New small business reporting requirements


A little known filing requirement is coming and it’s going to impact most of your small business clients. The Corporate Transparency Act starts impacting small businesses beginning Jan. 1, 2024, but with only months until its formal kickoff, most business owners are blissfully unaware of the filing requirements.

The Corporate Transparency Act was part of the Anti-Money Laundering Act of 2020. Its aim is to provide more insight into the real owners of especially small businesses. In cases where small businesses may be owned by other entities, or the true identity of individual owners might otherwise be somewhat masked, disclosure requirements will begin to break down those walls.

The reporting requirements are actually FinCEN related and will not impact income tax filings. But why should preparers care? Who else will business owners be turning to for help to complete these filings? On top of that, making clients aware is a nice value-added service as well as an opportunity to look at a boosted revenue stream.

Domestic small businesses will be required to file reports with FinCEN disclosing all beneficial owners. Beneficial owner is defined as “an individual who, directly or indirectly, either “exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company.”

Substantial control can make this interpretation more difficult and further expand it to mean officers of the organization or anyone with the authority to appoint an officer. Reporting requires the legal name, address and tax ID number for each owner.

Every corporation, LLC or other entity formed by a filing with their Secretary of State office will be required to comply unless they fall into one of the exemption categories. The category list is reasonably long and should be reviewed on the FinCEN website.

Businesses that employ more than 20 full-time employees, have a physical office in the US and filed a tax return last year showing more than $5 million in gross receipts are considered large enough to be exempt.

That, however, leaves a huge number of small businesses that will need to comply. Accounting firms are also exempt. What should preparers be doing to get ready for these new requirements? Start by reviewing the rules and exemptions. More information can be found here.

After familiarizing yourself with the reporting requirements, consider a newsletter or communication to clients who may be required to file and help them start gathering the necessary information for their reports. Tax preparers will be the most likely advisors to assist with these forms as much of the information will already be in our records for return preparation. Also consider your 2023 income tax return preparation fees and whether a slight increase in fees is needed for covering these filing requirements.

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