Introduction: Understanding the New Corporate Transparency Act
As a business owner, the exciting parts of entrepreneurship like living your passion, owning your time, and creating a legacy are undoubtedly appealing. However, the less glamorous aspects, like taxes and corporate filings, are equally important. One such aspect is the new Corporate Transparency Act (CTA), going into effect in January 2024. This law requires business owners to file a report with the federal government, with non-compliance potentially leading to hefty fines (up to $10,000) or even jail time (up to 2 years). Let’s dive into what this law entails and how to avoid these significant penalties. Remember, no one looks good in an orange jumpsuit!
Understanding the Corporate Transparency Act: Who’s Affected?
The CTA was introduced to monitor business ownership more closely, primarily to combat illegal activities like money laundering and fraud. If you have seen an episode or two of Ozarks, you know that small businesses are great harbors for some not so savory activities, so this new law makes a lot of sense. The Financial Crimes Enforcement Network (FinCEN) will maintain a database of “beneficial owners” for businesses created with a filing document in the US, including LLCs, S Corps, and C Corps. A beneficial owner is someone who:
- Holds a significant stake in the company.
- Owns more than 25% of the company.
- Has major influence over decisions or operations.
- Possesses a similar level of “substantial control” in the company.
CTA’s Impact on Small Businesses: What You Need to Know
If you’re a beneficial owner, your entity is a “reporting company,” meaning you need to file a Beneficial Ownership Information report with FinCEN. This report includes details of each beneficial owner such as name, birthdate, address, and identification numbers. For companies formed in January 2024 or later, you’ll also need to provide these details about the company applicant. It’s advisable to have your small business attorney, accountant, or tax preparer handle this filing. Don’t DIY this one. You have enough things to do and worry about already.
Reporting Process and Deadlines: Key Dates
The initial filing period for businesses formed before January 1, 2024, is January 2025. While you have a year to prepare, don’t let this slip off your radar. For new businesses formed after January 2024, the deadline to file the BOI is 90 days post-formation. Additionally, it is your responsibility to update the report whenever there’s a change in information, such as company address or ownership.
Next Steps for Business Owners: Preparing for Compliance
Schedule a meeting with your tax preparer or small business attorney to discuss the CTA. Ensure you have time on your calendar to gather the necessary information and confirm the completion of filing. While it might be tempting to handle the filing yourself, delegating to a professional can save you from the stress of potential mistakes.
Call to Action: Consulting with Professionals
If you don’t already have a small business attorney, now is the time to establish that relationship. Merlyne Jean Louis at Jean Louis Law is a good friend of High Tides and the first attorney to put the CTA on our radar. If you are short on legal advice, you should give her a call. Also, consider discussing the CTA with your tax preparer or accountant if you don’t have a small business attorney readily available. First quarter is usually a time when folks are talking more to their tax professionals, so use the opportunity to inquire if they are now offering the BOI filing as one of their service offerings.
Conclusion: The Importance of Compliance
While dealing with paperwork like the CTA isn’t the most exciting part of running a business, compliance helps ensure the integrity of US businesses. Talk to your legal and financial advisors about this requirement and mark your calendar to avoid missing the deadline. And for those planning to start a new business, remember to include this in your entity formation checklist. You know we will.