Preparing for the New Year- Corporate Transparency Act

As the end of the year approaches, I assess what I need to do before the end of the year as a business owner. This often comes with meetings with experts, bookkeepers, CPA’s, business specialist, attorneys, etc. Honestly, it isn’t my favorite part of the job. I prefer sitting face to face with clients solving problems, but the tasks are necessary to ensure the stability of the firm for next year.

What should you be doing at the end of the year? I’m no income tax professional, but if you’re wondering if there are any strategies you should employ to ensure you’re paying the correct amount of taxes before the end of the year, you should reach out to your CPA. Don’t wait until April. Your CPA can offer great advice about where to direct money to reduce your income tax liability. Many of these strategies need to be executed before year end, so time is of the essence.

If you have a financial advisor, they also can provide insight about things to do before year end such as Roth conversions or funding a donor advised fund. A meeting with your financial advisor can also help you establish plans and financial goals for the upcoming year.

There are two things we’re discussing with our clients this year. This is lengthy, but please read to the end as this information will be invaluable to you.

1. Corporate Transparency Act: To combat and securities fraud, money laundering, and other reasons, I’m sure, the legislature has enacted the Corporate Transparency Act (CTA). This act requires Corporations, Business Trust Cooperative Associations, Limited Liability Companies (LLC), Series LLC’s, Limited Partnerships (LP), Limited Liability Partnerships, Limited Liability LP’s and Decentralized Autonomous Organizations (DAO) and Beneficial Owners and Company Applicants – Persons owning, directly or indirectly, 25% or more of any business or who has “Substantial control” over a business, and “company applicants” which are lawyers, paralegals, CPAs or other third parties who form entities on behalf of a Reporting Entity. That seems like everyone, however, some are exempt, sole proprietorships, Estate Plan Trusts, General partnerships, and other regulated business entities such as non-profits, financial institutions, to name a few. Another exempt category requires a company to 3 characteristics:
   1. A physical United States address
   2. Have over 5 million in gross receipts on most recent tax filing, and
   3. Have at least 21 full time equivalent employees

The government has set up a system through which companies will report called the Beneficial Ownership Secure System (BOSS).

Reporting Entities must provide:

1. Legal Name
2. Trade Name(s) and DBA(s)
3. Current U.S. address at a principal place of business
4. Jurisdiction(s) where filed (original state or tribal jurisdiction) and all foreign jurisdictions
5. EIN or TIN number

Beneficial Owners and Company Applicants must provide:

1. Legal name
2. Date of birth
3. Current United States address
4. Unique identifying number with issuing jurisdiction
5. Image of a US passport, drivers license or other identification document issued by a state, local government or tribe.

The CTA becomes enforceable on January 1, 2024. Entities in existence before January 1, 2024, have one year to comply. For entities created in 2024, the entities have 90 days to report. For entities created in 2025 and after, Beneficial Owner and Company Applicants will have 30 days to comply. Additionally, if any required information changes, that change must be updated with within 30 days change, as long as the Reporting Entity exists.

If you don’t comply the penalties are staggering. $500.00 per day per entity or beneficial owner up to $10,000, you can also go to jail if you refuse to comply. If you don’t stay up to date on your filing, they can assess a penalty for each time things changed and you didn’t file.

If you own a business, please reach out to your CPA, accountant or attorney as soon as possible to discuss these things.

2. Estate taxes: The end of this year brings us one year closer to the estate tax exemption sunset planned for the end of 2025. Right now, you can give away $12.92 million dollars estate tax free, per person, so $25.84 million for a married couple. At the end of 2025, that exemption is set to fall to $5 million per person. Some believe this won’t come to fruition. Right now, it would take an act of congress to change it. If Congress does nothing, we’re stuck with the $5 million exemption.

Some also think, “This wouldn’t apply to me.” You might be surprised. Look at your net worth once you’ve passed. For many of us, we’re richer dead than alive because our net worth for this calculation includes money you, or your family would receive from life insurance proceeds, and the value of non-liquid assets such as real estate, farmland, and business ownership, to name a few.

Why does this matter? It matters because 1. You never know what the exemption might be when you die, and you don’t know for sure what your net worth will be when you die at some point in the future. 2. Estate tax can be up to as much as 40% if you’re over the limit by $1,000,001. If you’re have $1,000,001 over the exemption, the estate tax on that $1,000,001 will be $345,000 plus 40%. Therefore, in this scenario, a whopping $745,000 will go to the IRS. There are ways to keep that from happening if you plan before the exemption plummets.