Empowering Healthy Business: The Podcast for Small Business Owners

#24 - Beneficial Ownership Reporting Requirements: New in 2024

• Cal Wilder • Episode 24

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There is a new federal filing requirement for 2024 that new and existing businesses must comply with, or else face hefty fines. Businesses are required to report the identities of their Beneficial Owners. This filing is typically made by tax CPAs or attorneys and must be kept updated. Greg Reed helps us navigate these new requirements.

More specifically, this episode includes:

  • What is Beneficial Ownership?
  • Beneficial Ownership is reported to a federal government agency (different from the IRS)
  • Penalties for failing to file and filing deadlines
  • How to file reports
  • The need to file informational updates 
  • Next steps for business owners


Book a meeting with Cal or Greg here: https://smartbooks.com/free-consultation/. 

Thanks for listening!

Host Cal Wilder can be reached at:
cal@empoweringhealthybusiness.com
https://www.linkedin.com/in/calvinwilder/


Moderator:

Welcome to the Empowering Healthy Business podcast, THE podcast for small business owners. Your host, Cal Wilder, has built and sold businesses of his own and he has helped hundreds of other small businesses. Whether it is improving sales, profitability and cash flow; building a sustainable, scalable and saleable business; reducing your stress level, achieving work life balance, or improving physical and emotional fitness, Cal and his guests are here to help you run a healthier business, and in turn, have a healthier life.

Cal Wilder:

Welcome back to the podcast, Greg, happy to have you back.

Greg Reed:

Thanks for having me. I think this is the third time now.

Cal Wilder:

Greg is Head of Tax at SmartBooks. In tax land, we all know sometimes you have to file tax returns and pay taxes so the government can generate revenue to fund its operations. And then there's sometimes we just need to make informational filings without necessarily paying any tax. Some of the episodes on Empowering Healthy Business here are really about becoming more profitable or saving money on taxes. And every now and then we have an episode that's just based around staying out of trouble. This is gonna be one of those episodes that's based around staying out of trouble, because in 2024 the federal government has introduced a new informational reporting requirement around reporting, filing, informational returns around ownership of businesses. Greg, you know, and they call it beneficial ownership, and I don't know-- it's kind of a term of art, I guess. Greg, what exactly is beneficial ownership in this context?

Greg Reed:

Yeah, so it's a new filing this year, starting in 2024. Beneficial ownership is defined, in this case, as anyone who controls at least 25% of a company or has substantial control over a company. And so, you know, you can kind of go down the line of, if you are an individual owner of a business that owns another business, you may indirectly be a beneficial owner of a specific company.

Cal Wilder:

So if you've got a husband and wife and one of them owns a business, does it mean the other one is also considered a beneficial owner of that business?

Greg Reed:

So it wouldn't be say, you know, say the wife is the owner and the husband is just the husband, then he necessarily wouldn't be the beneficial owner in this case. If he controlled 25%-- you have a lot of like 50/50 husband and wife partnerships or S corps-- then yes, they would both be beneficial owners in this case.

Cal Wilder:

And what if one of the spouses is not an owner, but is an officer of the business? Does that mean they're a beneficial owner?

Greg Reed:

Then you'd have to look at substantial control and to see if they have substantial control. And in that case, it might just be good to go ahead and report their information, because not reporting could be very expensive for the business.

Cal Wilder:

What's the downside of reporting? Why wouldn't you want to get your name on one of these reports?

Greg Reed:

There really is no downside. Again, this is more of a way for the government to crack down on shell companies that were created for illegal activities. There's no, you know, they're not going to, you know, come audit you or anything. This is actually not even a branch of the government that's related to the IRS. So this is, again, just cracking down on on shell companies that are being used for illegal activities.

Cal Wilder:

Okay, interesting. So what? What are these new reporting requirements for beneficial owners, and what do small business owners need to be aware of?

Greg Reed:

So once you determine who your beneficial owners are, who has control, it's pretty simple filing. You have to provide your name, address, ID, license number, copy of your license, and a few other smaller pieces of information. Nothing crazy. They just want to know the basics. And then if you change that information, you have to update these records within 30 days.

Cal Wilder:

So basically the government wants to know, or this branch of the government wants to know, who the controlling owners are of a business and how to identify them, right and track them down if needed, right?

Greg Reed:

I don't even know if there's any tracking down that's going to be going on, to be honest with you. I think that we just want to build a database of all the business businesses and all the owners. What they're going to do with that remains to be seen. But unfortunately, it's something that we are required to do.

Cal Wilder:

So the conspiracy theorists among us probably have some strong opinions on this, but there's nothing much we can do about it, right? Because if we don't make these filings, there's some pretty big penalties, right? We can get into the specific requirements and timelines and everything, but if you just ignore this requirement, what's the risk?

Greg Reed:

Yeah, so there's some pretty significant penalties. So if you fail to report this information for businesses that started prior to January 1, 2024 they have until the end of this year to report that information. They don't report by December 31 of 2024 then you're looking at a$500 per day fine, which could also lead into criminal penalties. So you're looking at up to a $10,000 fine or even jail time.

Cal Wilder:

Wow, OK, so this is a big deal. Does this reporting requirement apply to all businesses or are their exceptions?

Greg Reed:

There are exceptions, but generally, if you are a small business owner and you have either one or several owners, then you were likely going to fall under this filing requirement. Larger entities do not need to file because they're already reporting this information to another branch of the government.

Cal Wilder:

Large public companies, for example, they don't need to file?

Greg Reed:

The Targets and Walmarts of the world, yeah, they do not need to worry about this.

Cal Wilder:

Okay. So for all intents and purposes, people listening to this podcast, if they're a business owner or a spouse of a business owner who is actively working in the business, they probably need to file, right?

Greg Reed:

Yes. It's at least a good idea to meet with your attorney or tax professional and that you know this is a, in fact, a filing requirement, and if not, you know, make sure you document why. Because, as you alluded to, there are certain areas, certain industries that do not need to file, but only because those specific industries are already reporting the necessary information to another branch of the government that's then sharing that information with this branch.

Cal Wilder:

For a small business owner listening right now, what does the process look like? How do they actually go about filing the beneficial ownership report?

Greg Reed:

So you can go on to the FinCen website and file the information on your own, or you can engage with a CPA or attorney and have them file it on your behalf. That's probably the better option, only because it's even though it's not complex information, you know, it's certainly something that you don't want to get wrong.

Cal Wilder:

If I just started a business in 2024, incorporated it or organized, it filed the Articles of Organization with whatever state I'm in, how long do I have before, you know, before the deadline is to make this filing?

Greg Reed:

If you started a business in 2024 you have 90 days to get this filing completed.

Cal Wilder:

And if I'm an existing business that was organized before 2024 what's my deadline?

Greg Reed:

December, 31 of 2024

Cal Wilder:

Okay, so we've got, you know, most people listening probably have about 90 days or 80-something days at this point, to to make that filing Right? Exactly. And you could do it yourself. But it sounds like it could be a little bit tedious, and, you know, maybe you could do it yourself, but there seems like there's a lot of risk involved if you don't file you don't file properly. So it sounds like a pretty good idea to get some professional guidance, at least for the initial filing, right?

Greg Reed:

Yea, have an attorney do it, have your CPA do it. That way, again, the information required is not complex. It's name, address, ID, ID number, copy of your license, stuff like that. TheyJust want to know that you're a real person.

Cal Wilder:

You mentioned, Greg, that you're supposed to file an update when certain information changes. So what kinds of changes would would trigger a need to file an update?

Greg Reed:

So any any change to that basic information. So if you get married and your last name changes, that would be something if you move that would be something that you need to report. You know you're you, if you get a new license and the license number changes in. I'm not sure if that is something that ever happens, but anything from the original information that changes would need to be reported within 30 days of it changing. So I think the biggest thing is going to be when you have a partnership, or an S corp, or even a C Corp that changes ownership, if you bring on a new partner, then now you have to go in and make sure that you report that.

Cal Wilder:

So this sounds like kind of a pain in the neck to try to remember anything that changes that might have to...

Greg Reed:

Yeah...

Cal Wilder:

file again, and you only have 30 days. You said, right? You really need to remember this thing exists comply with it.

Greg Reed:

Yea, you need to be on the ball. And this is where it's important to communicate with either your attorney or your your CPA, if you're engaged with someone who you only talk to once a year, and you decide to tell them on April 15 that last year, by the way, we brought on a new partner, and we got rid of this old partner, it might already be too late.

Cal Wilder:

So I've seen, you know, some headlines around, some controversy around this, and can is Congress going to repeal it or modify it? Because it does seem very onerous for small business owners. Like it doesn't seem like it's a hard filing to do, necessarily, but it's one of those things you've got to remember to keep updated within only 30 days. It's unusual, it's new, or you're not filing with the IRS with your tax return, you're filing with a separate agency. So it seems like compliance can be challenging for a lot of small business owners, right? But you think this is here to stay?

Greg Reed:

Yeah, it got challenged in Georgia earlier this year, and it was deemed unconstitutional, but only for the groups that challenged it. Those specific groups aren't required to file this. But for now, it's it's here to stay. I was really hoping that it would have progressed a little bit further and that it would be gone by the end of this year. A lot of the literature that we read on our end was to hold off on filings until the end of the year, because it might get repealed. But, I mean, at this point, I think we got to go ahead and file and if it gets repealed, great, we don't have to worry about updating it in the future. But at this point, yeah, we got to get it done.

Cal Wilder:

Alrght, so we've got to get it done. So what do small business owners really need to do now to get ready? What are the steps that they need to take to prepare for filing requirements?

Greg Reed:

So step one, decide if this is something you want to do yourself or have a professional do once you get to that point. You know, obviously contact them and they can help you identify who the beneficial owners are, pull together the required information, and then going forward, they can at least help you stay updated on any changes that might come about. You know, if this does get repealed, or if the reporting requirements change, stuff like that. Um, but yeah, that's that's where I would start. Do you want to do this yourself, or do you want to hire someone to do it?

Cal Wilder:

Okay? Well, this is great. This will be a pretty short episode. A quick hit on this particular topic, Greg. Before we wrap up, you have any final thoughts or key takeaways for listeners?

Greg Reed:

Just that I know that's frustrating, and I know that it can seem like the government is really, you know, whacking us with yet another piece of compliance that you know is hurting small businesses. But this is something that we can't ignore, and it's, you know, remains to be seen is if the government is going to enforce these penalties or not. And we don't know if there's going to be a safe harbor for those, you know, oops, I forgot. So I would, I would not sit on this, and I would make sure that you get it filed ASAP.

Cal Wilder:

All right, so listeners, if you want some help getting this thing filed in the next 80-90, days or so, book a meeting with Greg. SmartBooksTax.com. You can book a meeting with him right on the website then, and he can help you navigate this new filing requirement. Look forward to having you back, Greg, when we can talk about something else.

Greg Reed:

Yes, we'll talk about tax savings next time.

Cal Wilder:

Reference show notes and find other episodes on EmpoweringHealthyBusiness.com. If you would like to have a one-on-one discussion with me, or possibly engage SmartBooks to help with your business, you can reach me at Cal@EmpoweringHealthyBusiness.com or message me on LinkedIn where I am easy to find. Until next time, this is Empowering Healthy Business, the podcast for small business owners, signing off.

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