Beneficial Ownership Reporting (BOI), What it is and How it Affects You as a Small Business Owner.
Many small business owners may feel overwhelmed at the thought of yet another reporting requirement. However, BOI, or beneficial ownership reporting – the process of providing the government with information about who owns a business – is an essential step in preventing fraudulent businesses from laundering, hiding, and stealing money.
The Treasury’s Role
Unlike traditional tax reporting handled by the IRS, BOI reporting falls under the jurisdiction of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). FinCEN’s primary aim is to identify and combat financial crimes, such as racketeering and money laundering. While those in the financial services space are familiar with the agency, many small business owners may be unfamiliar with FinCEN and its reporting requirements.
Compliance and Reporting Obligations
BOI reporting applies to all businesses organized or registered with the secretary of state, including corporations and LLCs. If your business falls into either of these categories, you will need to file an annual report with ownership information. Existing businesses founded before the end of 2023 have until January 1, 2025, to prepare and file their first BOI report. However, new businesses or the reporting of changes to previously reported information must file within 30 days of their inception or change.
Navigating the Reporting Process
The reporting process for BOI is simple. You can access the portal to submit a report here: https://www.fincen.gov/boi. FinCEN has provided several guides and FAQs to assist you in filing your report. Additionally, you can request assistance from your accountant or attorney in filing your BOI report. We recommend having your attorney file an initial report for any new entity they are forming for you during the formation process.
Penalties and Exemptions
While BOI reporting is a compliance requirement, it is not accompanied by additional fees from FinCEN. However, willfully failing to report complete information can result in penalties of $500 per day, along with potential criminal penalties, including imprisonment and fines up to $10,000. It’s important to emphasize that ignorance is not a valid defense, as willful noncompliance can have detrimental consequences.
Exemptions from BOI reporting apply to certain businesses, including securities reporting issuers, government authorities, banks, credit unions, large operating companies ($5M in revenue plus additional qualifications) and more. However, most small businesses will not fall within these exempt categories. It is crucial to review the exemption criteria to determine if your business qualifies.
Best Practices for Small Business Owners
To stay on top of BOI reporting, small business owners should proactively monitor any changes related to their ownership or legal structure. If things are steady as she goes, meaning no significant changes, it’s advisable to keep BOI reporting on your radar and revisit it when necessary. However, in cases of new entity formations or ownership changes, prompt reporting is essential.
Here are some key events that should make BOI reporting come to mind:
- Existing entity deadline of 1/1/2025
- Inception of a new entity registered with the Secretary of State – 30 days
- Any changes of beneficial ownership – 30 days
- Changes to previously reported information (think address change, name change) – 30 days
Beneficial Ownership Information reporting may seem daunting at first, but with proper understanding and guidance, compliance can be manageable. As a small business owner, it is crucial to stay informed and work closely with your trusted advisors to ensure accurate and timely BOI reporting. Check out the FinCEN Small Business Compliance Guide to get you started.
This Tax Tip was provided by Eric Joern with Kaizen CPAs + Advisors
Since 1964, Kaizen CPAs + Advisors has been committed to helping businesses maximize their profit potential and achieve long-term growth. Kaizen CPAs + Advisors operates as a trusted partner, offering CFO-level insight to support informed decision-making and business management, backed by robust information technology and a proactive approach. From tax strategy to cash flow management, Kaizen provides the tools and expertise to support small business owners at every stage of their journey, empowering them to focus on growth and success. Recognizing the unique needs of small businesses, Kaizen’s services are designed to bring the benefits of corporate-level financial strategy to companies of all sizes.
Learn more about how Kaizen CPAs + Advisors help business owners sleep easier knowing their financials are in trusted hands at kaizencpas.com
