Accounting practices and tax filing requirements are often overwhelming. Navigating the complexities of regulatory requirements is a lot to handle, which is why most people turn to their accountants for advice and handling most of those details. One of the newest regulatory things coming down the pipeline has been a strong source of anxiety. Understanding the FinCEN BOI reporting requirements for small businesses is critical.
In this guide, we walk you through everything you should know about BOI, FinCEN requirements, and estimated taxes. When you have questions or need guidance, turn to Katherine M Johnson, CPA, to get expert support and solutions.
Understanding FinCEN
FinCEN is not a new establishment. This is the Financial Crimes Enforcement Network, and they have been around for a very long time. The government agency is tasked with combating financial crimes like money laundering or terrorist financing. There are reporting steps in place, and they monitor very closely for signs of illegal activity.
FinCEN has made a strong push for transparency for all businesses, including small businesses, entrepreneurs, and freelancers. This push is designed to help safeguard the financial ecosystem, but it also brings about new rules and new responsibilities that every business owner needs to be familiar with so they can be in compliance.
What is BOI Reporting and Why Is It Important?
Recently, FinCEN established BOI, or beneficial ownership information, reporting in an effort to enhance its effectiveness. BOI reporting requires businesses to disclose very specific information about the owners of a business or individuals who control a business. The goal behind this reporting is to combat fraud as well as to prevent misusing businesses and legal entities for illicit purposes.
BOI does not just affect big corporations; it is also a new requirement for small businesses. For many small businesses, it’s just another hurdle to jump through, but it’s also still critical to understand and there are some strict regulations for enforcing the reporting, which must be completed by January 1, 2025.
Ultimately, BOI is meant to prevent people from using a business to commit a crime. However, in order to cover that umbrella, it has to be enforced for all businesses. The reporting will create a database of ownership information so authorities can quickly identify suspicious activity more easily.
The Corporate Transparency Act (CTA) and Its Requirements
All of this stems from CTA, which is the Corporate Transparency Act. This act established BOI reporting to enhance business transparency, mandating specific entities to report information about beneficial owners. CTA focuses on business transparency, and that is what these efforts are meant to accomplish.
So who has to report? CTA applies to most small businesses. This includes LLCs, corporations, and partnerships. It’s meant to catch businesses that might fly under the radar and aren’t in the spotlight like publicly traded companies. Most sole proprietorships, publicly traded companies, and 501(c)(3)s are exempt.
However, don’t just assume you are exempt, as there are some hefty penalties for failure to report. Work with a qualified professional to determine whether you need to file.
Here is what must be reported for individuals who are beneficial owners:
- Names
- Addresses
- Identification details
- Reporting entity legal name and address
How BOI Reporting Impacts Small Businesses
Photo by Andrea Piacquadio on Pexels
BOI is another administrative task that businesses have to worry about or pay someone else to handle. It’s another report to file, and that may feel like a nuisance to some businesses. The new task will require gathering and submitting certain information before the deadline.
These requirements might feel a little burdensome, but there are benefits to the reporting, and that’s where we encourage you to focus! This enforcement helps to protect your business from fraud. Being compliant contributes to a database that reinforces your legitimacy. It can help to build trust with partners or regulatory agencies, as well as customers.
As with anything new, there are potential challenges business owners are concerned about. The biggest challenges are how to manage the reporting requirements as well as potential privacy concerns. There are steps in place on the reporting level for privacy protection, but it will also be vital for you to have a process to protect the privacy of your beneficial owners.
Steps for Small Business Owners to Comply
If you’re concerned and overwhelmed at the thought of complying with yet another reporting requirement, it’s ok. However, the steps for compliance are easier than you might think overall. Gathering information is the most challenging part of the process.
These are the basic steps to follow:
- Determine Applicability: the first step is to review the requirements and exemptions to determine whether your business is subject to BOI reporting.
- Gather Information: if you are required to report, start gathering the required information together. This includes all the beneficial owners, their names, addresses, and identification numbers and business details too.
- Submit the Report: use the designated FinCEN platform to create and file your report, ensuring all data is entered correctly to avoid any issues.
- Stay Updated: you will need to keep the reported information updated and ensure it stays accurate. When something changes, the reporting should be updated to reflect those changes.
What Happens if You Don’t Comply?
This is not an optional reporting process. While it may take some time to discover the businesses that did not comply and report, there will be consequences for non-compliance. Failing to comply with the BOI reporting requirements can result in substantial fines and penalties. With continued non-compliance, a business might face legal investigations or harm to its reputation.
Your customers and partners could easily lose trust in you because you did not comply and it makes it appear you are hiding something.
Common Questions from Small Business Owners
We’ve seen and heard a lot of questions about BOI reporting. Here are a few with answers.
Does This Apply if I Am Self-Employed?
In most cases, BOI reporting is not required when you are self-employed because your business is not considered a reporting company. However, it’s important to check state requirements and know that if your self-employment is anything other than a sole proprietorship, you may have requirements.
What About Sole Proprietorships?
There are some exceptions for certain business structures, and they cover most sole proprietorships. If your sole proprietorship has no formal legal structure, you are likely exempt.
How Can I Keep My Information Secure?
Only use the FinCEN designated platform for reporting the data. In addition, it is important that you take steps to protect sensitive information within your own business to safeguard ownership details.
Practical Tips to Ensure Compliance
If you want to stay in compliance, it’s critical to be on top of the requirements and know and understand what to report and when.
- Stay organized
- Leverage technology available to you
- Seek expert guidance for support
Final Thoughts
BOI is a legal obligation, but it’s also an opportunity to protect your business and take part in a transparent financial system. Be proactive – don’t put off reporting until the last minute.
Check your reporting obligations today. If you need assistance, contact Katherine M Johnson, CPA, for answering questions and providing support with BOI reporting. We’ve got you covered.
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