As a small business owner, you need to be informed about this new federal law that will impact how you run your business.
In this month’s blog, we’re talking about the Corporate Transparency Act: what it is, why it matters, and how it’s likely to affect you.
What Is The Corporate Transparency Act?
The Corporate Transparency Act of 2019 is a new federal law requiring a “beneficial ownership information report” to be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
“Beneficial owner” is defined as anyone meeting some or all of the following criteria:
- An individual who exercises substantial control over a corporation or limited liability company
- An individual who owns 25% or more of corporation or LLC
- An individual who receives substantial economic benefits from the assets of a corporation or LLC.
This means that anyone who owns, controls, or gains substantial benefits from a company will need to be disclosed to FinCEN. The reporting requirements include new and existing corporations and LLCs.
According to the U.S. Department of the Treasury, the law is intended to prevent money laundering, tax fraud, and the financing of terrorism by forcing the disclosure of corporate ownership.
Why Did Congress Pass The Corporate Transparency Act?
The Tax Justice Network, a non-profit that advocates for “tax justice,” reported in 2020 that the United States ranks only behind the Cayman Islands and Switzerland in what it calls “financial secrecy.”
This means that the U.S. maintains a favorable environment for helping individuals and businesses hide taxable money from the government. Obviously, this isn’t intentional. But our complex tax code and fast-changing financial environment provide an ideal environment for financial crimes to occur.
What Does the Act Do?
The Anti-Money-Laundering-Act of 2020 (the legislation establishing the Corporate Transparency Act) asserts that criminals engaged in money laundering, funding of terrorism, tax evasion, and other similar crimes often seek to hide their ownership or involvement in corporations affiliated with these activities. The AMLA requires companies to report all financial beneficiaries in an effort to counteract these crimes.
It also expands sharing of information with foreign authorities and financial institutions abroad to better combat international money laundering.
What Does It Require Small Businesses to Do?
Every existing or newly filed corporation or LLC will be required to file a BOI report, unless the company in question qualifies for an exemption. 23 entity types will be exempt from this new reporting since they are already subject to substantial tax and government oversight.
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How Will The Corporate Transparency Act Affect My Business?
As of January 1, 2024, small business owners will be required to file a Beneficial Ownership Information Report with FinCEN.
Business owners who fail to file may be hit with civil and criminal penalties if they do not comply or if they miss the deadline. These penalties could include a fine, a prison term of up to three years, or even both.
When Do I File a BOI Report?
You can file a BOI report on or after January 1, 2024.
If your company was created before January 1, 2024, you’ll have until January 1 of the following year to file your report.
If your company is created after January 1, 2024, you’ll have 30 days from the date of your company’s effective registration to file your BOI report.
How Do I File a BOI Report?
You can file your BOI report electronically via FinCen’s website.
Conversely, you can also ask your tax professional to file your report for you.
Hire An Expert Tax Strategist To Walk Your Business Through the Corporate Transparency Act
These new reporting requirements are a big deal. It’s no secret that many small business owners are upset by what they perceive as an intrusion of privacy.
But failure to comply with these new requirements could cause severe damage to a small business.
Tax Savvy Jessica has 13+ years of experience helping her clients navigate small business tax challenges like the CTA.
Take the Fit + Pricing Quiz to learn more about how our services can help your small business thrive.