Thanks to some recently passed legislation, 2024 will be a very different year for many small businesses when it comes to tax time. Small business owners may face severe penalties if they don’t report to the federal government by year’s end and may still need to learn it.
Thousands of businesses may need to realize they are subject to a new reporting process mandated under the Corporate Transparency Act, which was enacted in January 2024.
For most eligible businesses, the filing deadline is January 1, 2025, according to the U.S. Chamber of Commerce. Meaning that if they don’t file well before tax season actually comes around, they will be paying the consequences.
“Those who fail to file by this deadline—or fail to update this information if needed—could face up to two years imprisonment and fines up to $10,000, in addition to civil penalties of up to $591 per day,” the U.S. Chamber of Commerce website reads.
The Reasoning Behind the Legislation
Roger Miller of Mizick Miller & Company, an accounting firm serving clients throughout North Central Ohio, said the Corporate Transparency Act originally caught the attention of business owners when it became law in January 2021. However, three years passed before the new law became effective, which allowed any meaningful resistance or backlash to it to peeter out in the interim. Thus, the law is now being enforced, and many of the people who will be affected don’t even know about it.
“People really didn’t know about it until the end of last year,” Miller said. “It was out there, but no one really knew much about it.” Many of the state’s small business owners still don’t know if they’re required to report, according to Zach Chatlain, a CPA with Mizick Miller.
“If you filed something with the secretary of state or similar office to create your entity, you’re required to file,” Chatlain said.
That means even an owner of a single-member LLC is required to file, along with all corporations (including S corporations) and larger LLCs. Registering a home business with the secretary of state is a simple process for most.
Home Businesses in the Era of COVID
“I get new clients coming in all the time who have already done it on their own,” Chatlain said. “They go out there and get their own LLC automatically when they start a business or when they start selling lemonade. That’s kind of what everyone does now is just go get an LLC real quick.”
Some people forget they registered a small business, and others never thought to tell their attorney or accountant they had done so. Especially in the digital age of post-COVID, many people started their own businesses out of necessity, making it a commonplace thing, which led to the passing of the law in 2021 in the first place.
“People just create their own LLC, and we don’t know,” Miller said. “We don’t know they exist because they’re still filing under their Social Security number.”
Many attorneys and accountants have warned their clients about the looming Corporate Transparency Act deadline, but they can only talk to the ones they know about. For the accountants at Mizick Miller, small businesses make up about 90% of their clientele.
About half of those companies are one-person operations, like maids and landscapers, who had no idea the federal law was affecting them.
What Meets the Definition of a Business?
According to the U.S. Chamber of Commerce, businesses that meet the reporting criteria must submit a Beneficial Ownership Information Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
The law was created “to combat illicit activity including tax fraud, money laundering and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market,” the chamber website explained.
If someone wonders if they may have created an LLC for themselves in the past, they can check online. “Go to the secretary of state and see if there’s a name in there,” Miller said. “We’re recommending, even if they’re inactive, to file.”
Anyone unsure about the process should contact their attorney or accountant. The alternative is to wait and see how serious the federal government is about penalizing those who fail to comply.
“We don’t know what they’re going to do,” Miller said. “They sure scared everybody.”
