Federal Reporting of Small Business Ownership Begins January 1, 2024. How Will It Affect Your Business?
Starting from January 1, 2024, certain business owners must follow a new federal law for reporting business owner information to the federal government. This law, called the Corporate Transparency Act (CTA), is intended to stop money laundering, terrorism funding, and other crimes. If business owners don't properly report ownership information, they may face fines of $500 per day (up to $10,000) or up to 2 years in prison.
If your business is subject to reporting under the CTA, you must submit a business owner information (BOI) report to the Financial Crimes Enforcement Network (FinCEN) with information about each “beneficial owner” of the business. This includes name, date of birth, home address, and passport or driver's license number (with photo). A "beneficial owner" is anyone who:
(a) Has substantial control of the business,
(b) Owns 25% or more of the business, or
(c) Derives substantial economic benefit from the business's assets.
The CTA applies to corporations, limited liability companies (LLCs), limited liability partnerships (LLPs), and other entities created or registered by filing a document with the secretary of state or similar state office.
The CTA lists 23 types of entities that are exempt from these rules, including broker-dealers, insurance companies, banks, accounting firms, tax-exempt organizations, and entities with more than 20 full-time employees and gross annual receipts exceeding $5,000,000.
The deadlines for filing the initial BOI report depend on when your business was created:
(a) If your business was formed in Michigan before January 1, 2024, you must file the first report by January 1, 2025.
(b) If your business was formed in Michigan after January 1, 2024, you must file the first report within 30 days of forming the business.
After the first report, you must update your BOI report or fix any mistakes within 30 days of any changes or to correct inaccuracies.
While many types of businesses are exempt, most small business entities, including real estate investment LLCs and Sub S corporations will need to file a BOI report with FinCEN.
For example:
Wayne created an LLC in Michigan for his graphic arts business in 2005. Wayne will will have to file a BOI report with FinCEN in 2024.
John and Susan created a family limited liability company in 2020 as part of their estate planning to hold investment real estate and other assets. John and Susan will have to file a BOI report with FinCEN in 2024.
Ann and Mary created a corporation in 2018 to operate a florist shop. the shop generates $300,000 in gross income per year. Ann and Mary will have to file a BOI report with FinCEN in 2024.
As of date of this blog post, FinCEN hasn't published the BOI report form, and the filing system isn't finished. But FinCEN plans to start accepting reports beginning January 1, 2024.
Business owners should talk to their lawyer or other trusted business advisor to find out if they are subject to BOI reporting requirements. If so, they’ll need to start gathering the required information in order to make a timely filing before 2025.
With a little more than 30 days left before the CTA takes effect, it's important to act now. If you are not familiar with the CTA BOI reporting requirement, or you're not sure if your business is subject to them, give us a call. We can help!