Is Your Small Business Ready for This New Federal Reporting Requirement in 2024?

Small business owners have to deal with a few different types of legal compliance and document filing requirements throughout the year. But along with forming an LLC, filing annual reports for a corporation, or filing business tax returns, now there's a new one called "BOI."

Have you heard about BOI reporting for small businesses? If not, pay attention, because it's kind of a big deal. Beneficial Ownership Information (BOI) Reporting is a new federal reporting requirement for small businesses that took effect on Jan. 1, 2024. It's managed by the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN).

If that sounds intimidating, don't panic! BOI Reporting is a way for the U.S. government to stop criminals who use shell companies to cover up their financial crimes. But the government needs your help -- and depending on when you started your small business, the BOI reporting deadline could be sooner than you think.

Let's take a look at what BOI Reporting means, why it's important for your small business, and why you won't want to forget to file your information with the federal government.

What is BOI Reporting?

Beneficial Ownership Information (BOI) Reporting is a new requirement that took effect on Jan. 1, 2024, as part of an act of Congress called the Corporate Transparency Act of 2021. This law is intended to make it harder for criminals to use shell companies or opaque business ownership structures to hide their ill-gotten gains.

Compared to many other countries, America makes it easy to start a business. In most states, with just some simple paperwork and a small fee, you can set up a small business that has its own separate identity for banking, taxes, and liability purposes. There are many ways to set up a business structure, such as an LLC (limited liability company), corporation, or other business entity.

But sometimes, it's a little too easy for just anyone to set up a business and get access to a business bank account. The same openness to entrepreneurship, investment, and ease of business formation that makes America's economy so dynamic can also make America vulnerable to bad actors.

For example, drug cartels or international oligarchs might want to set up a fake company or shell company to launder their money or hide their wealth from tax authorities. This BOI Reporting requirement is intended to prevent criminals from misusing the U.S. financial system by setting up fake companies to hide their misdeeds.

What information do small business owners need to provide for BOI Reporting

With Beneficial Owner Information Reporting, the government wants to keep track of who actually "owns" and "benefits" from a particular small business, corporation, LLC, or other legally created business entity.

The BOI Reporting filing system will ask you for a few types of information about your company and about the business's "beneficial owner," such as:

• Tax ID number (Employer ID Number if your business has one)
• Legal name of your business
• Where your business was formed, registered, or incorporated
• Your business's address
• Your personal name and residential address
• A photo of your driver's license or passport

Which small businesses have to do BOI Reporting

The rules for BOI Reporting are complicated. But in general, if you own a small business that exists as a legal business entity that was formed by filing documents with a Secretary of State or other state-level business incorporation authority, you will probably have to file a BOI report.

These businesses could include LLCs, corporations, and other business entities. Even if you don't have employees, even if you're a freelancer or a solo consultant or a solopreneur, even if your business is a side hustle that does not provide your full-time income -- if you have an LLC or an Employer ID Number, if you've filed a business tax return or opened a business bank account, you probably need to prepare for BOI Reporting.

Some types of businesses are exempt from BOI Reporting. These include nonprofits, certain publicly traded companies, financial services companies like banks and broker-dealers in securities, insurance companies, and accounting firms. But don't assume that your business is exempt; read the FinCEN website FAQs.

When is the deadline for BOI Reporting

BOI Reporting deadlines depend on when your business was formed:

• If your business was created, formed, or incorporated before Jan. 1, 2024, you have some time: you don't have to file your BOI Report until Jan. 1, 2025.
• But if you are starting a new business during 2024 (on or after Jan. 1, 2024), get ready: your BOI Report is due within 90 calendar days of your business entity's formation becoming "official."

Don't miss your chance to file your BOI Report. The penalties are serious! As FinCEN describes, business owners that willfully fail to file a complete or updated BOI Report, or provide (or try to provide) false or fraudulent BOI reports, can face civil penalties of up to $500 per day that the violation continues, or up to two years of imprisonment and/or a fine of up to $10,000.

Bottom line: BOI Reporting for the U.S. Treasury is an important new requirement for small businesses in 2024. Don't delay, don't ignore it, don't forget about it -- just as you wouldn't want to forget to file taxes or reply to a jury duty summons. The full list of details is complex and a little confusing; it shouldn't take long to actually file the BOI Report, but a lot depends on what kind of business you have and how your business entity is structured. Learn more at the FinCEN website.