that's about it. I hope you got value from this. Thank You for reading and see you in my next blog post!