If you own a freelance business, you need to be aware of the new reporting requirements effective Jan. 1, 2024 under the Corporate Transparency Act (CTA). This rule applies to you if you have a corporation, S-Corp, LLC or any other entity created by paperwork filed with a Secretary of State office. This is a business filing that is not related to tax filings in any way.
As of Jan. 1, 2024 you must comply with the CTA’s Beneficial Ownership Information Reporting Rule (Reporting Rule) and add your information to a federal database. This database will become a compilation of the information of the owners of the vast majority of small businesses and other organizations in the United States. The Reporting Rule is separate from tax return filings with draconian penalties for non-compliance.
This first-of-its-kind database will be maintained by the Financial Crimes Enforcement Network (“FinCen”) which is a part of the Department of Treasury. The database maintained by FinCen will not be publicly accessible, but it will be available to U.S. and international law enforcement agencies. The purpose is to help FinCen (the U.S. Treasury Department’s financial crimes unit) monitor the activities of businesses more closely to reduce related crimes.
Some states may also enact their own similar CTA requirements. New York is one state considering it, stay tuned for further updates.
The CTA Provides Specific Reporting Criteria for Freelance Business Owners
If you plan to create a freelance business entity after January 1, 2024 you will have 90 days from the date of formation to provide this information to FinCen and submit any changes in the beneficial owners must be reported within 30 days of the change. This includes changes to business owners’ licenses and driver’s licenses as well as any changes to the information listed below. Entities that existed prior to January 1, 2024, will have until January 1, 2025, to comply with the CTA.
Each reporting company will be required to provide FinCen with the following information for the individuals that (i) exercise substantial control over the entity, or (ii) own or control 25% or more of its ownership interests (any of these individuals are termed “beneficial owners” under the CTA):
- Full legal name of the individual
- Date of birth
- Current residential street address
- Unique identifying number from a passport, state identification, or driver’s license
- Image of the individual’s passport, state identification, or driver’s license
If you plan to create a new business entity after January 1, 2024 you will have 90 days from the date of formation to provide this information to FinCen and submit any changes in the beneficial owners must likewise be reported within 30 days of the change. This includes changes to business owners’ licenses and driver’s licenses as well as any changes to the information listed below.
Entities that existed prior to January 1, 2024, will have until January 1, 2025, to comply with the CTA. Companies created or registered on or after January 1, 2025, will have 30 calendar days to file their initial CTA reports.
If you are considering winding down a business, you may want to consider doing it before Dec. 31, 2023 to avoid having to file in accordance with the CTA.
Get Professional Advice to Avoid Hefty Penalties Under the CTA
The CTA and Beneficial Ownership filing is mandatory for most freelance businesses and non-compliance may result in significant fines of $500 per day (up to a maximum of $10,000 per violation) and up to two years imprisonment.
The best way to determine your reporting requirements for the CTA is to speak with a tax professional. You can review additional information here. Please be aware that this type of advisory engagement is a separate filing in addition to any tax filing or preparation fees.
