If you’re a small business owner in the US, there’s a significant legal deadline looming. Eligible businesses must file reports under the new Corporate Transparency Act (CTA), which became effective in January 2024. Failure to comply by the 1 January 2025 deadline may result in severe penalties, including up to two years imprisonment and fines as steep as $10,000.
The US Chamber of Commerce has further emphasised that businesses could face ongoing civil penalties of $591 per day for non-compliance. With thousands of small businesses potentially unaware of this reporting obligation, understanding the requirements has never been more critical.
What Is the Corporate Transparency Act?
The Corporate Transparency Act was initially signed into law in January 2021 to combat financial crimes, such as money laundering, tax fraud, and terrorism financing. To meet these objectives, the Act mandates that qualifying businesses submit a Beneficial Ownership Information (BOI) report to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This report captures essential ownership information for businesses operating within or accessing the US market.
Despite being in effect since January of this year, the law has not received widespread attention. “People really didn’t know about it until the end of last year,” said Roger Miller from Mizick Miller & Company. Many small business owners are still unaware of their responsibility to report, leaving them vulnerable to penalties.
Who Needs to File?
You’re likely required to file under the CTA if you have registered your business through your state’s secretary of state office or its equivalent. This includes:
- Corporations, including S corporations
- Limited Liability Companies (LLCs), including single-member LLCs
Zach Chatlain, a CPA from Mizick Miller, explained, “If you filed something with the secretary of state or a similar office to create your entity, you’re required to file.”
Even if your business is inactive or you’ve forgotten you registered an LLC years ago, you may still be required to report. Many businesses are caught unaware because they’ve not updated their attorneys or accountants that they had created an LLC.
For example, single-person LLCs, which are common for service providers like house cleaners, tutors, or landscapers, are being impacted heavily by the CTA. Without proper knowledge, these operators might fail to realise they’re non-compliant and at risk of penalties.
What Does the Filing Process Entail?
Eligible entities need to submit a Beneficial Ownership Information (BOI) Report to FinCEN by 1 January 2025. This report includes personal identifying details of the business’s beneficial owners, such as:
- Full name
- Date of birth
- Address
- A government-issued identification number with a corresponding image
Submitting this report ensures that FinCEN meets its goal of collecting thorough business ownership details to prevent illicit activities in the broader financial landscape.
For those uncertain about whether they qualify or how to comply, Roger Miller recommends taking no chances. “Go to the secretary of state and see if there’s a name in there. We’re recommending even if they’re inactive to file.”
What if You Miss the Deadline?
Failing to file the required BOI Report by the 1 January 2025 deadline could result in:
- Criminal fines of up to $10,000
- Civil penalties of $591 per day until compliance
- Up to two years imprisonment
The risks for non-compliance are considerable, and businesses shouldn’t adopt a ‘wait-and-see’ approach regarding the government’s enforcement measures.
“We don’t know what they’re going to do,” said Roger Miller, “but they sure scared everybody.”
Why Small Business Owners Are Struggling
For many business owners, the complexities of the Corporate Transparency Act are compounded by a lack of education on the matter. Now that the law has been enacted, accountants and legal professionals are urging business owners to take action. However, the challenge lies in reaching individuals who may have registered an LLC themselves and neglected to inform their accountant or attorney.
Miller cautions that many of these LLCs are operating under the owner’s Social Security Number rather than an Employer Identification Number (EIN), making them far less obvious to financial professionals who could provide guidance.
“We can educate the clients we know about,” Miller said, “but we don’t know they exist unless they tell us.”
How Businesses Can Stay Compliant
If you think you may fall within the scope of the new law, here’s what you need to do:
Check Your Filing Records
Conduct a search on your state’s secretary of state website to see if you—or an entity linked to you—have an active or inactive LLC or corporation listed.
File Your BOI Report
Visit FinCEN’s official website to begin your Beneficial Ownership Information submission. You will need valid government identification for this process.
Seek Professional Assistance
If you’re unsure about your compliance status, reach out to an accountant or attorney for clarity and assistance with filing.
While the process may seem daunting, taking steps to understand and fulfil your obligations under the CTA now is far preferable to incurring hefty penalties later.
Comply Now, Avoid Penalties
Small business owners across the US need to act swiftly to meet the Corporate Transparency Act’s requirements. By filing the BOI Report before 1 January 2025, you’ll not only avoid substantial penalties but also ensure your compliance with a law aimed at improving the integrity of the nation’s financial systems.
Your accountant or lawyer can provide valuable guidance, so don’t hesitate to reach out for help. Ignoring this legal obligation is simply not worth the risk.
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